In 1990: Can Air New Zealand compete?

In another of a regular series of articles on aviation, Martyn Gosling of the Dominion wrote the article below about Air NZ which was fundamentally based on whether or not it could succeed against competition, following its privatisation in 1989.

Some key points from the article are:

• Air NZ spends more promoting tourism to NZ than all other entities put together
• The airline has a strong reputation with the public, based mainly on its international service.
• Its reputation domestically was different, in part because it flew from the old terminal in Wellington, with poor service (noting the infamous pack of cheese that was difficult to unwrap and highly processed (and with little taste).
• A brief history of major challenges to the airline in recent years. Including Erebus in 1979, the Christmas 1984 cabin crew strike and the emergence of Newmans Air then Ansett NZ.
• Arrival of Ansett NZ as majority foreign owned was "unprecedented" for domestic airline access anywhere in the world, noting Australia wouldn't let Air NZ fly domestically in Australia. Air NZ fought back against Ansett NZ, with airbridges and on-board meals, and Ansett took over 100% of Ansett NZ as Brierleys pulled out. 
• Privatisation of Air NZ was a sale to Qantas, American Airlines and JAL, not British Airways as Air New Zealand wanted.  Apparently Australian and NZ government were both interested in a Qantas-Air NZ merger, so it came that Qantas owned 25% of Air NZ.
• Industrial relations remain fraught, with the latest issue being pilots refusing to crew the airline's Boeing 747-400

Fundamentally the article has little of substance to support any analysis as to whether Air NZ would thrive under competition or not.  It clearly was doing ok on domestic services, but there is little comment about international. 

The neighbouring article accurately summarises the airline's history from the days of flying boats.  It noted the airline chose to buy smaller airlines to replace Fokker Friendships. It notes some of the key competition challenges for the airline faces, notably:

• Domestic competition
• Noise restrictions emerging especially at Wellington Airport (affecting operation of Boeing 737-300 series - this was subsequently addressed by the airline buying hush kits)
• Acquiring third-level airlines (Air Nelson, Eagle Airways) to take over regional routes from its own Fokker Friendship fleet

It was noted that at the time of the article (April 1990), Air NZ's fleet comprised of:

• 5 Boeing 747-200
• 7 Boeing 767-200ER
• 11 Boeing 737-200 (including some Advanced series, although the article mistakenly listed them all as such)
• 10 Fokker Friendship F-27 500
• 5 Fokker Friendship F-27 100 (being phased out)
• 1 Boeing 747-400 (leased out to Cathay Pacific)

On order were:

• 2 Boeing 747-400
• 5 Boeing 767-300ER (although that type was not specified in the article)
• 6 Boeing 737-200 Advanced (called "quiet", which was a misnomer as the Boeing 737-300 order did not come for some years)

Wellington Airport: the saga of the domestic terminal

The saga of Wellington's domestic airport terminal was one from the 1960s through to the end of the 1990s, and one that more recent generations know not of, but it was the embarrassment of the 1970s and 1980s for Wellington in the way that water infrastructure is looking like in the mid 2020s.

When Wellington Airport was opened in 1959, its (then only) terminal was a temporary building, having been a De Havilland aircraft factory from the 1920s.  It has a range of characteristics that became infamous over the years. It would leak, it was draft ridden and in winter, cold.  All aircraft were boarded using steps as entrance onto the tarmac was at ground level.  In 1977 a new international terminal was built adjacent, as part of a plan to rebuild the whole terminal, but as it was a joint central/local government venture, there was no agreement on which entities would pay how much to pay for new capital investment. The international terminal served on average one or two flights a day at the most, and only to Australia.  It wasn't until Ansett New Zealand emerged on the scene in 1987, intending to build its own separate new terminal (adjacent to international), that the old terminal got significantly refurbished, at the cost of Air NZ, keen to not be seen to have a second-rate terminal.  It introduced airbridges, carpet, a lounge and improved the lighting and heating considerably.

