In a situation like ours, if you don't develop some agility, you just can't get stuff done. When people see me and want to engage with me, and it's not because they lost their bag. It's usually about, hey, what can we do about getting back to London, for example. In all likelihood, the sort of airline ecosystem, in my view, is going to be a challenge in some areas like engines and spare parts for probably two plus more users.
Welcome to supplants. Today we look at the most popular investment on Cheersy's in New Zealand. I'm here at the headquarters in Auckland and I'll be talking to CEO Greek Forum.
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Welcome Greg to the program. It's great to be here in Auckland at your place in New Zealand. It's been a few weeks since the results were out and they're always pretty busy for someone like you. There's with our national carrier being what a your New Zealanders. There's always a fair bit of reaction opinion about what you should and shouldn't be doing. How have you found that so far?
To be honest with you, it's been reasonably as we expected, and that's what we endeavored to do. We came in, by and large, give or take, in the middle of guidance,
just above it and above the midpoint. So I've had an enjoyable week actually getting around and talking to people, adding a bit of color into the results, which is really what people are after, because you know, when you go from five eighty five million to two hundred and twenty two million, ninety million worth of COVID credit, explain to us really what's going on? And I enjoy doing that.
Air New Zealand's got a big base of retail investors. The thing about it, though, is that they're not only investors, they're often consumers as well. And the reality is most of the time it's an emotional buy. So how does Air New Zealand balance that and take some responsibility? Yeah?
I think you do it very carefully, don't you. I think Air New Zealand is a little bit unique in many aspects, and you know, when you think about those five stakeholder groups that we often talk about customers, how
we in New Zealand, staff, suppliers, community and shareholders. Everything is at a different elevation, possibly to many other businesses, because you know, the government owns fifty one percent, and therefore you know, there's a heck of a lot of people, even if they don't directly own shares, in directly owned shares, who are also customers and in many cases our staff. You know, it's a highly unionized business. It connects with
twenty ports domestically, thirty internationally. It holds a pride and place and joy in people's hearts. It fulfills a really important purpose. And you know, and we deal not just with the likes of the big boeings and the air buses, but you know, we've got about fifteen or twenty local companies that produce snacks and beverages on our planes and
indirectly feed tourism. So we are integral to what happens and everything, as I said, comes with this sort of elevated level of scrutiny, and there's a really exciting part to that because it means you've got a lift your performance and then there are some challenging bits if you don't get it right.
So have you got it right so far?
I think the answer to that is it depends. And the reason I say that is that you know, as you think about the results that we've had this last year, we've come off this five hundred and eighty five million dollar profit down to two hundred and twenty two, and yet we've done a little bit more flying you would expect based on some of the results around the world. Why is here in New Zealand not doing a little
bit better? And really, what we've found this last financial year is that we've had to deal with some sustained headwinds that you wouldn't necessarily find in every other geography or other competitors. And you know, those have been around Fleet. They've been around a domestic economy which is tightened and continues to be quite tight, and some sort of elevated
competition which is fundamentally driven by some geopolitical factors. So you know, that makes it exciting but also makes it challenging and hard.
You've been with the company since twenty twenty, and it's fair to say there's been a number of headwinds in that time COVID for instance, and they're like, how would you describe the tenure?
It has been challenging, but you know you're sort of either built for these occasions or you're not. And you know that's what I've seen over the years, and you know, I've had to deal with difficult situations when I was in the US running a United States business in China, all over the country, you can be pretty challenging. As many of your listeners will know, I've spent many years in the food business and that comes under a fair
amount of scrutiny. So this has different challenges, but you know, you either get on with it or you don't. And you know it's been sort of a hallmark of what I represent that you put your head down, you come up with a good plan. You must ensure obviously that your business has a good culture. You go to look after your customers and your staff and believe in what you're doing.
And we do with hindsight, though, is this something you would do differently? I mean the industry is quite different. You've said, there's the similarities no matter what business are you're leading.
