Air NZ chief confirms fare rises, outlines how the company is fixing flight disruptions

Wednesday, 26 September 2018

Air New Zealand chief executive Christopher Luxon has confirmed price increases on domestic routes of between 4 to 8 per cent, plus a $10 increase to Australia, due to the rising fuel prices.

'Every dollar increase you see for fuel costs us about $11 million. Last year we had a wall of $200 million cost increases. We have hedging and can lock in prices for six months so don't have to change every day.

'It's not something we do lightly but we have to make sure we're covering costs. When fuel goes above a certain point some airlines will pull services. There will be times when the price goes down and we get competitors coming in.

'But historically, airlines have a done a great job of democratising airline travel compared with 20 or 30 years ago.'

* Air New Zealand to stop flying to Vietnam

* Air New Zealand says more cheap fares and domestic services after near-record profit**

Luxon told shareholders at the annual meeting in Christchurch how the company was reducing disruptions to customers from long-haul engine problems.

Air New Zealand chief executive Christopher Luxon signed a marketing memorandum of understanding with city agencies, represented by Canterbury Employers Chamber of Commerce chief executive Leeann Watson.

The airline's biggest challenge was unscheduled maintenance issues with the Rolls-Royce Trent 1000 engines that power the 787 Dreamliners - at any time up to five of the 13-strong fleet have been grounded while engines were serviced in Singapore.

Air New Zealand will stop stop flying to Vietnam next year, suspend services to Haneda in Tokyo, and reduce the frequency of flights to Argentina and Taipei.

The decisions would free up capacity. It had been a tough year for customers but the company still scored highly as a most trusted company in surveys, he said.

The problems associated with rescheduling more than 3500 weekly flights was estimated to cost $30m to $40m - to be deducted off the forecast pre-tax profit expected for 2019 of between $425m to $525m.

Dame Therese Walsh will become the new chairwoman of Air New Zealand.

Luxon said he will meet with Rolls Royce management in London in a few weeks to seek reassurance everything is being done to get engines back in service as soon as possible.

To cope with the reduced fleet, the company has had to lease three aircraft from two other airlines, flown by Air New Zealand crew and equipped with its food and beverages, but with a different interior configuration.

Another issue disrupting operations was the significant increase in people passing through airports in New Zealand.

Luxon said some airport facilities, especially in Auckland, were struggling to keep up with the surge in demand for air travel due to under investment by the airport companies.

'We have also recently announced that we will begin construction next month on a new, much larger regional lounge at Auckland Airport, as part of a $60m investment in lounges throughout New Zealand over the next two years.'

He said he was working with the chief executives of several airports to accelerate improvements.

'This year we expect domestic capacity to increase by 3 to 5 per cent. The Tasman and Pacific Islands network is targeted to grow between 7 to 9 per cent.

Air New Zealand will increase domestic fares by up to 8 per cent.

Capacity will be supported by our new A321 Neo's which have approximately 25 per cent more seats than the current A320s flying those routes.'

Direct services to Chicago would begin in November, adding to the 17 million passengers a year.

Chairman Tony Carter announced he would retire from the board next year, and the appointment of director Dame Therese Walsh as chairwoman.

Carter has been on the board for nine years and is one of New Zealand's highest paid at $270,000 a year.

Luxon's annual pay was $4.1m which included performance bonuses.

Customers had also expressed frustration about call wait times into the contact centre, especially during periods of weather disruptions.

The company was in the process of hiring a further 80 contact centre workers and had committed to expanding the self-service options.

Over the past year Air New Zealand has been dogged by disruptions and delays, rescheduled flights, unexpected replacement aircraft and over-crowded lounges.

In spite of all the problems, the airline posted a near-record profit after tax of $390m, up 2.1 per cent on the previous year.

Shareholders have received a total dividend for the year of 22 cents a share, an increase of 4.8 per cent.

Questions from shareholders included whether the airline would push for a new airport at Wanaka.

Luxon said there were constraints on further flights into Queenstown and there was demand for a Wanaka service, but it would require major investment in the airport.