Air NZ’s chairwoman: How the airline will climb out of Covid

Dame Therese Walsh believes it’s time for Air New Zealand to shift the dial.

The airline has been devastated by the impact of Covid-19, but its chair says there are growing grounds for optimism about the future. The latest positive sign is the resumption of passenger services from the Cook Islands, the first quarantine-free inbound flights in nearly a year.

In her first major media interview since the pandemic struck, Walsh says the airline remains ambitious to “regain its sparkle” after a disastrous 2020.

Working in the background for the past 12 months, she talks of the heartbreak she felt for staff during what was meant to be a year of celebrating the airline’s 80th birthday.

Walsh took over as chair just over three months before the outbreak of what was then a mystery virus in China.

The emotional toll since then has been heavy for the seasoned director, who still finds it difficult to accurately express how she felt about the pandemic wiping out decades of expansion at the airline and thousands of jobs.

“I struggle to find the words,” she says. “Because saying it was difficult or challenging just doesn’t do it justice.It really has been quite devastating and heartbreaking.”

More than a third of the airline’s 12,500 workers have left or been laid off, its international schedule now resembles that of the 1960s and its entire fleet of Boeing 777s has been mothballed.

From being a consumer darling, the airline became the company that prompted the highest number of complaints to the Commerce Commission last year. While its domestic operations have bounced back strongly, restoration of its international network could be years away; for the next few months at least, that international operation is running atjust 5 per cent of pre-pandemic levels.

The number of international flights fell from more than 30,000 in 2019 to under 10,000 in 2020. Despite a strong domestic recovery, the number of passengers carried by the airline overall dropped from 17.6 million in 2019 to 8.4 million last year.

Walsh says that although some staff have been rehired, the scale of layoffs has been traumatic.

“It’s the number of people who were impacted — it’s not just the people that lost their roles, it’s people that didn’t as well.”

She felt that deeply when the country moved out of level 4 lockdown last May and she was on one of the first flights from Wellington to Auckland.

“The whole experience was sort of apocalyptic. It was emotional for me – I shed a few tears.”

She spoke to crew, some of whom were leaving while others were staying.

“They were all deeply emotional and it has continued through to today. But particularly those first, probably three months, every time I was on a flight and I had that experience, what struck me was the dignity with which people carried themselves.”

Crew who were finishing up and taking their last flight would often make an announcement, talking about their pride in being with the airline. “People on the plane would clap and the warmth and the humanity was extraordinary.”

Nearly all the departing crew Walsh talked to had the same message. “After sharing their stories they would say: ‘Do you know, what I want you to do is the best job possible to recover this airline and to get it into a really good place because I want to come back’.”

The staff understood that layoff decisions were “extremely difficult and heartbreaking”, but that they were necessary.

“It was the dignity of everybody – the word ‘humbling’ is wrong. It was overwhelming for me.”

Many of the remaining crew now face distrust from fellow Kiwis who are worried about them carrying Covid, something the airline and unions have pushed back on.

“That’s been really hard for people to deal with and hard for me to know that people are having to deal with [the impact] on their personal lives,” says Walsh.

But just as Air New Zealand crew have mostly received support from travellers, and from each other, Walsh, 49,has appreciated the backing of other business leaders.

Early in the crisis she spoke to ex-Air New Zealand chairs and chief executives she knew, to sound them out, but during the course of the year others in the business community contacted her to offer personal support and backing for the airline.

“One of the things, at a kind of personal level has been a highlight, has been that the business community particularly has been so supportive. I can’t tell you the number of times somebody, a chairman or a CEO, has rung and said, ‘I hope you’re going okay’.

“Everyone’s had their own challenges but I think Air New Zealand’s probably at the top of the list.”

Why the optimism?

In more normal times, Air New Zealand’s turnover is split roughly in three: domestic, short-haul international and long-haul international.

Domestic operations are cranking as Kiwis explore their country. In spite of the absence of international visitors, who typically fill 20 to 30 per cent of seats in this country, the airline is flying at close to 90 per cent of pre-pandemic capacity.

“The most amazing story is that the domestic network is number one in the world at the moment,” says Walsh. “We’re flying around in a way that is not possible in other countries.”

Cargo has been one of the bright spots, with the airline moving 55,000 tonnes of freight on more than 3300 flights last year as part of the Government’s subsidised scheme, which has been extended. That included more than 10 million pieces of personal protective equipment, and Walsh says the airline will hopefully play a role in flying Covid vaccines to this country.

While the twice-weekly Cook Islands flights are just part of a one-way bubble, they could herald the start of more comprehensive two-way arrangements there and with other Pacific countries later this year.

The Australian market is the big prize over the next 12 months. About 1.5 million passengers from Australia travelled here in 2019 and Prime Minister Jacinda Ardern has said a two-way bubble could be operating from the end of March.

“Hopefully that’s up and running,” says Walsh. “We’re getting some indications of some cut-through with the vaccines and so we’re feeling more optimistic about opening up into the long haul routes.”

The airline this week announced it was part of a saliva test trial with ESR which could make testing easier and more comprehensive.

Air New Zealand, and the rest of the tourism industry, also has a golden opportunity to benefit from the country’s health response to Covid, says Walsh.