Yeah, many many things, And you know I went through this period because literally in the room where we're doing this podcast, I sat on I think it was Monday, the fourth of February twenty twenty, and on the previous day, the Sunday, we stopped flying to Shanghai. So I was sitting in this room and meeting with the leadership squad, and it was sort of Okay, one router is down, and you know, within two weeks, three or four routes were down. Within five weeks we'd stopped flying all together
in the country was in lockdown. And I can absolutely recall at that time, going, boy, I wish I knew a lot more about airlines at this point. I'd have to say that about two years later, when we were still effectively in lockdown, we had periods where we were open, shut, paused open, you know, and people forget that, but we were on again, off again. We were green lights, red lights,
orange lights. I realized actually that there were there wasn't really any playbook for this, and so in some ways I wasn't possibly as disadvantaged as I thought I was at the beginning. But there are some things. Number One, it is way harder restarting an airline than it is stopping it. So would I have been so quick to
take some of the people out of the business. And the answer is, I would have understood what roles are much harder to operate and replace, and I would not have been as quick as judicious as getting that out. So you know that it's an example of learning understanding the supply chain a little bit more about what would happen in terms of parts and pieces, and you know, ensuring that we could get as close as we could
to some of these suppliers and manufacturers. And I'm not just talking about Boeing or Airbus, but you know, Saffron is a massive supplier, so so getting in close with them and understanding we might have a problem with the actuators and the business class seats and they're a little electric motor that moves the seats up and down. You know, I realize that my knowledge of that wasn't as deep as I would have wanted. And I can tell you as as some of these events, you know, you get
little microcosms of them play out. You learn. So for example, you know, we're not going to be back in Vanuatu anytime soon. You know, we were flying into there, into New Maya. It's been you know, extended in terms of closing that area down. We'll keep the people on things because I know how hard it is to restart.
Thinking of the headwinds you've you've talked about a few headwinds can be things you may have some control over or not. Says with the economy, with inflation, that was a big part of what happened with the result. Is there or are the headwinds that you do think you can work with that you can hedge four you can make some headway with if you like.
Well, I think the answer to that is yes, and where we can I think we're doing a reasonable job of doing that. So you know, as we saw things tighten up a bit as early as sort of August of last year, so over a year ago. You know, we've gone through the FIFA World Cup, we'd had a pretty good July, and we could see coming into an election things we're going to get tight. We were hearing that, you know, should there be a change in government, spending
would come down. So you know, you start preparing yourself for trimming your sales a bit, so you do that. There's always opportunities and productivity. You know, we've spent a lot of time over the last few years working on areas of the business where we know if we give people the right tools, then they can be more productive. Now, some of those are physical tools like ground service equipment, you know, getting the right pushback tugs or pallette loaders.
Others can be things like replatforming the call center so that you've got a much better process there for handling calls. You know, we used to have about eight hundred people working in the call center. We've got that down to five hundred, and there is room to go even further, not just because of that tool, but because we also replatform the customer app. There's now considerably more things that
customers can do self service. So we've reduced the call volume from sort of, you know, fifty thousand calls a week down to about twenty five thousand a week. So you're always looking at the things that you can control the ones you can't. You know, sometimes you just have to stomach those and move on.
One of the ones that sounds like it's hard to control is getting new aircraft with Boeing, and you know, you've got the NEOs and the Dreamliners, and at one stage you had one billion worth of assets on the tarmac, not flying. You've talked at link about you know, what had happened and the like. Where is that going in future? I mean you've got to buy or put contracts in
for airlines airliners years and years in advance. So is there much scope there to change suppliers or change your contracts or have some more certainty.
Well, I think there's always areas that you can go in further. You know, on Sunday, I'll be out of the country and I'm heading up to Canada and meeting with the owner of d Havland who make the Q three hundred. And this particular person bought that airline off Bombardier probably about five years ago. You know, we have a fleet of Q three hundreds. They aren't making that plane anymore. So there's always an opportunity to sit down with these people and say, Okay, what is your strategy,
where are we going to go? What are we going to do? You just can't sit there and wait. In about three weeks time, I will be in South Carolina in the Boeing plant where ideally we're going to get our first two of the eight seven eight sevens we've had on order and hopefully we'll be able to see those come into the country around about October November twenty
twenty five. But you know, when I go there, I will meet with the chief executive of Boeing who's just started Kelli and their team and make sure that we're on the production line that's things are going to happen. By the way, we'll have engineers full time as that plane is being built up there, which is standard practice for us to ensure that all the specifications meet our specifications. So there's always things you can do, but it's hard, and you know, if you have a situation like we've
had with Rolls Royce. We make a decision on a Trent engine back in two thousand and four, there were two choices. We could have gone with the Ge engine, we could have gone with the Trent. We made a decision to go with the Trent. We got the first of those on a plane back in about twenty fourteen,
and really since about twenty seventeen, that's been a challenge. Now, these are expensive pieces of kit, so to suddenly say, well, I've got twenty eight of these engines, because I've got fourteen of these planes, I'll tell you what I'm going to rip them all off and go and put ge engines on them. That is too much to digest. So then we've got to sit down with Rolls and say how are we going to fix this problem? And it's global.
