A new era of "Luxe"
Air New Zealand has recently announced a major revamp of its aircraft cabins. This includes a new Business Premier Luxe seat, designed for customers looking for more space and privacy, and Skynest, the world's first sleep pods in the sky for Economy travellers.
This will come as no surprise to many in the industry as Air NZ has been hinting at changes for quite some time - even well before COVID. Although they already had some of the best business cabins in the pacific market, the hyper-competitive, high demand post-COVID era presents a great opportunity to refresh and stay ahead of the competition. What's interesting is speculating on Air New Zealand's longer term strategy with these new cabins - mainly around creating greater differentiation against traditional airlines, and moving away from the standard economy seats and competition against low cost carriers.
Differentiating from the rest
Air New Zealand has significantly differentiated their new cabins, well away from what other airlines currently offer, especially within economy and premium economy. Business class seats have always been varied across airlines, but Air New Zealand has separated this out into Business Premier, and "Luxe", which is almost a soft first class, or the highest it can do while retaining the business class appeal. This will no doubt protect Air NZ against price wars (especially on North American and Asian routes), and create new products and experiences that will drive stickiness across their existing and new customers.
Doing away with Economy
What's more interesting here is Air New Zealand's pivot towards a more premium spec experience across its brand and airline. Being in the airline industry is notoriously difficult in the best of times, and its very easy to be dragged into price wars against other carriers, especially when the economy seat is pretty much standardized across every airline. Airlines try to make up for this and compete on the "soft" product with service, catering, and ancillaries, or using loyalty incentives. The challenge for Air NZ is that they often compete directly with flag carriers with a significantly lower cost base across Asia, and fight against Jetstar and Qantas for trans-tasman traffic. We're also seeing North American carriers such as American Airlines swipe at capacity on the very lucrative, high margin North American routes.
Long term, it wouldn't surprise me if Air New Zealand did away with economy class cabins as we know them on its long haul routes to North America and Asia completely. This would protect it from painful price wars, enable it to service high value, premium customers in premium cabins, and strengthen its brand as a premium airline.
They are already chipping away at the economy cabins with Skycouch and now Skynest. Looking at the tentative seat charts, only 1/3 of their revamped aircraft space is allocated to economy cabins, and no doubt the outer rows will have a significant Skycouch presence. At a guess, this leaves approximately 10% of the seats to be sold as basic economy style seats which gives the airline some flexibility to still fly some passengers with no luxuries (e.g. staff travel, deadheading, campaigns, etc), but more importantly also retain the capability to price low and compete on loss-leader fares when needed.
Looking ahead
All of this is only good news for New Zealand's national carrier. It's already well known that Air New Zealand markets itself as a premium destination carrier, and these changes help it solidify its vision against a hard product. The biggest headwind I see is local perception - Air NZ has sometimes been called out for its high prices and fare classes (and unfairly often - having worked in regional aviation and revenue management), and this will no doubt further add to those sentiments. However, the laws of economics prevail - where there is demand, there's opportunity waiting to be seized by fulfilling that demand.