Air NZ out to plug Tasman losses

Air NZ aims to staunch big losses on the Tasman market with a plan to slash costs by 10 per cent by merging its Freedom Air subsidiary into a new operating company.

Both brands - Air NZ and Freedom - will remain but their crews and planes will be looked after by the same company.

In another move designed to return its Tasman and Pacific operations to break-even status, Air New Zealand will also start using its new, bigger Boeing 777 jets more often on shorter routes.

Outgoing chief executive Ralph Norris said this month that a "radical new approach and a degree of fortitude are required" to stem big losses on the Tasman.

Group general manager (airlines) Rob Fyfe said yesterday that yields on the routes had fallen 25 per cent in the past two years.

Although the proposal to merge the Airbus A320 fleets had been signed off by the board, consultation with affected staff and unions was needed first.

Cabin crew who worked on the domestic Boeing 737 fleet would stay with that aircraft type, and a common pool of A320 crew would be used across Freedom and Air NZ aircraft.

There would be no redundancies, because natural attrition was expected to provide the cut in staff numbers sought. Fyfe said the productivity and efficiency of crews could be improved when they stuck to one type of plane.

Air NZ would not reduce fares as a result of the cost-cutting. Fyfe said business-class seats would remain on the Air NZ aircraft, and reconfiguring Freedom's planes with business seats was a possibility.

Although Freedom was being brought closer to the Air NZ parent, this did not mean it would lose any identity, Fyfe said.

"We want to end up closer to the Freedom cost base than the Air New Zealand cost base."

Ten per cent of the anticipated performance improvement would come from labour savings and a "big chunk" would come from doing more bookings online - on both sides of the Tasman. Currently 50 per cent of all transtasman flights booked from NZ were booked online.

Fyfe said fares were not likely to fall as a result of the cost-cutting.

"This is not intended to drive a fare impact, given we're making a big loss. Our challenge is to see if we can stem that loss and get to a break-even position."

Air NZ's main rival on the key transtasman routes is Qantas, but recent entrants include discount Australian carrier Virgin Blue and Emirates Air.

This month, Air New Zealand trimmed its forecast full-year operating profit by 8 per cent to around $220 million before tax and unusual items, because of high fuel prices, which account for about 20 per cent of its costs.

Air NZ is spending more than $1.35 billion on 10 Boeing aircraft, including a pair of new 7E7 Dreamliners, and $350 million on 15 Bombardier Dash Q300 planes, to further cut costs and boost capacity.

Shares in the airline, which is 82 per cent owned by the Government, closed steady at $1.40.

- additional reporting: Reuters