Owen Hembry

Owen Hembry is the business news editor of the New Zealand Herald

Fyfe vows to keep planes flying and cities serviced

Air New Zealand chief executive Rob Fyfe. Photo / Richard Robinson
Air New Zealand chief executive Rob Fyfe. Photo / Richard Robinson

Air New Zealand will not be parking its planes or dropping any markets as the listed airline looks to adjust capacity and boost profitability, says chief executive Rob Fyfe.

The company yesterday posted normalised earnings before tax for the six months ended December 31 of $33 million - down 71 per cent on the same period the previous year.

Fyfe said a review of the international network was nearing completion and announcements would made in the coming weeks as the airline focused on strengthening its Pacific Rim network.

Overall capacity in the international network was expected to stay the same during the coming 12 months but Fyfe said the airline was looking at changing frequencies and reducing and increasing capacity on some routes.

"So there'll be a rebalancing of the network and as a result of that we think we can create a quite a bit more value," he said. "There's no plan to park planes and there's no plans to exit any city or market that we currently service."

The airline is planning to cut 441 jobs before the end of the financial year - equivalent to about 3.8 per cent of the total workforce - with the majority of the reductions in management and support areas.

"Acknowledging this disappointing result we have already commenced a series of initiatives to improve the airline's profitability by more than $195 million per annum by [2015 financial year] through a combination of cost reduction, improved efficiencies and revenue growth," Fyfe said.

The company's focus on revenue growth included the recent launch of a pre-paid debit card, development of more alliances with key carriers like ANA in Japan, new services to Bali and Maroochydore as well as increased capacity to Vancouver, San Francisco and Los Angeles, he said.

The price of jet fuel had doubled during the past three years but a weak global economy was hindering the airline's ability to pass on the higher fuel costs to passengers.

When fuel prices rose in 2008 the airline was able to put in place double digit fare rises, Fyfe said.

"This time round the market just can't sustain those," he said. "If you try and put those fare increases in, demand will just drift away and passengers won't fly."

Other airlines had reduced services, including plans by Australian airline Qantas to withdraw its Auckland-Los Angeles service.

"If you look at that it's a very significant opportunity for Air New Zealand to clearly pick up a significant portion of that revenue and either fill seats on existing aircraft or in fact we will add some additional services into the North American market to meet that demand," Fyfe said.

The airline said that given the performance to date this financial year and the global economic environment achieving last year's result would be a challenge.

Shares in Air New Zealand closed down 3c yesterday at 86c.

Goldman Sachs head of research Marcus Curley said the result was below expectation.

"They will do better than they did a year ago in the second half [of the year] but they may not make up the shortfall against the first-half result," Curley said. "They certainly are credible steps they're taking however they are battling against some pretty powerful market forces."

Meanwhile, the Government is planning to reduce its stake in the NZX-listed airline from 73.4 per cent to 51 per cent, along with the sale of minority holdings in Mighty River Power, Meridian, Genesis and Solid Energy.

"Given the industry you wouldn't describe a substantial equity placement in any airline easy," Curley said.

Air New Zealand chairman John Palmer said the operating market was extremely difficult.

Despite the disappointing result the board had declared a 2c dividend which reflected a strong balance sheet and confidence both about the ability of the business to deal with the adverse effects and about the future, Palmer said.

- NZ Herald

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