Air NZ's chief upbeat on prospects

Air New Zealand chief executive Rob Fyfe is optimistic about his airline's prospects next financial year in spite of grim warnings of fragility in the aviation sector.

Speaking on the sidelines of the International Air Transport Association's annual meeting in Beijing, Fyfe said he was positioning the airline to remain profitable even if fuel prices returned to high levels.

But the fragile state of the industry and airlines' depressed share prices around the world did mean that the proposed selldown of Air NZ shares by the Government would be some years away, he said.

"Globally it's looking pretty tough for airlines but it's quite different regionally.

"Asia Pacific is going quite well and the US market is going quite well."

It was not possible to give any guidance. "I'm very optimistic about the year ahead, far more so than what the industry average outlook is," Fyfe said.

Association director-general Tony Tyler told 750 delegates profits would be squeezed in the next year, with margins of just 0.5 per cent on industry revenues of US$631 billion ($813.5 billion).

If the eurozone crisis worsened, falling consumer demand could wipe out recent gains from fuel price declines.

Cuts to revenue of just 1 per cent could mean a forecast US$3 billion profit could become a US$3 billion loss.

"The industry's profitability is balancing on a knife edge," Tyler said.

In spite of Fyfe's confidence about an improved 2012-13 financial year, Air NZ has readied the market for a disappointing 12-month result.

Fyfe said his optimism was based on cost cuts over the past three years, redeploying aircraft, good domestic results and the positive spin-off from Air NZ's 20 per cent equity stake in a well-performing Virgin Australia.

There are some caveats, though.

"The challenge I've set the team is that we want to be able to deliver long-run acceptable levels of profitability at fuel prices up to US$130 to US$140 [a barrel]," he said. "If we see prices in that range and we don't see another global financial crisis as a result of what's going on in Europe, I'm confident that we're going to return to much more acceptable levels of profitability."

Fyfe said the airline had assessed investing in Qantas and Tiger Airways before deciding on Virgin.

Qantas' announcement last week that it faced its first bottom-line loss since being listed had vindicated the decision.

"I guess it's a further substantiation that we made a really good call."

Fyfe said he got no satisfaction from seeing an airline struggling to the extent Qantas was. "When an airline comes under enormous pressure like that it destabilises the whole competitive environment."

This would have a further bearing on any selldown of the Government's stake of about 75 per cent to 51 per cent.

"It looks like a good time for buyers and a poor time for sellers ... I'd be surprised if [the Government would] be wanting to sell at these price levels."

Air New Zealand's share price closed unchanged yesterday at 86.5c.

STAYING GROUNDED

The idea of competing against Air NZ has put Rob Fyfe off taking another airline job.

Fyfe retires on December 31 and says he has no firm plans about what he'll do next.

He is unlikely to be working for another airline, even though he has had offers.

"I've been very passionate about Air New Zealand. It's almost like having a third child."

He could not think of another airline he would want to be a part of. "I'm not someone ethically or philosophically [who could] take that passion and work for a competitor the next day."

Fyfe has been on the International Air Transport Association's board of governors for the past three years and overnight was due to be honoured by other airline bosses after a gala dinner at the Great Hall of the People in Beijing's Tiananmen Square.

Grant Bradley travelled to Beijing courtesy of IATA and China Southern Airlines.