However, the present day terminal emerged as a result of reforms starting in 1988 to corporatise and subsequently in 1998 part privatise the airport, so that it could operate as a business, borrow against landing charges and revenue raised from airlines, retail concessions and parking.  Political arguments and finger pointing between central and local government ended immediately, as it was clear the airport could raise the finance and pay for a new terminal itself.

In 1999 the new terminal opened, integrating the international and Ansett buildings into one, and is the terminal known today.

Below is a series of clippings highlighting some of the moments in recent history surrounding the debate over replacing the terminal.  I have a great deal more of this in my files that I have yet to dig out, so apologies for the haphazard nature of it...

The "Tin Shed Report" was a multipart series of articles in the Evening Post in 1985 questioning why there has been no progress on a new terminal.  The first was the Managing Director of Challenge Properties (which would later merge with Fletchers to become Fletcher Challenge) proposing that it be a property development that it could lead, but local politicians thought its proposals were "unrealistic". The second article was the then WCC Design Engineer discussing the Challenge plan, including plans for commuter airlines to use the international terminal check-in (which was underutilised with only one or two flights a day). The third article was then Miramar electorate MP, Labour's Peter Neilson describing how the Council had prioritised the international terminal and then a runway extension over the domestic terminal replacement.  WCC had called for the Government to fund its proposed runway extension as a priority, but the Government had rejected it (the local pressure at the time was due to Air NZ having dropped international flights from Wellington, as it had disposed of its McDonnell Douglas DC-8 aircraft and neither DC-10s nor Boeing 747-200s could operate 

The then Lange Government had proposed that funding for a new terminal would be split evenly between Central Government and WCC, and was dependent on WCC accepting a more corporate structure for Wellington Airport (within three years the Government corporatised the airport, along with corporatisation of multiple airports around the country).  At the time the concern was that WCC was delaying progress in agreeing on a new corporate structure.

2 October 1985 Wellington airport terminal

This truncated part of the editorial in 1985 had the Evening Post view of the time, which was that WCC wanted Wellington to be a "special case" that should get full government funding for a new terminal, which was not the government's position at the time.

14 October 1994 - success of Wellington Airport company

The corporatisation of Wellington Airport was reported by the Evening Post to be a success, with a modest profit.  Note at the time it was 66% owned by the Crown and 33% by Wellington City Council.  The editorial notes some would say "who would want to buy it" if it were privatised, given constraints on its location.  It noted the airport company has increased landing fees, increased income from retail concessions and parking, and cut spending. It notes new airport terminals will be built in four years.  The editorial indicates if more airlines are to come to Wellington, the airport has to improve.

Cook Strait News 25 July 1994

Cook Strait News was a local eastern suburbs newspaper in Wellington. This ad from the airport company reports on its twenty-year masterplan depicting visually how it intends to use its land.  Perhaps the most notable part that did not proceed, is bridging over the Cobham Drive end of the runway.

On the eve of the opening of the new terminal in June 1999, the Evening Post produced this two page cutaway of the terminal, with some history and statistics. By this time Wellington International Airport Limited was 66% privately owned (Wellington City Council retains a 33% shareholding). It would be fair to say, the transformation is unrecognisable compared to the "old tinshed"

1990 - Does Air New Zealand need to make a major fleet decision?

In 1990, Martyn Gosling wrote in the Dominion that Air NZ needed to make a major decision about its international aircraft fleet soon to "replace its entire fleet". It came to pass that the decision it actually made was to acquire the Boeing 767-300ER, but the article focuses heavily on the Airbus A340, which the airline did not buy.  The article appears driven by Airbus saying that unless Air NZ orders the Airbus A340 soon, it will not be able to get any until the mid or late 90s, and that would mean Air NZ would be "forced" to pay more, to buy a Boeing aircraft sooner.  The article claims the airline needs to consider replacements for its Boeing 747-200 fleet and Boeing 767-200ER fleet for the late 1990s.  In fact, the 747-200s were not phased out completely until 2000 and were replaced by Boeing 747-400s, that had initially been leased to Cathay Pacific (due to an industrial dispute), and the 767-200ERs were not phased out until 2005.

