Air New Zealand flies in Oliver Wyman for cost cutting review

06 August 2019 4 min. read

Embattled Air New Zealand is working on a large cost-cutting exercise, aimed at carving-out savings of 5% from its operational cost base. The strategic reviewed of New Zealand’s national carrier is being advised on by management consultants from Oliver Wyman.

In March this year Air New Zealand’s chief executive officer Christopher Luxon announced the airline was launching a major strategic programme aimed at streamlining expenditures and improving the company’s internal operations. Among the initiatives of the ‘Business Realignment Project’ are delaying some plane orders (the airline has around 60 mainly Airbus and Boeing aircraft), putting a brake of network growth ambitions and cutting overhead costs.

Despite being one of the globe’s more financially healthy airlines – Air New Zealand has the third highest level of airline investment grade ratings in the world and has solid cash reserves – the programme is aimed at playing into turning winds in the regional aviation industry. Strong competition on several routes flown by Air New Zealand coupled with softer passenger demand in some markets and elevated fuel prices have dented the airline’s profit in recent quarters as well as its outlook. 

“While we are at the top of our game in a lot of areas, we can still do better, and continuous improvement is important if we are to meet our potential as a company,” explained Jeff McDowall, Air New Zealand’s chief financial officer.

Air New Zealand flies in Oliver Wyman for cost cutting review

To support the cost-cutting work stream, consultants from Oliver Wyman have been flown in by the airliner. “We deliberately selected an external consultancy for the outside-in perspective they can provide.”

Headquartered in New York, Oliver Wyman is one of the globe’s larger strategy and management consultancies, and the firm boasts a strong record in the aviation sector. The consulting firm works for airlines, cargo carriers, airports, MROs and other service providers, providing not only organisation and operations expertise, but also technical aviation consulting (provided by the Cavok brand) and an advanced analytics offering.

Oliver Wyman started its work for Air New Zealand – one of the globe’s safest airlines – two months ago, with the analysis planned for completion by the end of August. “[They] are reviewing our overhead cost base to see where we can create efficiencies. While this will include but not be limited to reviewing labour 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 teams can work more efficiently together globally,” elaborated McDowall.

Industry benchmarking

Alongside conducting a review of the operating model, data analysis and process mapping, Oliver Wyman’s work will also involve industry and airline-specific benchmarking. “They are able to benchmark us against businesses in other industries to give us a clear understanding of how we work compared with the rest of the world.”

The engagement is managed by Oliver Wyman’s Australian arm, and includes seniors and expert consultants from the firm’s US division. The management consultancy is working in collaboration with the airline's senior leadership team and other functional experts.

While the final set of recommendations have yet to be reviewed by Air New Zealand’s Board and 10-member executive, the firm’s work has already led to redundancies from the airliner’s head office. According to several reports in media, several staff are understood to have already left or are about to leave. The airliner has meanwhile declined to shed light on the reorganisation, “at this point there is not a number tagged to how many positions could be removed from the organisation,” said McDowall. He added that the company’s management team has expressed its hope that any job losses would be covered by natural attrition. 

Air New Zealand’s chief financial officer added that the Oliver Wyman team is mindful of the airline’s culture. “[We are] not an average airline and our unique culture is one of our most important assets,” he said, “for these reasons they are taking the time to really understand the nuances of our business.”