Jetstar wins NZ government travel contract, but will still have to battle Air NZ

Jetstar has been included in New Zealand’s All-of-Government Air Travel Services panel for the first time, and hopes to pick up a slice of the lucrative NZD220 million annual market. But all eyes are now on Air New Zealand, which didn’t make it onto the panel and is still in negotiations with the Ministry of Business Innovation and Employment.

The panel for the 10-year supply of air services to the New Zealand Government and all its agencies, commencing on 01-Mar-2017, consists of:

•      Emirates

•      Etihad

•      LATAM

•      Lufthansa (also includes Austrian Airlines and Swiss International Airlines)

•      Qantas (Qantas for International and Jetstar for domestic)

•      Singapore Airlines

•      Sounds Air

•      Sunair

•      United Airlines

•      Virgin Australia

According to Wellington’s procurement department, the Government will be working with participating agencies to help them transition to the new contract.

“The contract is designed to complement other AoG travel contracts (travel management services and rental vehicles), and be flexible enough to enable agencies to achieve best value,” the Ministry explained in a statement.

As would be expected, the Qantas Group has welcomed the New Zealand Government’s announcement including both its Jetstar domestic operation and Qantas’ international services in the Government air travel contract.

Qantas is already included in the supplier contract which expires in Mar-2017, but Jetstar Group CEO Jayne Hrdlicka has hailed the inclusion of the LCC as “great news for New Zealand taxpayers”.

“As we have done for consumers, we’re bringing more choice and competition for Government air travel,” she said.

Jetstar, which entered the New Zealand domestic market in 2009, operates up to 500 flights a week across 11 routes and nine destinations and carries more than 2 million domestic passengers every year in New Zealand.

Jetstar’s selection is causing political waves

The selection of an Australian owned airline as a provider of domestic services for New Zealand’s Government, politicians and agencies is already under political attack, with Mr. Winston Peters, leader of the NZ First party, questioning the appointment in Parliament.

“Why would (the Prime Minister) allow a cross-agency contract with Australian-owned and operated Jetstar, which has a horrible track record of flight cancellations and delays, such as leaving passengers stranded at Dunedin Airport for 13 hours just yesterday (12-Feb-2017)?” he asked.

The New Zealand Government has previously come under fire for snubbing Jetstar, with the Taxpayers’ Union criticising Ministers for being “too posh” to fly the LCC.

“Some would say that politicians prefer Koru lounges and canapés than roughing it for a short flight with the rest of us. Others might just prefer Ministers practiced what they preached,” the Union said.

However, the Government countered that Ministers received a better deal by flying exclusively with Air New Zealand under the All-of-Government contract.

Air New Zealand’s role remains unclear

The Ministry of Business Innovation and Employment is still in discussions with other air travel suppliers, including Air New Zealand, with a view to including them on the panel.

Air New Zealand is 52% owned by the Government and is a significant provider of air travel to Government.

The airline enjoyed the lion’s share of the Government’s domestic business under the current arrangements and is no doubt buoyed by the appeal of its Koru lounges and frequent flier programme which will continue to encourage travellers to choose it above its low-cost competitor.

The inclusion of Jetstar may have strengthened the Ministry of Business Innovation and Employment’s bargaining position with the airline, but officials have to be intensely aware of the challenge they face in enforcing a ‘best fare of the day’ policy and overcoming the lure of loyalty points and lounge access.

The challenge will be most pronounced if Jetstar hopes to get Ministers onto its flights. While some agencies are bound by the contracts and the selected panel, the Parliamentary Service – responsible for the travel of Cabinet members – is not, and Ministers will be free to choose whether or not to fly with Jetstar.

So, all eyes are now on the negotiations between the Ministry and the flag carrier, although there is no indication of the timing of an announcement, even though the contract enters force very soon. Despite the current omission, it is hardly likely that Air New Zealand would be excluded.