Air New Zealand chief executive Christopher Luxon. Photo / Greg Bowker
Air New Zealand chief executive Christopher Luxon. Photo / Greg Bowker
Salaries for Air New Zealand's top executives have been frozen for the next year as the company battles costs.
The airline has under way a process to carve 5 per cent from overhead costs of support services in response to a dip in demand growth that emerged late last year. It has also been hit by rising operational costs, mainly fuel.
Chief executive Christopher Luxon has told staff that as part of the overhead cost review, the nine-member executive had chosen to freeze salaries for the next 12 months.
Luxon, whose total remuneration was $4.6 million in the 2017-18 financial year, said jet fuel price increases would add $200 million in extra costs over the past year and these high costs were expected to carry into next 12 months.
International jet fuel prices have risen by more than 3.1 per cent during the past month.
"These are quite eye-watering numbers and the executive has been looking at every area of our business for savings to offset these increases as well as hunting out opportunities to increase our revenue from ticket and cargo sales," Luxon said.
Staff have been told of the plans to reduce overhead costs and last week executives interviewed two international consultancies to partner with the airline to deliver savings.
"We expect to announce our partner to run a three-month project within the next fortnight."
Regional general manager Asia Scott Carr has been brought back to New Zealand to lead the project.
Salaries have already been frozen before.
A decade ago, in the aftermath of the global financial crisis, executives at the airline temporarily froze their salaries.
The airline has already announced a two-year programme to achieve more than $60m in additional savings a year.
Frontline roles will not be affected by the current review which is concentrated on the airline's head office. Bonuses for staff who are not on incentive programmes are likely to fall. They hit a high of $2500 in 2016.
The freeze came after several years of high profits, including a record result two years ago.
In January Air New Zealand warned that profits would be lower than forecast following softer bookings and concern about future revenue. Slowing domestic growth and levelling out in the number of international visitors had hit the airline.
Air New Zealand will be juggling costs throughout the business. Photo / Greg Bowker
Its first-half net profit dropped by 34 per cent to $152m and it expects earnings before tax of $340m to $400m for the year ended June 30, which included the impact of the global Rolls-Royce engine issues affecting Dreamliners.
That is down from the previous forecast of $425m to $525m.
In March the airline announced it would scale back capacity growth on some routes and deferred $750 million of aircraft purchases.
It will defer by one year the delivery of three A321neo aircraft planned to operate on the domestic network, and defer by two years the delivery of one A320neo aircraft designated for transtasman services.
It will also defer by at least four years the delivery of two long haul aircraft as part of a widebody fleet programme to replace the airline's B777-200 fleet, thereby decreasing the level of capital expenditure expected in the 2020-2023 financial years.
Its also planning for network growth of 3 per cent to 5 per cent on average, over the next three years, revised from 5 per cent to 7 per cent to reflect a slower demand growth environment. It would target growth on successful recently launched routes between Auckland and Taipei and Auckland and Chicago, and start a new service to Seoul from late November.
The airline's share price has fallen from $3.39 a year ago to $2.75.
