Air NZ’s Unbundling–Misdirected or Way Forward?

The Virgin Blue executive team’s Thursday was bad enough, given their, um, recuperation from the previous night’s party celebrating V Australia’s JNB flights.

And then Air NZ announced it was re-structuring its product and prices on Trans-Tasman (flights to Australia) and Pacific Island flights*, which it hinted at during its half-year results last month. Business class will be eliminated on its A320 aircraft, which make up the bulk of its 280 Trans-Tasman and 72 Pacific Islands weekly flights. The A320s will go from 152 Biz+Y to 171 economy-only seats. Business class on Trans-Tasman B747, B767, and B777 flights is unchanged.

To calm investors giddy about premium travel returning, Air NZ justifies its move by saying only one in eight business seats gets sold on flights out of Wellington and Christchurch. That means one seat was sold in the entire business cabin.

Economy on all Trans-Tasman/Pacific Islands flights (A320, B747, B767, B777) will be split into four different service levels with the hard product staying the same. Price differences have not yet been released.

The airline will trial the structure out of Christchurch with fares going on sale from 29 April for travel from late August. The structure goes Trans-Tasman system-wide in early September with service being rolled out from late November.

See Air NZ’s diagram of the four services:

Air NZ 4 class Y.jpgSplitting economy into different categories was first floated in the region by Virgin Blue CEO Brett Godfrey last September, although his thoughts on Virgin Blue’s “Airline of the Future” also included changing seat pitch. Air NZ’s announcement is by no means an exact replication, but they are on Godfrey’s heels.

And Air NZ has also made a mistake.

As Air NZ’s diagram shows, the further down you go on the list the more amenities you have. If you want to choose your seat you also have to pay for luggage and a meal. If you want lounge access, you also have to pay for the seat next to you to be empty.

But what if you want a meal and no bag? Or lounge access but couldn’t care about the seat next to you because you’ll sleep?

That’s the argument LCCs hold dearly. AirAsia X now offers lie-flat business-class-like beds (post on that coming in the next few days), but if you want a meal you’ll still need to pay for it separately.

Therein lies the crux: Air NZ needs to compete better with Virgin Blue and Jetstar, whom it is losing passengers to, without being branded a low-cost carrier and damaging its reputation for more lucrative long-haul bookings. LCCs have nothing to lose and passengers to gain.

Sunday update: Air NZ General Manager Shorthaul Airlines Bruce Parton wrote on an online forum: “The key for this is that the leisure end of the market is the largest (72%) and is fast growing both in NZ and Aust[.] We have to be able to compete there and its all about price – this product lets us do that without becoming a budget airline”.

Air NZ rightfully gets credit as being innovative for its past initiatives like the Skycouch and selling of empty seats, but in this case if the carrier really wanted to be innovative it would have completely unbundled its product and given passengers complete choice.

Unbundling has been a hot topic these past few years, but will Air NZ’s response catch on in the short/medium-haul market, or will other full-service carriers (particularly in the US) go for a true a-la-carte model?

*Airline Route reports service from Auckland to Papeete, Niue, Perth and Sydney to Rarotonga will go unchanged, but Air NZ could not be contacted to confirm this.

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