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Embattled Air New Zealand is working on a major cost-cutting exercise to achieve savings of 5% from its operating cost base. Oliver Wyman management consultants are advising on the strategic review of New Zealand’s national carrier.
In March this year, Air New Zealand CEO Christopher Luxon announced that the airline was embarking on a major strategic program to streamline spending and improve the company’s internal operations. The “Business Realignment Project” initiatives include the delay of some aircraft orders (the airline has around 60 mostly Airbus and Boeing aircraft), hampering the network’s growth ambitions and reducing overhead costs.
Although Air New Zealand is one of the most financially sound airlines in the world – Air New Zealand has the third highest level of investment grade airline in the world and has solid cash reserves – this program is aimed at changing the winds of the regional airline industry. Strong competition on several of Air New Zealand’s routes, along with softer passenger demand in some markets and increased fuel prices, have hurt the airline’s earnings and outlook in recent quarters.
“While we are at the top of our game in many areas, we can still improve and continuous improvement is important if we are to fulfill our potential as a company,” explained Air New Zealand Chief Financial Officer Jeff McDowall.
To support the work flow aimed at reducing costs, consultants from Oliver Wyman a plane arrived. “We deliberately chose an outside consultancy for the outside perspective they can provide.”
Based in New York, Oliver Wyman is one of the world’s largest strategy and management consulting firms, and the firm boasts a strong track record in the aerospace sector. Consulting firm working for airlines, cargo carriers, airports, MROs and other service providers, it provides not only organizational and operational expertise, but also technical aviation consultancy (provided by the Cavok brand) and an advanced offering of analytical services.
Oliver Wyman started working for Air New Zealand – one of the safest airlines in the world – two months ago, with the analysis scheduled for completion at the end of August. “[They] we are reviewing our overhead cost base to see where we can make efficiencies. While this will include but not be limited to a review of workforce costs, the purpose is not to change the structure of Air New Zealand, but to identify any duplication of roles or processes and help break down silos so that teams can work more effectively together globally,” elaborated McDowall.
Industry benchmarking
In addition to conducting operational model review, data analysis and process mapping, Oliver Wyman’s work will also include industry and airline specific benchmarking. “They can benchmark us against businesses in other industries to give us a clear understanding of how we operate compared to the rest of the world.”
The Australian branch of Oliver Wyman manages the contract and includes senior and expert consultants from the US division of the firm. Management consulting works in collaboration with the airline’s senior management team and other functional experts.
While the final set of recommendations has yet to be reviewed by Air New Zealand’s board and 10-strong chief executive, the firm’s work has already led to layoffs from the airliner’s headquarters. According to several media reports, several employees are believed to have already left or are about to leave. The airline, meanwhile, declined to shed light on the reorganization, “at this point there is no indication of how many positions may be eliminated from the organization,” McDowall said. He added that the company’s management expressed the hope that any job losses would be covered by natural attrition.
Air New Zealand’s CFO added that Oliver Wyman’s team was mindful of the airline’s culture. “[We are] we are not your average airline and our unique culture is one of our most important assets,” he said, “so they take the time to really understand the nuances of our business.”
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