Air New Zealand's Greg Foran: The numbers are still not adding up

Air New Zealand chief executive Greg Foran warns of more pain ahead. Photo / Will Trafford

Air New Zealand chief executive Greg Foran has launched an ambitious 800-day recovery plan to get back to profitability but warns of more financial pain to get there.

In the face of intensifying anger from unions, he says more jobs are on the line, on top of the 4000 who have left the company voluntarily or been made redundant since it was gripped by the Covid-19 crisis in early February.

He revealed the airline would start drawing on a $900 million Government loan within months, defended its handling of the ticket refund issue and said he would take a more prominent public role for the airline in the future.

He said he was also confident the airline had a ''deep bench'' that would allow it to cover the loss of three senior executives with close to 70 years' operational, network and marketing experience. He said no stone had to be left unturned in seeking out cost savings.

Foran has been in the top job for just over four months and warned more labour cost savings would have to be made although further forced redundancies would be a last resort option.

''We would rather explore all other options (but) for the next financial year we will do well under half of what it was doing pre-Covid and at this point we've taken out about a third of our workforce - if you can do the maths you can see we've got a little bit more than we can do,'' he told the Herald.

But E tū union says cost-cutting of a further $150 million on top of initial labour cost reductions of around $370m will further damage relations within the airline after staff lost trust in senior managers during the first wave of redundancies.

"The company is heavily focused on saving money and is in danger of being blinded to the importance of treating both employees and customers with respect," says the union's head of aviation, Savage.

Foran has outlined a three-step programme - ''Survive, Revive and Thrive'' which, over the next 800 days, is aimed at getting the airline back to ''healthy profits'' even though it may be only 70 per cent the size it is today.

The Survive part of the plan would run until the end of August this year for the airline that's annual revenue evaporated from $6 billion last year to almost nothing for a couple of months.

Although there is encouraging domestic demand - which he said had come back sooner than forecast - there was still uncertainty about when a transtasman bubble could start.

When the crisis first hit, the airline had hoped long haul international services - especially to the United States - may resume later this year but that had been pushed out well into 2021, he said.

In March the airline negotiated a two tranche loan with the Government for $900 million which it would tap into within the next two months as cash burn had seen its reserves dive from just over $1b to around $650m in five months.

Interest rates for the loan are high - ranging from 7 per cent to 9 per cent and Foran said the airline had already had discussions with the Government about that. Although there was provision to convert that to equity, the Government's 52 per cent stake felt ''about right,'' he said.

Foran has had a relatively low public profile since he started and he said this was due to his being deep in working through a survival plan for the airline.

The airline's chief revenue officer Cam Wallace has been prominent on social media, giving updates on operations and this week sent out to defend it over sustained criticism of its refund policy.

''I think Cam came forward to do exactly what he needed to do and I'm very happy in my role to now lean in and do what I can do to communicate where we're at in terms of refunds and credits.''

Although the airline has offered credits for flights - many of them sold as non-refundable - refunds were a frustrating issue for it and customers.

''It is something that is beyond our control and we're managing our way through it,'' Foran said.

The Revive stage

He said the airline would be into the Revive section on September 1, if it had completed the survive phase and reduced its cost base to match the much smaller business it was compared to pre-Covid-19.

''We are also hopeful that around this time the nation will well and truly have returned to level 1 and that Tasman and Pacific Island flying could be returning for leisure and business travellers,'' he said.

On the transtasman bubble, he hoped it could be in place for the July school holidays but accepted governments needed to make the decision after assessing the health risks.

''We are poised and ready and we'd like to see it happen as soon as possible in the most responsible way.''

However, it was not factoring a return to long haul flying of any note until next year.

''We believe that until there is a vaccine, effective treatment or elimination of the disease in key markets, the New Zealand Government will not fully open its borders for growth in long haul air travel.''

Digital would be at the core of what it does.

He said the airline would use information it has on its customers to help them book and travel and would be a digital company that ''monetises through aviation and tourism'' in a sustainable manner.

The Thrive phase

"As we thrive we will not focus on size, but on quality. We will be smaller, flying fewer routes but we will not change our outstanding reputation for care, compassion and heart.''

The airline, which is now under intense pressure from customers over refunds, had these values which stood it apart, said Foran.

''We will also lead in areas relating to climate change, particularly carbon emissions.''

The Tasman and Pacific Islands offer the best value option for customers.

International would be focused on an excellent product offering and delivery for our business and premium leisure customers.

''Supported by best in class digital products across all fleets, allowing for seamless customer and staff interaction which improves the experience and reduces our costs,'' he said.

''And we owe it to all the Air New Zealanders who have left us through redundancy, or who are on furlough, or who are on reduced hours, to achieve that and to get them back into the airline full time.''

Air New Zealand planes stored on the tarmac at Christchurch Airport. Photo / AP

The airline has set some ambitious targets by 2022. It wants to:

• Take care better than any other airline on earth

• Be operationally efficient and excellent at all we do

• Enables Kiwis to fly again, after all, we are a nation of great explorers

• Plays a critical role in helping New Zealand's economy get back on its feet

• And is seen as the carrier of the most revered nation on earth in a post-COVID-19 world.

The airline last month confirmed it expects to report an underlying loss for the 2020 financial year while estimating hedging losses and aircraft impairments of up to $560 million.

The airline, which has yet to draw on the Government's $900m loan, said on May 26 it was clear that it would take some time for demand to return to the level of business before the Covid crisis.

The airline had deferred delivery of three Airbus A321s from 2021 to 2022.

For the second half of the 2020 financial year, Air NZ's network capacity is expected to be around 50 per cent lower than the prior comparative period, driven by a drop of about 90 per cent in the fourth quarter.

In light of this and the fact there was very little revenue coming in during alert levels 3 and 4, the airline is now expecting to report an underlying loss for the 2020 financial year.

In its market update, the company said it would feel the impact of $85m-$105m from fuel hedging de-designation, aircraft impairment charges of $350m-$450m, and reorganisation costs of up to $160m in the full financial year.