You know, there are around about twenty three seven eight sevens parked on the ground around the world at the moment because there are not enough engines to fly them. We had four, but the good news is yesterday we're down to three. We were able to get a couple of engines, so we've got another one back fly. So you got to push, you've got to work at it
all the time. But you also have to accept that in all likelihood the sort of airline ecosystem, in my view, is going to be a challenge in some areas like engines and spare parts for probably two plus more years.
Doesn't make any difference that we are the small country island in the Pacific. I mean, if we're talking with the likes of Boeing and Rolls Royce, they're big players, and there's many others in the world who've got much more money in might than us.
Does that factor there's always a risk it does. And you know, before I took this job. I was on the other end of the scale. I was with a business that employed in the US alone, I had one point four million staff, you know, five thousand stores. Who doesn't want to do the deal with Walmart? The reality, however, is that does have a component. But the other part of this is how do you bring something to the table with your supplier or partner that will excite them.
And I'll give you an example of how we can play in this space. Two examples. Actually, you know, when the first of the seven eight sevens come down and we start flying them, ideally at the end of next year, they're going to have a product on them that no one else in the world has got. It's called sky
nest oh yep. And what's that worth to Boeing? Because it's not just the delivery of you know, their seventh, seven, eight, seventh for the month, because that's sort of what they'll be trying to make seven, eight or nine of these planes a month. This is the first in the world. And you know, by the way, that fits in with our DNA because we were the first to have a skycouch on there. So what do you bring to the
supply that they can't do? Another example. We hope that within about four weeks time, around the fourteenth fifteenth of October, one of our seven eight sevens will head up to Singapore and will begin to retrofit, and this plane should be back just before Christmas with a completely new setup for seats in business class and premium economy and economy, with new entertainment systems, with new galleys and bathrooms. So it's one of the existing fourteen seven eight sevens completely
retrofit it. Here's the interesting thing. We are the first company anywhere to have done a retrofit of an old plane to that extent before a new one has been built. Because normally what you would do is that you would say, I've got some new product that I want to put on the plane, new seats or new galleys or whatever, the next one that's going through the big production line. I'm going to get it done there.
New plane.
So why did this happen. It happened because we sat down with Boeing about three years ago, not long after the country had reopened, and we spoke about when we were likely to see planes new ones and what we could do about retrofits. So they explained to us as you would expect. Well, we'll get the new plane off and then we'll start thinking about retrofits. And we said, yeah, but if you're going to be delayed, this could be
putting us behind the eight ball. And the other thing complication they said to me is we also got a problem. We had a thousand engineers between the Ukraine and Russia and we've lost all those people because we had to go fight in the war. So we don't have a whole bunch of technical capability to be able to take all the drawings and all the things that have to be done so that you can complete a retrofit. So
go away, go talk to someone else. And we sat down with them and said, actually, no, we're going to help you design a new process for this. We're going to work out how you're going to provide some of that intellectual property to a middleman and integrator, and together the three of us, between the integrator, yourself and ourselves, we're going to work out how to do this before we even build a new plane. Now we're on the
cusp of doing that, but what's that worth deboeing? Well, as I said them, if you learn how to do this new process with a smaller line down the bottom of the world. You've now solved a problem for much larger airlines.
And they've obviously agreed with that. Is it an experiment for them.
You think a little bit. I'm sure, but I can tell you they've been pretty happy with how it's going. But boy, it's been hard.
Yeah.
So you know, every two weeks we're on a VC with them and there are probably seven or eight people who pretty much for the last six months have had to live overseas, getting into Japan to meet with JAMCO, or getting into France to meet with Saffran, or in Wales where the seats are being built, and they're having to can we get this done? And can you talk to this person and do that? But heck it, in a situation like ours, if you don't develop some agility, you just can't get stuff done.
One of the areas that in New Zealand has was always sought to be a trailblaze and was obviously sustainable aviation, fuel flying and thinking about target at twenty thirty and the like. That's obviously changed in recent times. I mean, where is that at in terms of how we could come back and be a leader and actually changing the dial for an industry that has seen to be polluting the atmosphere and warming the planet.
