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.

Air New Zealand withdraws the Fokker F-27 Friendship

The Fokker F-27 Friendship was the most successful Dutch built airliner in history, and one of the pioneers of short haul aviation in the turboprop/jet era. It first flew in 1955. In many countries the F27 opened up regional air services offering turboprop speed and efficiency with a pressurised cabin, powered by the revolutionary (for its day) Rolls-Royce Dart engine.

In New Zealand, the F-27 replaced the piston-powered Douglas DC-3 on regional routes, and launched services to Dunedin's then new Momona Airport in 1962.  NAC flew thirteen of the F-27 100 series and five of the F-27 500 series, and became the mainstay for flights to all airports outside Auckland, Wellington, Christchurch, Dunedin trunk services.  Air NZ flew the aircraft until 1990, after which it flew some regional routes with Boeing 737-200 aircraft (notably Hamilton, Napier, Palmerston North and Invercargill), but also let its subsidiaries Air Nelson, Eagle Airways and Mount Cook Airline take over the routes with their aircraft.

The choice of the F27 was in spite of pressure from the British Government to the New Zealand Government to buy the British-made Handley-Page Herald. The Herald was in many ways similar to the F27, that first flew in 1955, but with one critical difference - the Herald was powered by piston-engines, whereas the F27 was powered by turboprops (which at the time were "state-of-the-art" having already launched a new era of air travel with the Vickers Viscount, which NAC had already ordered and was operating on main routes). Handley Page thought that moving to the new technology was too risky, but the Rolls Royce Dart turboprop engine was already proven on the Vickers Viscount, and the Dutch Fokker company's choice was the same engine. Handley Page had no orders for the Herald by 1958, when it decided to reconfigure the aircraft to accommodate the same engine.  By then the F27 was already flying. Ultimately, the Handley Page Herald was a commercial failure for the manufacturer.  Production stopped in 1968 with only 50 built, whereas the Fokker F-27 Friendship was produced until 1987 with 586 built.  The HS748 was produced until 1988 with 380 built. Handley Page went into receivership in 1969, and was taken over by aircraft engineering firm Scottish Aviation, until it was merged into British Aerospace in 1977.  The Fokker F27 Friendship could carry a larger payload, and so for NAC there were never any regrets in rejecting pressure to buy British (the same pressure would be brought to bear ten years later for the BAC 1-11, but was ignored in favour of the Boeing 737-200).

The F27 revolutionised transport between the regions and the main centres, linking towns like Kaitaia, Gisborne, Westport and Whakatane to Auckland, Wellington and Christchurch in a matter of an hour or so, and while in the 60s and 70s it was mainly the preserve of business and wealthier travellers, by the 1980s flying to regional centres was becoming more mainstream.  The number of regional airports opened up by the F27 was considerable.  From north to south they flew to Kaitaia, Whangarei, Hamilton, Tauranga, Whakatane, Rotorua, Taupo, Gisborne, Napier, New Plymouth, Wanganui, Palmerston North, Nelson, Blenheim, Westport, Hokitika, Timaru, Oamaru and Invercargill. They also flew international services from Auckland to Norfolk Island for some years.  

This post has a series of articles following the announcement of the retirement of the aircraft in 1990. The descriptions are under each article.

This first article is written by former NAC Chief Executive Doug Patterson who writes on how the policy of NAC was to use profits from the main trunk services (operated by Boeing 737-200s) to cross-subsidise unprofitable regional routes (operated by F27 Friendships).  He claimed in NAC's last year it lost $7.093m on provincial routes, offset by profits of $7.825m on main trunk routes.  He noted the biggest losses were services from Napier to Auckland and Wellington losing $1.14m, Auckland-Hamilton-Wellington losing $0.974m and New Plymouth to Auckland and Wellington losing $0.887m.  He noted that even in 1978 steps were "being taken" to surrender some lightly patronised services to other operators, including services with five or fewer passengers.  Patterson's article appears critical of the deregulation of the sector and especially critical of the Lange Government enabling Ansett to operate domestically in New Zealand and blames this for the demise of the F27 Friendship services.  He projected many regional centres would be served by very small aircraft with no room to stand up on board, and of course he was largely proven wrong. He said New Zealand didn't have the population to support competition and multiple carriers, but this would also be proven wrong. Regional routes were made profitable by Air NZ's subsidiaries, and are profitable today, although some routes have been abandoned by the airline (notably Oamaru, Whanganui, Westport and Kaitaia). 

