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Kiwi International Airlines Case Study

John,

Thanks for your analysis. I think it’s right on point.

I just wanted to highlight a few things that seem to be operating below the surface with respect to Kiwi and the airline industry in general. Please correct me if you disagree. I would love to discuss more.

It seems that the airline industry has three elements that combined created an environment that was suspectable to value distruction.

First, airlines have massive operating leverage–most costs are fixed (labor, fuel). In other words, there is almost no variable cost associated with each incremental customer.

Second, while high fixed costs can create barriers to entry, (because it leads to lower per unit pricing for incumbents who can spread those fixed costs across a larger base or because of the massive upfront cost that many upstarts cannot handle) with airlines, there are low barriers to entry despite these fixed costs because of the ability to lease airplanes and get access to terminals, etc. [This is an interesting aspect of the industry that I would like to investigate further.]

Finally, airlines provide a virtual commodity product; a ride with one carrier isn’t different than a ride with another (despite attempts to create customer loyalty through frequent flier miles, etc).

Thus, it seems to me that when those elements are combined there is potential for an unprofitable industry and company. A small decline in pricing, for example, will flow directly to bottom line bc of operating leverage. That decline in prices is more likely because the product is a commodity, thus there is little ability to price at a premium. There are also few barriers to entry, so with new entrants coming in there will be pricing pressure.

Feel free to disagree and pick apart the analysis. I know I took a bit of a tangent off Kiwi but I thought this was relevant. Thanks!

For the airline operating in the United States with a similar name, see Kiwi International Air Lines.

Commenced operationsJuly 1994 (Charter Services), 23 August 1995(Scheduled Services)
Ceased operations27 August 1995(Charter Services), 9 September 1996(Scheduled Services)
HubsHamilton
Fleet size2 (as of 1996)
Destinations10 (as of 1996)
Key peopleEwan Wilson (CEO 1994-1996)

Kiwi Travel International Airlines was a New Zealand based airline which pioneered discount flights between secondary airports in Australia and New Zealand in the mid 1990s. The airline was established by Ewan Wilson and several associates. Ewan Wilson served as CEO and was later convicted on four counts of fraud.[1] The Securities Commission went further and banned Wilson for a period of five years from holding a Directorship or Senior Management position. At the time the Commissioner took the unusual step of publicly announcing that Wilson acted without moral regard.[citation needed] It was reported in March 2015 that Wilson was looking at restarting an airline, under the name Kiwi Regional Airlines.[2]

Charter services[edit]

The airline started out as Kiwi Travel Air Charters in July 1994, operating weekly charters between Hamilton, New Zealand and Brisbane, Australia, using a leased Air NauruBoeing 737-400. In December 1994, charters were operated to Brisbane, Tonga and Western Samoa. The network was expanded in April 1995 to include Queensland coastal cities, including the Gold Coast, Cairns, Townsville and Rockhampton. The last charter flight was operated on 27 August 1995, following the commencement of scheduled services.

Scheduled flights[edit]

Following the issue of the necessary Government permits, Kiwi Travel International Airlines commenced scheduled flights between Hamilton and Sydney using a leased Boeing 727-200 on 23 August 1995. The 727 aircraft was operated on behalf of Kiwi by AvAtlantic of the United States who also held the Air Operator's Certificate on behalf of the airline. Flights were operated from the New Zealand cities of Hamilton and Dunedin. Due to the short runways at these airports the aircraft could only take on limited fuel due to weight restrictions and needed to land in Auckland and Christchurch respectively to take on more fuel before making the trans-Tasman crossing. The airline offered full economy services as well as no frills "Peanuts and Cola"-class fares.

Competition, route expansion and fleet changes[edit]

By the end of 1995, Air New Zealand had established Freedom Air via its subsidiary Mount Cook Airline and operated in direct competition with Kiwi, offering the same routes and a similar fare structure. In early 1996, Kiwi replaced its Boeing 727 with a leased Boeing 757[3] from the UK-based company Air 2000, later replaced by a Boeing 737.[3] Freedom Air also operated a Boeing 737.[4] Kiwi also added a second aircraft, an Airbus A320,[3] and expanded its network to include Christchurch and the Australian city of Melbourne. By September 1996, trans-Tasman fares reached historic lows of $199 for return tickets between Melbourne/Christchurch and Melbourne/Hamilton.

Both Kiwi and Freedom operated with ad hoc liveries based on those of their lessors; Kiwi used a stylised Kiwi bird, while Freedom Air used a stylised sun.

Financial troubles and liquidation[edit]

Following intense competition with Freedom Air and a series of financial difficulties, Kiwi Travel International Airlines went into voluntary liquidation on 9 September 1996. Passengers on both sides of the Tasman Sea were stranded. In Brisbane, the company's Boeing 737 and Airbus A320 were taken by Airservices Australia in lieu of unpaid aviation fees. They were eventually returned to their owners.

Freedom Air ceased operations in March 2008, with its routes being taken over by its parent company, Air New Zealand. Air New Zealand stopped all international flights out of Hamilton and Palmerston North as of mid April 2009.[5] Flights from Dunedin have been reduced to a seasonal basis.

Further reading[edit]

  • Wilson, Ewan: Dogfight: the inside story of the Kiwi Airlines collapse. Auckland: Howling at the Moon, 1996. ISBN 0-9583568-2-3.

References[edit]