The article notes that Air NZ had been privatised in 1989 to a Brierley consortium including Qantas, JAL and American Airlines, and speculated that airline management had been focused on business other than fleet replacement, including the floating of 30% of the airline's shares on the stockmarket.  There are questionable claims, like how the Airbus A340 would be an "ideal" complement, to the 747, although later experience indicated that it was a poor alternative to the Boeing 777 (although this would not appear in Air NZ's fleet until 2005).

A good deal of the article appears based on Airbus marketing, as it was frustrated that Qantas did not order the Airbus A340, and touted it as "missing out" on the latest technology and lower seat costs. Airbus was also selling the A330, at the time it was seen as a medium-haul wide body in competition with the 767, with the A340 being for long haul (with four engines in the age before ETOPS gave the A330, 767 and 777 permission to render the A340 and eventually 747 redundant).  Airbus appeared frustrated that Air NZ had never ordered from it (and it did not until its first Airbus A320s arrived in 2003 to replace Boeing 737-300s on short-haul international routes. 

It was noticed that 1990 was a period with high demand for new aircraft.  Apparently Continental Airlines (which subsequently pulled out of NZ, and merged with United in 2012) claimed it would fly A340s from LAX to AKL (it did not).  The Airbus A340 was not introduced into service until 1993, and although it had some early success, it was overshadowed within a few years by the Boeing 777 and production ceased in 2012.  

The article notes availability of the McDonnell Douglas MD-11, but it is described as "interim technology" (and its performance was underwhelming compared to the Airbus A340.  It warned that Air NZ better order aircraft soon or it would have a "fleet of old buses".

In conclusion, the article proved wrong. Air NZ ordered the Boeing 767-300ER as its mid-sized long haul aircraft and operated them from 1991 to 2017, primarily to Asia, but also to Perth and the stopping services across the Pacific such as AKL-PPT-LAX and AKL-RAR-LAX.

Competition between NZ and the US: Air NZ-Qantas co-operating against foreign competition, new air services agreement with the USA and withdrawal of Pan Am from NZ

These three articles from the late 1980s focus on international aviation to New Zealand, and reflect upon the changing competitive environment. 

The first from 1988 reflects on large airlines in Europe and the US seen as likely to consolidate and become mega-carriers that threaten the competition of Air NZ and Qantas. Ultimately this would lead to the emergence of the three big airline alliances in the late 1990s (Star Alliance which Air NZ joined, OneWorld, which Qantas helped fund and Skyteam).  However, this article focuses primarily on whether Air NZ and Qantas could join forces to fend off US competition. Bear in mind that at that time, Qantas was solely an international airline (Australian Airlines remained the Australian state-owned domestic carrier competing with Ansett). Qantas was seen as much greater risk from competition, given demand for flights between the US and Australia, compared to New Zealand.  The claim was that the US-Australia/NZ market could get completely dominated by US carriers, which did not ultimately occur. It noted United made a net loss on Pacific routes of $70m (NZ) in 1986. Noted was that the key to Air NZ's success to/from the US was feeding Australia, which remains the case. 

The second reports on a newly minted air services agreement between the US and New Zealand that reflected the US being open to New Zealand's recently liberalised domestic airline market and approach to competition. It details the freeing up of restrictions on capacity and pricing (which still needed government approvals, but accelerated them) and noted that Air NZ would have more access to the US, with new airports it could fly to.

The third is a slightly older short article reflecting how Pan Am was withdrawing from New Zealand in 1986. Pan Am sold the rights to fly to the South Pacific to United Airlines, and would ultimately cease operations in 1991. It had started flying to NZ in 1937.

Dominion 12 February 1986

Air NZ's bid for Ansett Australia

Air New Zealand's interest in the Australian domestic airline market emerged in the 1980s, in part responding to Ansett New Zealand's entry into the New Zealand domestic market, but more importantly because it was seen as a feeder to Air New Zealand's international services.  For some years it simply wished to operate domestic flights itself with international aircraft, but after the collapse of the agreement to form a single aviation market in 1992, the emphasis shifted to acquiring an interest in Ansett Australia.  This ultimately would prove to be ill-fated.  Below are a series of articles about the pursuit of access to the Australian domestic market and Ansett.