The Evening Post on 4 August 1990 wrote its editorial "Farewell to Friendships".  It noted that as Air NZ had been privatised, it no longer was obliged to run unprofitable services and competition from Ansett NZ was making it difficult to sustain lightly patronised regional routes with 48-seat aircraft. It noted that competition had been good, as it forced Air NZ to refurbish the old terminal at Wellington, and the arrival of airbridges, more reliable luggage collection and inflight snacks were all welcomed.  The editorial did note Wellington would get more noisy Boeing 737 flights as a result, but it also meant 600 jobs would be lost, months out from the 1990 General Election (which Labour lost in a landslide)

The Dominion editorial of 20 August 1990 also noted that competition from Ansett New Zealand is the reason Air NZ was phasing out F27 services, as it couldn't sustain being competitive on the trunk whilst cross-subsidising the F27 services.  It described some elements of competition as expensive silliness, like in-flight meals, business class and in-flight alcohol. It isn't dismissive of the changes, but does suggest that letting Ansett NZ fly in NZ was an expensive mistake, and it could result in a loss of some Air NZ international services. 

This article by Roger Foley describes the story behind the choice of the F27 by NAC.  It noted the only serious accident for the type for Air NZ was in 1979 when one landed short at Auckland, killing the pilot and flight engineer.  It also notes that Air NZ's maintenance of the type saw it win contracts with overseas operators. The article notes former NAC CEO Doug Patterson's dismay at the entry of Ansett NZ as competitor, undermining the old model of Air NZ subsidising regional services with the main trunk, as he wondered "what sort of services" cities like New Plymouth would now get. Of course, Air Nelson, Mount Cook Airline and Eagle Airways under the auspices of Air NZ would ensure most regional routes would thrive with higher frequencies and lower fares than ever before.

50 years since NAC - last flight of the HS748 - first 777 to NZ

The National Airways Corporation (NAC) was formed in 1947 by the first Labour Government by nationalising a number of smaller private airlines and using transport aircraft of the RNZAF.  It was set up to be the statutory monopoly domestic airline, but also short-haul international services in the South Pacific until 1955.  The article from 1997 commemorates 50 years since it was set up, but of course it was merged with the, up till then, international only, Air New Zealand, in 1978. 

NAC reflected a philosophy of central planning of the expansion of domestic airline services across New Zealand, by a state-owned monopoly carrier, which was expected to operate at a modest profit, and accompanied development of airports across the country. It culminated in 1966 when Taupo and Oamaru were added to the network.  

The article paralleled launch of a book by NAC's last general manager, Doug Patterson, who passed away in 1993. It summarises the history of NAC.

26 May 1997 - Evening Post - 50 years since NAC formed

On 13 February 1996, the Dominion noted the last flight of Mount Cook Airline's Hawker Siddeley HS748 into Wellington, as it was replaced by the ATR72.  It also noted the first arrival of a Boeing 777-200ER (of Cathay Pacific) being flown for certification purposes. Boeing 777-200ER would become a frequent visitor to NZ in subsequent years, and Air NZ would acquire a fleet of them and operate them from 2005 to 2021.

DC-3s - Fieldair ends and Classic Air proposes to fly DC-3s

 

29 March 1993 Evening Post DC3 grounded

The Douglas DC-3 was one of the most revolutionary airliners in history, which enabled the rapid expansion of airline services in many countries, including in New Zealand, for NAC, expanding domestic services across the country.  The DC-3 first flew with NAC in 1947, and 27 flew with the airline before it was phased out on main trunk routes by the Vickers Viscount from 1958 and by the Fokker F-27 Friendship from 1960, but NAC flew DC-3 aircraft until 1974, with remaining aircraft used to service airports with unsealed runways (notably Timaru and Oamaru).  After withdrawal by NAC, DC-3s were used by a handful of other operators including notably Fieldair which converted some for aerial topdressing.

This first article reports in 1993 on what were, at the time, the last commercial flights by Douglas DC-3s in New Zealand. Fieldair shut down its Cook Strait freight service. Fieldair had previously used the aircraft for topdressing.  3rd Level NZ blog tells more about its history.

The second article (below) is a report about Classic Air, which proposed to operate passenger DC-3 aircraft equipped with a luxury cabin for organised tours for wealthy tourists. It is unknown what happened to the venture

3 February 1994 - Evening Post- Classic Air