Air New Zealand expects to see 20 percent profit growth

By NZPA

Thursday 1st August 2002

Air New Zealand's new fare schedule is expected to stimulate 20 percent growth in the New Zealand market, where the majority of Kiwis have never flown.

Air NZ announced details of its new short-haul Express service, which will slash air fares while removing business class and in-flight meals.

Air NZ chief operating Andrew Miller said today the projected growth was exclusive of the company's budget carrier Freedom Air, which is exiting domestic travel to concentrate on trans-Tasman flights.

"We expect at least a 20 percent stimulation in growth...that's excluding Freedom," he told National Radio.

"What we noticed with Freedom on the domestic trunk operations, because of its low fare regime with direct selling, was that it did stimulate the market quite significantly and we decided to follow their lead in a lot of areas by introducing these low fares, and introducing low fares through the Internet.

"We feel fairly confident that there's 20 percent stimulation there by reducing some of the fares by up to 50 percent and on the main trunk reducing fares on average by about 28 percent," Mr Miller said.

Air NZ had studied the United Kingdom, Europe and the United States, where other carriers had introduced low fares into markets where fares had historically been a lot higher.

"We know that 20 percent (growth) is fairly realistic, in the first 12 months," Mr Miller said.

Freedom Air's low fares meant that at least 80 percent of customers out of places such as Dunedin had been new to the travel market.

"In New Zealand, at least two-thirds of the population have never flown domestically, so we believe that getting more of these people into the flying market is important."

The airline was also hoping to keep its premium business passengers with more expensive fares that can be transferred, refunded and earn air points. It is enlarging its business travellers' Koru Lounge at Auckland Airport.

"Historically load factors on the domestic network have been fairly low, in the high 60s (percent) to low 70s, so every aircraft we fly around has at least 25 percent of the seats empty. Our intention is to fill those seats with these new low fares," Mr Miller said.

Yields per seat would drop after the introduction of the express service, but there would be more seats on each plane.

Inbound tourism had not suffered following September 11 to the extent that other markets had experienced. Inbound traffic from Japan has risen 6 percent, whereas visitor numbers had declined by 10 percent from Japan to other countries.

Selling tickets across the Internet was the most cost-effective way for Air NZ to sell tickets, and the airline's cheapest fares were now only available through its web site.

Air NZ chief executive Ralph Norris said the airline was not worried about Qantas' reaction to the new service.

The airline's restructuring of its domestic and short-haul services was in part a bid to head off competition from Qantas, which recently announced it would increase trans-Tasman flights.

"Qantas is losing a lot of money in New Zealand, the New Zealand travelling public is being subsidised by the Australian travelling public to the tune of tens of millions of dollars," Mr Norris told Radio New Zealand today.

The president of the Travel Agents' Association, James Langton, said the association "warmly" welcomed the new fares.

Keeping the travel agents happy will be one of the big challenges for the new-look domestic Air NZ, which has axed its flat commission payments.

"Air NZ is saying these are cheap fares, and we acknowledge and applaud them for it, no doubt about that," Mr Langton said.

"We just want to ensure the travelling public has choice as to where they go. We are acting in the best interests of the consumer by providing choice, Air NZ is offering their own product.

"I believe for a product to be distributed there needs to be some form of remuneration."

The association placed an open letter in the New Zealand Herald yesterday, urging the travelling public to use travel agents and warning them against online booking.

The deals announced did not include GST and service levies and a $10 booking fee if not booked online. That would increase its promoted $120 return Wellington to Auckland fare to $175.

The new fare types, each with different conditions, are aimed at budget travellers, using "use it or lose it fares" that do not earn air points and cannot be transferred or refunded.

Passengers wanting more flexibility will have to pay for it.

The Consumers Institute has welcomed the competitive fares but questioned yesterday how long they would last if Qantas took a long-rumoured 25 percent stake in Air NZ.

In other cost savings, Air NZ has reduced some of its aircraft lease arrangements by up to 30 percent during recent renegotiations.

About 200 jobs have also gone from Air NZ as part of the Express service, mostly from the cabin crews.

The third stage of Air NZ's restructuring will be the "revitalising" of its long-haul international routes to Europe, Asia and North America.

Comments from our readers

No comments yet