“We have to do some really good work about how we’re going to position ourselves and take advantage of the New Zealand response. Not the clean and green now so much, but the clean Covid kind of reputation. And we’ve done a great job of becoming a Covid-safe airline, to the extent you can with all the rules and regulations, and we need to build on that.”

While dealing with fallout from Covid, the airline has been working on a new digital strategy to ease “pain points” in the journey for passengers, is revamping its loyalty scheme and reviewing its domestic fares.

“We want to make sure that pricing is appropriate and the structures are for New Zealanders.”

She says the airline has added a significant amount of capacity to make travel more accessible to more New Zealanders.

“The domestic network is absolutely thriving but we need to do a more probably structured review at some point, which is what we’re leading into in 2021. We’re using the time when we’re not flying to these international destinations to innovate domestically and get ready for the international innovation.”

The virus and constantly changing rules imposed by governments had made the already extremely complex job of operating an airline even more difficult.

But adapting after a year of constant change is getting easier.

“I’m not saying it’s perfect and I’m not saying it’s easy, but I think there’s a little bit of muscle flex now having done it so many times.”

The great unknown is what the competition will do. Before the pandemic, close to 30 airlines flew passenger services to and from this country, but that has dwindled to fewer than 10. How many return will bear heavily on Air New Zealand’s economic future.

Working with a new CEO

Walsh was key in recruiting chief executive Greg Foran in 2019 and while his start date coincided with the start of fallout from the pandemic, she says there were benefits from having someone from outside the company and the industry.

“Greg’s bringing a fresh perspective and he doesn’t have the industry or institutional bias that others may have that have been in the industry. So I think, to that extent, it’s really good. The timing could have been better because to have to go into a crisis mode where you don’t have all that background is very difficult,” she says.

“Having said that, he probably is the hardest working person I’ve ever worked with in my career and so I think he has worked extremely hard to fill those gaps as quickly as possible to ensure that he could lead the crisis effectively.”

The expected executive turnover with the arrival of a new boss became a wave of change, and senior figures with decades of experience are no longer at the airline. This, Walsh says, was inevitable.

“We had to decrease the size of the organisation and it wasn’t fair or right that the senior levels were not impacted in the same way. We were always going to lose some talented people and it’s disappointing at every level, not just executive level,” she says.

“There are layers of extremely talented people in this organisation and this meant some excellent appointments in and around Greg’s team. To lose people because of the nature of Covid is disappointing but it’s life.”

She and Foran talked 10 to 12 times a day at the height of the crisis last year to ensure the board and the executive were “on the same page”. The board stepped up its work and meeting schedule and was more involved in overseeing the airline’s operations than ever before.

“And bear in mind that Greg was a new CEO, so he’s new to the industry, and he hasn’t been in New Zealand for a while so hadn’t already established all the relationships needed.”

Too important to fail

In January last year, Walsh was enjoying a holiday in Hawaii, looking forward to welcoming Foran in February and the airline’s 80th year, the highlight of which would have been a non-stop Auckland to New York flight launching in October.

Then came the first reports of the coronavirus, which airlines hoped could be contained within China.

“There was a first phase where everyone knew there was something happening but optimistic that it would be managed. We went from sort of there to level four lockdown within a few months.”

Walsh says the potential scale of the crisis became clear when she got a call from Foran on a Saturday in mid-February, when he outlined reports of Pacific nations becoming nervous about airlines flying to them.

“That wasa real moment for me – it was just speculation that wasn’t anything concrete but it prompted us to really have a good discussion about how severe the impact of this could be. So we spent the rest of the day on the phone with people in the Beehive and the team here.”

As there was for everybody, for the airline there was a period of coming to terms with understanding the scale and impact of the fast-moving global health emergency.

“There’s always a risk that you don’t want to dramatise, but you don’t want to underestimate it either.”

Walsh says the Government – which owns 52 per cent of Air NZ – was quick to assure the airline it would back its survival. That was a real question when flying was paralysed in March.

“Right from the first minute that it became obvious that Covid was a reasonably sizeable issue, both the Prime Minister and the Minister of Finance (Grant Robertson) were very clear before we got into any of this that they wanted the airline to be okay, to get through this and to be there for New Zealand. That was always the first thing that they said to me.”

On March 20, after just days of negotiations, a $900 million Government loan was announced. Two-thirds of the loan had an interest rate of up to 8 per cent and the remainder around 9 per cent.

Both the Prime Minister and the Minister of Finance were very clear before we got into any of this that they wanted the airline to be okay, to get through this and to be there for New Zealand.

“We were really grateful for the support and for the speed of this support because we needed it to be done quickly. At the end of the day, it was a short to medium-term deal for Air New Zealand, the interest rate was not the major concern.”

Walsh is constrained in what she can say about the airline’s finances ahead of the release of its half-year result, and can’t give further details of how much of that loan it has drawn down. A capital raise is still on track for the first half of this calendar year.

“We still are working incredibly hard to minimise the amount that we’re having to draw down and to create a more medium to long term solution which is what we’re working on at the moment.”

The pandemic has helped the airline build in more flexibility and capability to deal with Black Swan events and she says it can’t remain on the defensive.

“That’s where I would want to be – to have that unbridled ambition and sparkle to be really palpable. Covid is not going to be the legacy of this organisation.”

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