Air NZ ready to drop routes, capacity to meet market, Fyfe says

Wednesday 24th September 2008

Air New Zealand, among the six worst performing stocks on the NZX 50 Index this year, is ready to drop routes and reduce capacity if global demand for travel falls, said chief executive Rob Fyfe.

"As the global credit crisis continues to deepen, its impact on demand is now emerging as a major concern for the aviation industry," chief executive Rob Fyfe told shareholders at their annual meeting today. "Closely matching capacity to demand will be a core focus for 2009," he said.

Fyfe cited estimates that some 20 to 30 airlines may fail before the end of the year, adding to 24 that collapsed in the first half on higher fuel and credit costs and reduced demand. Airline losses may reach US$6.1 billion this year, more than wiping out combined profits of US$5.6 billion they earned in 2007, according to the International Air Transport Association.

The airline has already trimmed flights between Japan, Hong Kong and New Zealand while adding capacity to its Auckland to San Francisco route. Total long-haul capacity has reduced by 6% since the end of the 2008 financial year, Fyfe said.

Chairman John Palmer says the airline is well placed to weather further turmoil in financial markets because it has only modest capex plans, having completed an upgrade of its fleet, and a strong balance sheet.

Still, "recessionary forces that are evident in a number of markets" will dent demand for air travel, he said. "Airlines industry-wide are acknowledging weakening demand and Air New Zealand is seeing booking profiles shortening in some markets."

Last month, Air New Zealand posted a 24% drop in annual profit because of higher prices for jet fuel and a drop in travel demand.

Air New Zealand shares rose 1.9% to $1.05 today and have declined 43% this year.

By Jonathan Underhill

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