Air NZ fires predatory pricing shot at cut-price Qantas rival

By Graeme Kennedy

Friday 22nd March 2002

RALPH NORRIS: It is difficult to compete with a rival 'prepared to lose money while being subsidised to gain market share'

Expect fewer frills on Air New Zealand domestic and regional services but an improved long-haul product as the carrier brings in new strategies to achieve its target of profitability within 24 months.

Chief executive Ralph Norris said the company had effectively "cleared the decks" with the Ansett Australia collapse behind it following the $376.5 million loss for the half-year to December 31 and was now building for the future from a new base.

Mr Norris said a new short-haul strategy to include domestic and southwest Pacific services would be in place within six to eight weeks to make those operations more efficient, cost-effective and appropriate to customer needs.

"There have been big changes in the aviation industry and they have been crystallised with the events of September 11," he said. "The mystique of aviation in the past has gone and it is now more a commodity-type product which customers want to be value-driven.

"We will meet these requirements through our product - what's in the aircraft, the meals and entertainment. We are looking at the network, frequency and the most appropriate aircraft to match our customers' needs."

On domestic pricing - where Qantas fares are consistently lower than Air New Zealand's - Mr Norris said it was difficult to compete with a rival "prepared to lose money while being subsidised to gain market share.

"Qantas will lose $45-50 million this year with its four aircraft at its current fare levels and I make no apologies [for Air New Zealand's rates] - we want to make reasonable returns."

Mr Norris said Air New Zealand was getting legal advice on the possibility of making a complaint of predatory pricing to the Commerce Commission, but with a 70% market share compared with Qantas' 20%, he conceded it would not be easy to prove.

The carrier had begun developing long-haul strategies, including reviewing the route structure and improving its first- and business-class product. Air New Zealand still offers only seats in both cabins while increasing numbers of competing carriers have flat beds in both classes.

"We are aware that our premium offering is not as competitive as it was five or six years ago and we are aware of the need to improve the product," Mr Norris said. "But there is an advantage in coming in later to get the most recent developments in entertainment and seat technology.

"We are getting lower yields from our first- and business-class cabins than the competition but yields across the industry have been much lower."

Mr Norris said upgrading would mean a big investment and the company was looking at its capital position, including a rights issue, as it moved forward .

"We've got to make sure we have the capital to do some of the things we wish to do. Our current cashflow position is positive - we are not bleeding cash at the moment."

He said the company had targeted cost savings of $160 million for this year and had achieved $144 million by the end of December.

Staff would be reduced by 800 by June and numbers were now 400 below the pre-September 11 strength. Mr Norris said management was down 22% with the loss of 61 positions.

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