Airline feels pain in 'tough old industry'

Air NZ chief Rob Fyfe (left, with chairman John Palmer) said the airline had been more agile than competitors and where required dropped routes. Photo / Brett Phibbs

Air New Zealand chief executive Rob Fyfe has spent the past year trying to keep ahead of the pack in the toughest conditions airlines have faced for 60 years.

His job isn't going to get much easier this current year, with only muted signs of improvement.

"Our challenge is to work out how to stand aside and not get caught in the tidal wave of appalling performances," he said.

The airline reported a 26 per cent fall in full-year normalised earnings before tax of $145 million, while bottom-line net profit was down 90 per cent to $21 million.

In spite of being hammered by high and fluctuating fuel prices and a slump in passenger demand, particularly on long-haul routes, the airline is taking some comfort from staying in the black.

Dozens of small airlines, mainly in the United States, have collapsed and globally $13 billion in losses are predicted in the industry this year.

Yesterday Australian based Virgin Blue, a slightly smaller airline than Air New Zealand, reported a $197 million loss, while last week Qantas' full-year pre-tax profit plunged 87 per cent to $220 million.

Auckland University economics professor Tim Hazledine said the results bore out a long-term trend. Most airlines don't make money in the long run.

"Most of the network carriers are struggling. Given that, Air New Zealand has done pretty well. It's a glamour industry and people are willing to take a low rate of return on it."

Company chairman John Palmer said the airline was one of the top global performers but the result fell short of "delivering to shareholders an appropriate commercial return".

Fyfe said although there were signs of the slump in air travel starting to bottom out, it "would be naive to think there won't be bumps on the road to economic recovery". There were some signs of a pick-up in demand from the US and Asia but Europe remained particularly challenging, with very little upturn.

Speaking after delivering what is the sharpest reversal for the airline in seven years, Fyfe said: "This is a tough old industry."

The airline had not been smarter at predicting what the market was going to do but had been more agile than competitors, parking capacity and where required dropping routes.

Not much would change in this financial year. "For us the factors that will drive our success will be the same. It will be about being agile. It will be about being creative, innovative, being bold and being prepared to trial new products, new pricing strategies when it comes to new routes."

Equally, the airline would continue to drop services where required. It had to be "bold enough to take the heat when you take planes off new routes which cost you an arm and a leg to operate".

Hamilton and Dunedin have lost transtasman services and other routes have used smaller planes as the airline cut capacity by 7.2 per cent across the group.

"Some communities would like to think we'll keep flying in and making those losses. Sadly that's not sustainable because there's no other part of our business where we can compensate," he said.

"We don't like exiting routes - it's very hard to get back on."

Air New Zealand pays out $750,000 a day for airport and navigation charges but those airports which worked with the airline to "reduce that cost burden" could help make services sustainable.

"We can't afford to spend the money of our 25,000 shareholders down the drain."

Fyfe has been in the top job for four years and said the company had been loathe to "slash and burn" staff during the slump.

Of around 11,000 staff, 467 had been made redundant, with 70 per cent of those volunteering to go.

There were no plans for further job cuts although the airline had frozen base salaries for executives and implemented other measures to cut wage costs.

"You can't give any guarantees but there's nothing in the pipeline at the moment."