Well, the first thing I'd say is, actually, I'm not disappointed. I'm very proud of the team. Now, Now that may seem a bit strange, but you know, the most important thing in any business's culture and the ability to you know, part of that is the ability to be able to have very honest and truthful and unvarnished conversations. So let's wind the clock back two and a half years ago and we decide that we're going to put in a science based target and I think we were the second
airline in the world to do it. And we sat down and we said, okay, what do we think we need to do to achieve this? And well, you know, this is where the fleet's going to be, and this is how many sustainable aviation fuel plants are going to be built. These are the routes that we're going to fly, This is how we're going to get more productive with the flying that we're doing. This is what we're going
to do with electrifying ground service equipment. You can see you build this thing up two and a half years ago and you say, based on these assumptions, this is where we think will be by twenty thirty. Well, a couple of things have changed over those two and a half years, you know. One of them is we are almost certainly going to have to keep our triple sevens a bit longer. Why because Boeing, you know, we placed an order. We thought we were going to get that
order in twenty twenty two. We delayed it for one year, so it was initially twenty twenty one, and we said to Boeing, look, COVID all the other stuff, delay those till twenty twenty two. And they said, that's fine. I've just shared with you. The earliest we'll see them is the end of twenty twenty five. So the fleet that we thought we were going to fly, which was more fuel efficient than the Triple sevens, we just can't get those planes. So there's no point hiding behind that. That
is a reality. You know, at some point, if sustainable aviation fuel is the solution, and at this stage that is the solution. Yeah, right, The current thirty plants or so that are around the world need to increase to about five thousand. So think about that, thirty plants to about five thousand. So as we look at that and we say, well, okay, we're we're working really hard at
the moment. We want to get two percent of our fuel being sustainable aviation fuel this year, two percent to hit the target in twenty thirty, you've got to believe that's going to get to seventeen percent. There's a lot of extra plants that have got to get built between now and the end of the year. What's going to happen in terms of regulation on this, Is it going
to get mandated or not. So you know what we've done is we've said, hey, let's just take a look at this, because you've got to put your hand on your heart and you've got to say I'm going to hit that goal. And if you have some situations that have changed, which we have as I've just shared with you, the appropriate thing to do is to remove that and then to reassess there is no change in the commitment to how we feel about sustainable aviation fuel, to reducing carbon,
to all the other activity. We've got an electric aircraft which we'll be using as a demonstrator down here, to the activity that happens around our business, to removing cups, to electrifying equipment. None of that's changed. And that's why I began by saying to you, I'm proud of what we did because I am. The wrong thing to do would have been to delay making that decision and then be put in a corner later on. I think we've come out and done the right thing and said, hey,
we're taking that away. We're going to go back and review it. Give us a few months, and we'll be back with what we think is a better number than we had than the one we had previously.
As a possibility though, that things could change again, and it may be that you maybe don't make that target, but twenty fifty does seem a long way out.
I'll guarantee you things will change again. I don't have any doubt they will. I also have no doubt that some of the assumptions we make will be wrong. So you know this is a challenge. So why does twenty fifty sit out there, Well, you know some of us won't be around by twenty fifty, so it's easier to make some of those assumptions. And that is the reality of these things. But you know the commitment, you have no doubt. Your listeners should have no doubt that sustainability
is a keyp link. I think we have some of the very best people that I have seen in any airline, in fact in any industry working for us today in New Zealand on this and we should have confidence that the solutions that we come up with are enduring, the right solutions are going to engage the right group of stakeholders in the appropriate way.
Greg, the New Zealand economy has been someone in the dull drums. It's common knowledge, but there are some green shoots. Are you seeing any of that? In your commentary when the earnings results were released, talked about some corporates, businesses flying less and that obviously it had an impact. Are you now or you seeing perhaps in quarters ahead that that will change.
Look my sense at the moment, and this is a judgment call, is that I think worried about the bottom at this point and have been there for a few weeks, not for months. You know, we see governments being down about twenty eight We see small medium enterprises and corporates down about ten to twelve percent. Leisure is holding up, but you have to stimulate it so domestically it is tough.
But I think we're at the bottom, and usually what happens is that you'll sit there for a period of time and then recover.
Now you mean Christmas.
