Air New Zealand will cut capacity across its domestic network in the next financial year as its growth outlook weakens, prompting one travel expert to warn of fare increases.
The airline says its domestic growth has increased 20 per cent during the past five years to around 13.8 million seats.
However, there will be a ''slight decline'' of 2 per cent in domestic seats in the coming year.
This will be achieved by ''targeted frequency reductions in select markets,'' an investor day presentation slide says.
Air New Zealand has seen a slowdown in domestic demand, particularly from leisure travellers as economic growth weakens. Overseas tourists fill about a quarter of the airline's domestic flights and high international visitor growth rates have also slowed.
An Air NZ spokeswoman said that from July it will begin making some mostly off-peak frequency reductions to domestic main trunk routes plus some regional services out of Nelson, Napier, New Plymouth, Palmerston North, Blenheim and Tauranga.
She stressed this is a reduction in frequency rather than pulling out of centres and the airline ''remained committed to all routes in New Zealand".
It is starting a new route - Auckland to Invercargill - later this year.
Helloworld Travel executive general manager Simon McKearney calculates the cuts will amount to 276,000 seats which will have a ''significant'' impact.
''It goes without saying that a capacity reduction will lead to fare increases – pure economics with supply versus demand,'' he said.
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He said there will still be discount fares.
''The Air NZ marketing team will still utilise discount channels for the relatively small number of seats per flight so my advice would be if you see a cheap fare and it roughly matches what you want – grab it and work around that flight time.''
This could mean committing to travel plans at an earlier stage, said McKearney.
Jetstar too has already been cutting domestic capacity.
Jetstar has announced seasonal cuts to its turbo-prop services between Auckland and New Plymouth and figures seen by Herald show it is also cutting back its Napier, Nelson and Palmerston North services.
A spokesman said that during the quieter, off-peak winter months Jetstar has reduced its domestic regional schedule by around 10 per cent.
The airline is also ending its three times weekly Dunedin-Wellington service tomorrow but that capacity transfers to two extra weekly flights from Auckland to Rarotonga over winter. Jetstar is also boosting Wellington-Queenstown flights from October and says in the peak summer flying period its schedule has been stable, or slightly increased in high-peak in December and January.
Yesterday, Air New Zealand told investors it had cut up to $60 million off forecast pre-tax profits in just two months as high fuel costs hit.
The airline has dropped guidance for earnings this financial year to $340m, the bottom of its previously announced range.
"Based on the current market environment and reflecting an additional approximately $25m headwind from increased jet fuel prices (assuming an average price for the second half of the year of US$78 per barrel), we are targeting 2019 earnings before taxation to exceed $340m," the airline said.
That compares with a target range for operating earnings of between $340m and $400m given on March 28.
Its first-half net profit dropped by 34 per cent to $152m.
Last year, it was forecasting pre-tax profits of between $425m and $525m for the current financial year.
The airline has underway a process to carve 5 per cent from overhead costs of support services in response to a dip in demand growth that emerged late last year. It has also been hit by rising operational costs, mainly fuel.
Growth across its network had been pared back to between 3 per cent and 5 per cent on average, during the next three years, revised from 5 per cent to 7 per cent to reflect slower demand.
Air New Zealand's share price has fallen in the past year from $3.27, closing last night at $2.72.
After yesterday's investor day, Forsyth Barr analyst Andy Bowley said inflationary pressures were evident across labour and other operational inputs increasing the need for yield advances.
''The cost backdrop has deteriorated in recent months while demand is consistent with management's revised outlook from its January profit warning,''
The airline yesterday announced it would buy eight new Dreamliner 787-10 aircraft to replace its 777-200s from 2022. The airline has options to buy 12 more Dreamliners but this would depend on travel demand.
While the big airlines are cutting back, one airline has announced expanded services.
Air Chathams says its Auckland-Whanganui flights had become so popular in the past three years it would put a larger plane on the route on the weekend during the next three months.
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