Evening Post 7 October 1987

This report notes Air NZ's view that the NZ domestic market could not sustain two airlines, and its desire to seek reciprocity. It noted the Australian Government's decision to abolish its "Two Airline Policy" that kept most Australian domestic routes under a regulated duopoly of Ansett and Australian Airlines (once known as TAA, and later acquired by Qantas).  Curiously the view at the time in Australia was that deregulation would mean Ansett would become the dominant airline in Australia, because Australian Airlines being government owned hobbled its commercial capabilities, and ability to raise capital (this would be clearly resolved by enabling Qantas to acquire it).  At the time Air NZ said it had "plans for a domestic airline" in Australia, which of course would never come to pass.

This 1995 report noted Air NZ was seeking to buy TNT's shareholding in Ansett Australia. It had been pursuing Newscorp's 50% shareholding, but that did not proceed. TNT's shareholding was reportedly worth NZ$450m (a drop of $100m from the Newscorp bid, because Ansett's operating profits had dropped significantly.

Evening Post 31 January 1996

27 October 1995 Dominion

Why the fuss over Air NZ's bid for Ansett Australia?

Accelerate to 1996 and Air NZ's was seeking to by 50% of Ansett Australia, but faced opposition in Australia and the question of ring fencing Ansett New Zealand (as this was obviously its key domestic competitor in New Zealand). The Commerce Commission was concerned in particular about the latter (it had no interest in the Australian domestic market, and did not believe it would negatively affect the international market. It was also noted that Air NZ (then fully privatised) was 65% owned by NZ shareholders with the largest of those itself being majority foreign owned. 

The Commerce Commission noted the benefits that Ansett NZ brought to the NZ domestic market including improvements in service quality, but also significant reductions in real airfares compared to when Air NZ was the sole operator on many routes.  Some facts noted were:

• Ansett New Zealand was set up with 800 staff and built three terminals itself
• 28 airlines were registered to provide scheduled air services in NZ in 1996
• Air NZ provided 620 flights per week on trunk services, with Ansett NZ providing 490 services
• Air NZ had a 60% market share on the main trunk (80% on regional routes)
• 60% of domestic airline tickets were sold by travel agents (this was very much before the internet had become a platform to sell airline tickets)
• 43% of Trans Tasman capacity was provided by Air NZ with 38% by Qantas, other operators on the Tasman at the time were Thai and United

Boeing 747-400 ordered by Air NZ, review of the 747-400 and Qantas gets the 747-400

The Boeing 747-400 was a major step forward for long-haul international travel worldwide because it was significant improvement in range.  It enabled non-stop flights between Australia and New Zealand and North (and South) America and one-stop flights to Europe.  Air NZ flew them from 1990 until 2014, and they were the flagship of the airline throughout that period. From 1990 until 2004 they had first, business and economy class, and then were refurbished for the business premier, premium economy, economy.  The AKL-LAX-LHR route flown by it until 2011, and it also flew the AKL-HKG-LHR route for a while, until it became clear that LHR-HKG had insufficient loads to justify the aircraft's size. Its final regular route was AKL-SFO.  

Multiple airlines flew Boeing 747-400s to NZ. Qantas had a large fleet of them, but rarely flew them to NZ (as they were for long haul routes).  However, Singapore Airlines flew them regularly, as did Malaysian, Thai, Cathay Pacific, Korean, British Airways and United at different times. Today Lufthansa is the biggest major passenger operator of the type (excluding cargo versions).  694 Boeing 747-400s were delivered, compared to 393 of the Boeing 747-200 (which Air NZ flew first), 168 Boeing 747-100s and 81 Boeing 747-300.  Of course the Boeing 747-8 was the last version, but only received 155 orders, mostly for freighter varieties.  Most Boeing 747-400s flying today are freighter aircraft.

The articles below focus on different elements of the aircraft before it started flying with the airline. 

