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Air NZ's long, hard $100M flightpath to China

Monday 6th May 2019

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Air New Zealand has lost $100 million in the 13 years it has been flying to China, chief executive Christopher Luxon says.

The cumulative loss in that time is largely because it is competing in the Chinese market with government-affiliated airlines, in a regulatory environment stacked against New Zealand, he says.

“China sees aviation as tools of the state," Luxon told delegates at the 2019 China Business Summit in Auckland today. "We compete with large-scale state-backed businesses that can make losses flying to New Zealand.” 

The resulting “asymmetric" competition means “Chinese airlines have unfettered access to New Zealand, but we don’t have the same access to China.”

For example, he says Air NZ has been trying for four years to double the number of slots in and out of Shanghai airport, and change the timing on them so it can position itself as a hub to take passengers from China into South America. At the moment, constraints with timetabling often meant an untenable 12-hour stopover for passengers in Auckland.

Luxon was speaking at the seventh China Business Summit, organised by NZ INC and the Auckland Business Chamber. He was joined on a panel by Mainfreight managing director Don Braid and Zespri chair Bruce Cameron. All three stressed that huge growth for their company in the Chinese market was accompanied by major problems doing business in China.

“It has been very difficult to do business in China; an incredibly difficult journey,” Luxon said.

“We can deploy into the US with fewer constraints and less investment and we can become profitable immediately."

He said Air New Zealand would be keen on some government help with negotiations with China over the Shanghai flights issue. He also called on New Zealand to loosen transit visa requirements so it was easier for Chinese visitors coming through New Zealand.

However, Luxon said the problems for Air New Zealand and other NZ companies operating in China can’t be seen purely as political, solvable by governments.

“I argue unforced errors and naivety on Air New Zealand’s part, and I see a lot of that from New Zealand businesses in China.”

He said New Zealand companies do a lot of "wittering and whinging” about why they aren't successful in the Chinese market, “but we have to deal with it and work through it”.

Mainfreight’s Don Braid said a key to operating in China for his company had been owning their Chinese operations 100 percent.

He said the company had been profitable “from day one” but for that “we needed to have control of our destiny”.

That is in stark contrast to the experience of our biggest company, Fonterra, which has lost hundreds of millions on failed Chinese joint ventures.

Braid said political and business relations between China and New Zealand were “tenuous and difficult at the best of times” but it was critical for the Prime Minister and key ministers to put maximum effort into the relationship.

“One visit a year is not enough.”

Zespri chair Bruce Cameron pushed the same point in terms of business-level relationships.

“You have to turn up - the board, executives and management have to turn up and meet people. In the past two weeks, me, the previous chair, the CEO, and the head of comms have all been in China, building existing relationships.”

Greater China is now Zespri’s largest market, growing from 2 percent of total sales when it started selling there 20 years ago, to just under 5 percent 10 years later, and more than 15 percent now.

The company hopes to grow its Chinese business to 25 percent of sales in the next six years.

“But it’s taken us many years and hard knocks to get there,” Cameron says.


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