Air NZ takes frills from short routes

By Felicity Anderson, Nzoom.com Business News Editor

Tuesday 28th May 2002

Air New Zealand has cut the frills out of service on its main route domestic services.

Passengers will only get tea, coffe or water on what the airline is currently calling a new "Air New Zealand Express".

A new fare structure will be announced in mid-July and will go on sale from the end of that month fro take off on October 27.

It was not revealing what those fares might be.

The airline hastened to assured travellers there would be no change to the redemption of air points. It was also looking at how to enhance the value of airpoints earnt on domestic services.

The airline says the cost saving measures announced on Tuesday are the first of its three-phase strategy for the future.It says the moves comes after substantial research showed that having a meal on flights was low on the priority list for most domestic travellers.

It says while it will mean the loss of some 200 jobs across the company, with the bulk in the corporate area, there was opportunity for deployment for many staff with the growth opportunities it was forecasting for next year.

Air NZ Managing Director Ralph Norris said most of those job losses would be through natural attrition

The idea of running a budget airline like the European successes Ryanair and Easyjet was floated soon after Air NZ announced its bottom line loss of $376.5 million for the six months to the end of December.

While most of that was writing off its losses on its failed Australian subsidiary Ansett, Norris made no secret of the fact he wanted the airline turned back around and profitable within two years. But to do it Norris said the balance sheet was going to have to be improved.

The budget airline idea was floated soon after the March loss was reported and appears to have been generally accepted by the market place. As one local analyst said: "How much do you want to pay for an orange juice and a sandwich on a one-hour flight?"

An Australian aviation expert Peter Harbison calculated it was possible for Air NZ to save 40% in its costs by converting a 737-300 from 125 economy class and 12 business class seats to an all economy cabin of 144 seats and flying the aircraft 12 hours a day, instead of about 8 hours.

The airline said it would infact increase the number of seats to 136 with the removal of the business class and that would involve the reconfiguration of the 737-300s with new ergonomically designed seats from next year.

More than 1.8 million Air NZ shares traded in the lead up to the announcement with the share price between 61 and 62 cents.

At 61 cents with 4.5 billion shares on issue, the airline's market cap is at $2.562 billion.

One analyst said that without the government's financial bail out under the old ownership that would require an equivalent share price of $3.38 a share.

Air NZ now flies domestically to 26 ports. It does eight routes of the mainline and 48 routes in the regions with its "Link" subsidiaries Mount Cook, Air Nelson and Eagle.

It points out that some of those routes are unprofitable. But to meet the needs of the travelling public it says it is "required" to fly those routes.

Air New Zealand claims to have around 74% of market shares domestically and 44% on the transtasman route. The two markets between them produce gross revenue of around $1.182 billion a year, or just under 40%.

The airline says it carries around five million domestic passengers and three million international passengers a year

Air New Zealand employs around 9,680 staff at a cost of $631 million a year. It has an indirect impact on the employment of 26,000 other New Zealanders, partly through the sourcing of $1.1 billion worth of product and services from local suppliers.

Miller says the company is the single largest contributor to NZ's tourism industry, spending $70 million a year promoting the country and also working with central and local government and other organizations.

Miller says analysis of expenditure by product shows the largest increase in tourism expenditure between 1997 and 2000 was in air passenger transport. That grew by 23%.

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