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Air NZ to tweak 'cattle class', use machine-learning to target individualised fares

Monday 27th May 2019

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Air New Zealand is planning what amounts to a fourth choice of seat on its long haul flights, which will fit between the traditional economy seat and its Premium Economy product.

While it doesn't yet have a name - Economy-Comfort and Economy-Plus are in the mix according to chief revenue officer Cam Wallace - the new class of economy seat will be at the front of the economy cabin, have slightly more legroom, offer more Airpoints, have a seat that differs from a normal economy seat and will, presumably, cost a bit more than an economy seat and a bit less than Premium Economy.

Wallace also told analysts at an investor day presentation that the airline is investing heavily in machine-learning software not only to make better forecasts about future demand, but also to support 'hyper-personalised' marketing to the airline's customers, with a view to individuals getting fare offers based on the data the airline holds about them.

This new system would be subject to trial for two city-pairs later this year, said Wallace, who also told the investment community that Air NZ captures "slightly more than 100 percent" of the profitabilty available from the New Zealand domestic aviation market, effectively suggesting that its main competitor, Jetstar, makes no money on its New Zealand operation alone.

However, Nick Judd, head of strategy network and alliances, said there was no sign that Jetstar was likely to drop its New Zealand operations because of their importance to the airline's wider Australian and Asian network.

"They have a different metric as to what success might look like," said Judd.

Since ending its joint venture with Virgin Australia and teaming up with Qantas instead, Air NZ had seen an increase in its share of trans-Tasman flights.

The comments from the airline's senior executives were against a backdrop of lower anticipated earnings caused by a global slowdown in the amount of air travel occurring, partly because of high aviation fuel prices. New Zealand inbound tourism arrivals have been sliding this year and this was the impetus behind Air NZ shaving back seat capacity on its New Zealand domestic routes this year.

Chief executive Christopher Luxon said these were key factors in Air NZ reducing its guidance for pre-tax earnings in the current financial year to exceed $340 million, the bottom end of the $340 million to $400 million range given less than two months ago.

The airline expects to see 5 percent growth this year, but only anticipates 3 percent growth over the following two years and is embarking on a plan to cut a further $60 million a year from its annual operating expenses over the next two years, on top of $50 million of savings that it routinely targets each year.

However, Luxon stressed there was no need for a wholesale restructuring and that investment in new routes, aircraft, and customer experience would continue - a commitment exemplified by the announcement this morning that it is ordering eight new Boeing Dreamliner 787-10 aeroplanes for delivery between 2022 and 2027, with flexibility over both the order size and the model of aircraft. Air NZ already operates 787-9 series aircraft, but the slightly larger 10 series would be "perfect" for fleet flexibility, especially when serving airports with constraints on how many landing slots it can offer.

Among the airline's ambitions is to fly Auckland-New York, a route the airline could fly now if it had enough high-paying business and premium class customers to justify the service. "Unearthing wealthy, high value customers" was the key to making such a route work.

Figures in the presentation showed a general shift towards business and premium economy seat purchases, with economy seats making up 50 percent of those booked in 2018, compared with 55 percent in 2013.

With the new Chicago and Taipei routes performing well, Air NZ is preparing to launch direct services to Seoul later this year, which is likely to pull some passengers off its direct services between Auckland and Japan, where rejigged lead-in fares and fewer sales was showing improvements in yield and in the number of New Zealanders booking flights to Japan, which has struggled to attract a profitable outbound market from New Zealand.

Wallace gave a sense of Air NZ's grip on the domestic market, where he said the airline was determined that no carrier should steal a march on its domination.

Of the $1.5 billion annual domestic aviation market, some 50 percent is business travel, with Air NZ having an 87 percent share of travel by small and medium enterprise employees, while 97 percent of all government flying occurs through 52 percent government-owned Air NZ.

(BusinessDesk)

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