The first was focused on claims that the 747-400 is no more efficient than the 747-100 (which simply wasn't true due to the savings of fuel and time from greater range) and wouldn't reduce airfares (although it real terms international airfares dropped significantly from 1990 through to 2010).  

The second concentrated on the travel experience, with an article below reporting the first 747-400 flight to NZ, which was from Qantas on a scheduled service from Sydney (its first scheduled service, as Qantas flew Trans-Tasman services for several weeks to train crew and to test systems effectively).

The third is a short piece depicting the then Air NZ CEO Jim Scott in the new first class on the first Air NZ 747. 

Dominion 12 October 1988

This first article is a report by Martyn Gosling claiming that Air NZ's forthcoming 747-400s would not be more efficient than earlier model 747s. Noting its 13,000km range, Boeing claimed it used 25% less fuel per passenger than first generation 747s. It was noted Air NZ would receive its first 747-400 in July 1989. Much of the article discusses performance, with a lot of commentary about British Airways factoring in the economics of the aircraft. It was noted it could fly Auckland-Dallas non-stop.  Ultimately, of course, the 747-400 was the most successful model of the type, and would be a stalwart of most major international airlines for many years.

This second article focused on the passenger experience of the 747-400.  It claimed that airliner seats (in economy class) were no wider in 1989 than there were in 1959.  It follows briefly the history of airliner travel to 1989. The article notes the 747-400 will make flying cheaper in real terms than ever before (which was correct), but that it flies no faster than the Boeing 707. At the time 215 had been ordered.  It claims that although first and business class will be the best ever, economy class will be the worst, because of very long flight sectors with the greatest level of dehydration and jet lag.  It noted 747 economy class seat width was 17.2 inches, the same as Boeing 707s.  However, seat pitch on 707s was generally 35-36 inches with 3 inches of seat padding, but at the time 747s would have 32 inch seat pitch with 2 inches of padding (today many long haul airlines have only 31 inch pitch). Concern was expressed about dehydration and passengers not wanting to get up to exercise. It was noted Air NZ would have 34 inch seat pitch in economy, which it did and was one of the best of any international airlines.  The longest flight Air NZ planned to operate the aircraft was Los Angeles-Sydney (which Air NZ did operate direct for many years). 

There is also a short report on the first 747-400 to land in NZ, which was from Qantas. 

This short place depicts Air NZ's first Boeing 747-400, with the then CEO Jim Scot trying out the new first class cabin (with large recliners that did not lie flat, as this was not commonplace until the late 1990s). However, it was noted the airline was not going to operate them, due to industrial relations, so would lease them to Cathay Pacific

Air New Zealand comments on Australia withdrawing from a single Trans Tasman Aviation Market

Although the 'underarm incident' in cricket was once described as the lowest point in Trans-Tasman relations, it was actions by Australian Minister of Transport, Laurie Bremerton, in 1994, that took things close to that point.  

In 1988, the Closer Economic Relations (CER) agreement between Australian and New Zealand added the Trade in Services Protocol, but Australia expressly excluded aviation.  That was in part because Australia's domestic aviation market was still heavily regulated (the "Two Airline Policy"), but New Zealand had already removed capacity restrictions in 1983. 

In 1992, both countries concluded a Memorandum of Understanding (MOU), which lifted capacity restrictions across the Tasman, introduced multiple designation and a double disapproval tariff regime, and set out a phased liberalisation towards full trans-Tasman market access and greater beyond rights by 1994. The MOU also contained a commitment to consult on the subsequent full exchange of beyond rights and cabotage rights.  In effect it would mean Air New Zealand could fly domestically in Australia, which was reciprocity for Ansett New Zealand operating domestically in New Zealand (and of course Qantas could fly domestically in New Zealand as well, if it wished).

Australia withdrew in 1994, through a fax sent to the New Zealand Minister of Transport, Maurice Williamson.  The reason was because the Australian Treasury recommended withdrawal because it would affect the price to be obtained for the pending privatisation of Qantas. Australia would sign a single aviation market agreement in 2001.

After Australia withdrew, Air New Zealand bought this full page ad to comment.