Epidemic fears hit Air NZ

By CHRIS DANIELS aviation writer

Air New Zealand has cut its earnings forecast by 13 per cent and grounded more flights because Sars fears are keeping Asian travellers at home.

The airline has reduced its pretax profit forecast to $200 million for the year to June 30.

It said in December it expected a full-year profit before unusuals and tax of about $230 million.

About $138 million of the profit was earned in the first half of its financial year.

Weak bookings have prompted the airline to cancel flights over the next two months.

These cancellations add to others already announced, and mean the 82 per cent Government-owned airline has cut 7 per cent of its international capacity in the past month.

Air New Zealand shares closed yesterday down 2c at 39c.

Hardest hit by the capacity cuts are the Hong Kong and Japan routes.

The frequency of flights has been reduced, and smaller planes are being used.

Some of the flights included in yesterday's announcement were introduced to expand Air New Zealand's services between Los Angeles and Auckland when the now bankrupt United Airlines stopped flying to New Zealand in April.

Air New Zealand says forward bookings on trans-Pacific and trans-Atlantic routes have strengthened, and domestic bookings remain strong.

The number of flights to and from Singapore, where Sars is present, has not been cut.

Cargo bookings, which play an important part in the profits from Asian routes, especially to Hong Kong, had "continued to hold", said Air New Zealand.

The drop in demand caused by the war in Iraq had not been as bad as expected, meaning a strong third quarter financial result.

Announcing the profit forecast cut and flight changes yesterday, airline chief executive Ralph Norris said the industry "clearly remains extremely volatile" and subject to "downside risk".

"This risk includes, but is not limited to, further decline in traffic, decline in yields, increased fuel prices and a decline in the New Zealand dollar," he said.

The cut in forecast earnings included "implying booking patterns into periods where late cancellations have not yet been seen".

Such last-minute cancellations could lead to more flights being dropped.

Sars and the war in Iraq have prompted Australia's Qantas to axe 1400 jobs.

Travel to Australia has fallen between 15 and 20 per cent.

The effect on Asian carriers has been particularly dramatic.

Hong Kong's Cathay Pacific, one of the world's most profitable airlines a few months ago, has cut more than 40 per cent of its scheduled flights.

A leaked internal memo suggested grounding the entire Cathay fleet until Sars fears eased.

Grounded

JAPAN
* Auckland/Nagoya/Auckland - all scheduled flights (three times a week) have been cancelled from Thursday May 15 until June 30 inclusive, a total of 21 return flights.
* Auckland/Kansai/Christchurch/Auckland - two of the six services a week have been cancelled (Sundays and Tuesdays ) in most weeks from Sunday May 25 to Tuesday July 1, a total of 11 return flights.
* A daily service to Narita will remain, but three of the five flights will be on the smaller Boeing 767, rather than a 747.

HONG KONG
* Auckland/Hong Kong/Auckland - Monday May 5 flight cancelled. This is as well as the cancellation of eight return flights announced at the end of March.

LOS ANGELES
* Auckland-Los Angeles flights cancelled on Friday May 23, Wednesday June 11 and Sunday June 15. These are in addition to the cancellation of five services announced last month.
* Customers due to fly on the cancelled services will be rebooked on the next suitable flight and told of the changes by their booking agent.