Editorial: Airline to put profit on menu

When Ansett New Zealand first entered our skies, it prompted a revolution in airline service. Suddenly, Air New Zealand passengers were offered inflight meals and the choice of business class on domestic flights lasting little more than an hour. Some travellers were merely gobsmacked, the rest were incredulous. This was competition in action, chivvied along by the prevailing view of what air travel should be like. If that view has now changed, so, by logic and necessity, has the service of a battered and bruised airline.

From October Air NZ will dispense with meals and business class on domestic flights. The compensation for travellers will be cheaper ticket prices, as yet unsubstantiated by the airline. In effect, Air NZ is handing over to Qantas those passengers who demand to fly business class and who want inflight meals. On the surface, that appears a risky policy; in practice, it may not only cost the airline surprisingly little patronage but hasten its return to profitability.

The Air NZ chief executive, Ralph Norris, was quick to make the point that on average only one in four domestic business class seats was booked. The rest were filled by upgrades or frequent flyer customers. Indeed, only 2 per cent of the airline's revenue came from business class domestically.

It seems that New Zealanders, more egalitarian than most by nature, have been quite happy to pile into economy class for a short trip. Air NZ is not, however, about to gift holus-bolus to Qantas those who want business class extras. By upgrading Koru Club lounges and having them provide meals earlier and later in the day it is, quite cannily, still providing the most essential elements of those frills.

More fundamentally, Air NZ's strategy dovetails with what passengers now seem to value from an airline. Budget carriers had a shaky start, as evidenced by the demise of Freddy Laker's Skytrain in 1982. But, especially in the past few years, they have connected profitably with passenger needs and wishes. Air NZ will be a "value-based-plus" airline, but it wisely intends to expand its "value-based" subsidiary, Freedom Air, to help to ward off the possible threat posed by Virgin Blue, an airline with an impeccable budget pedigree. Air NZ could, in fact, face competition from Australian airlines at both ends of the spectrum. The key will lie in delivering on its promise of substantially lower ticket prices.

Air NZ's plan to increase the number of its transtasman and long-haul international flights also has a strong sense of logic. World travel is recovering from the shock of the terrorist attacks on the United States. Equally significantly, the airline is an essential cog in the national economy; that is why the Government paid $885 million to bail it out last year. Thus, the increased frequency of flights has welcome freight implications for exporters, as much as it will benefit international travellers.

Air NZ's strategy is based on reduced revenue from cheaper fares being offset by lower operating costs. It may yet be pleasantly surprised by the revenue side of the equation. Lower fares on domestic routes should entice more people back into the air. A user-friendly online booking system will also help.

Air NZ has responded realistically to its woes. Among the unfortunate consequences is the loss of 200 jobs. This, however, was no time for flights of fancy. Air NZ cannot afford them. Sacrifice now should avoid more dire consequences later.

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