September 25, 2008

Turbulence Forces Route Cuts

By HALL, Kris

UNDER-PERFORMING routes will be axed and aircraft downsized as Air New Zealand tries to navigate its way through the global financial turbulence.

The airline faces strong headwinds in the form of higher fuel prices, domestic and trans-Tasman competition and a global credit crisis that could severely diminish demand.

But chief executive Rob Fyfe remains upbeat, telling shareholders at yesterday's annual meeting in Auckland the national carrier has been closely scrutinising all its markets and matching capacity to demand.

"As the global credit crisis continues to deepen, its impact on demand is now emerging as a major concern for the aviation industry."

The airline revealed that 24 competitors had failed in the first half of 2008 and up to a further 30 would fall by the wayside before the year ended. But as banks pulled the plug on struggling airlines and fewer aircraft were ordered globally, the airline was well placed to benefit from lower purchasing costs, said Mr Fyfe.

Air New Zealand expects to operate profitability for the coming financial year so long as the average price of jet fuel stays below US$140 a barrel. In 2008, the average unhedged price of jet fuel rose 64 per cent, compared with the second half of last year.

The airline has trimmed its planned long-haul capacity for the current financial year by 6 per cent on 2008.

Direct flights to Japan have already been culled during the spring months and the airline will ditch its additional twice- weekly Auckland-Hong Kong services in December and January in light of Cathay Pacific's decision to increase flights.

Capacity on the Tasman routes has also been reviewed for off- peak months, but the Auckland-San Francisco link will be upgraded to a bigger plane in light of strong demand.

Continued commitment to reducing carbon emissions meant the airline was on course to cut annual carbon dioxide output by 100,000 tonnes within five years, said Mr Fyfe, who underlined the company's desire to be using one million barrels of environmentally friendly fuel every year by 2013.

A greater focus on tourism, an end to short-haul check-in, and improved interior and entertainment would boost the airline, said chairman John Palmer.


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