Your guess is as good as mine in terms of when that will be and also what the slope of that is going to be. Like, I'm not expecting it to happen immediately, but maybe we get through Christmas, maybe we get into next year, and people then start to ease their way out of it. Now, I will say that the decision to increase the IVL, the decision to increase visas, are the costs that are coming through. You know,
the CIA are talking about costs. That doesn't help the situation because about twenty percent year domestic business is fueled by people flying into Auckland and jumping on a plane to go to Queenstown or go to the vineyards in Blenham or wherever. So you know, the headwinds are there for a bit. But I am encouraged that it's bottomed and in time, because it always does, people are going to get out there and start spending.
Just looking now at some of the roots, I know, India was one that you've mentioned and commentary in the last few weeks and we have actually had some investor questions asking when that might be a possibility. There's also the US that's quite challenging, quite competitive. Are there other things you can tell us about the roots that you're looking at flying and and why would it be those ones?
Yeah, look, not a lot at this stage. And the reason for that is that we just want to get a little bit much, a little bit more sure when aircraft are going to be available and what numbers. But you know, look, it's fair to say a couple of things. You know. One is you do want to grow your business, because in a business like ours, is very hard unless you've got some growth around. I'm doing some extra routes, I've got some more seats on and et cetera. So
that's always top of mind. And you know, we sat down and had a look at the five year plan, you know, twenty four hours ago, and I like what the team are pulling together there in terms of the sort of growth that I'm seeing. I would say, also, you want to be a little bit careful about trying to expand too quickly because you're buying really expensive assets. You need these planes to be operational A lot of
hours of the day in order to make money. But there are always a few opportunities that you want to look at. And you know, it makes common sense for us to consider India at a point in time. Not sure when at the stage, but you know, we get a lot of traffic heading up to Singapore. A reasonable amount of that traffic goes on to Europe, but a surprising amount peels off and heads to many locations within India. So that's something that we're going to continue to look at.
And then the other one that continues to be on our mind from two aspects. You know, one of them is getting back into Europe and you know would be the most asked about route that I have. So when people see me and want to engage with me, and it's not because they lost their bag, it's usually about, hey, what can we do about getting back to London, for example,
So it's a very asked about route. We stopped flying there I think twenty nineteen, so you know, it's not as easy as just saying well, let's just turn it on and come once again. It's planes, it's all that stuff, So we need to think carefully about that and when. And then the other thing is a competitive nature of that. You know, you just don't run your airline in isolation.
So you know, whether it's sovereign carriers coming in from the Middle East or carriers from Australia, we need to be very careful that we protect our market share, so you know, we think about these things carefully.
Greg, you haven't given any guidance. You've said that things are too uncertain, and the market for the most part has accepted that. For retail investors, though, what would you say to them when they're thinking about what they should be doing with your portfolio in New Zealand? Might be an emotional by it might not be though too. I mean, how would they prudently cees what's going on without guidance?
Yeah, I think you've got to listen to these sort of podcasts and hear it from from people like myself and others, and then test the experience when you fly. So so I'll give you some examples. You know, the headwinds that we're spoken about around fleet, around the domestic economy, around you know, the added cost and the complexity particularly
around fleet that get added into the business. You've got to put some more people in the call center, You've got to deal with more disruption, you've got to change twice as many engines, which is what we're doing at
the moment. And then you know the competition that's coming out of the US, which is about fifty two percent more seats than what we've traditionally seen, so so not five percent more seats, fifty So you have to say to yourself, Okay, so I understand those are some of the fact is that you're dealing with an Air New Zealand. You know, you've got fleet, you got domestic, and you've got some increased competition out of the US. Okay, I understand that. Now what am I seeing and feeling about
Air New Zealand as a business? You know, what are the things that would want to encourage me? What's it like when I ring the call center? Am I getting through pretty quickly? Are they able to solve problems with speed? Am I able to solve more problems because I now have a new app on my phone? How quickly and efficiently are things working? So you make those calls and you say to yourself, the headwinds are the headwinds realistically?
How long are they going to stay as those start to dissipate, which they will all of them at a point in time. Is this a business which is well positioned to grow? And I would say to you the answer is yes. We're building an airline here that is going to be built to last, so I have complete confidence in it. And I don't say that in a misguided way. For sure, I'd like the profit to be a bit better, but I can explain why it is, and we're not about just putting the fares up to
cover some of those issues. We've tried to be very balanced about that. We're making good decisions on fleet, We're working hard to continue to improve the product. So I've got a lot of confidence in New Zealand.
Thanks everyone for tuning in. You can watch Shared Lunch on YouTube or follow the podcast wherever you get your podcasts. Leave us a rating and tell us what you'd like to hear next. Mark.
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