Air New Zealand chief executive Christopher Luxon has enjoyed years of strong growth. Photo / Greg Bowker
Air New Zealand chief executive Christopher Luxon has enjoyed years of strong growth. Photo / Greg Bowker
Air New Zealand boss Christopher Luxon has always been about full-throttle growth.
Since he took over at the airline in 2013 there have been some record profits, growth in parts of the network nearing 10 per cent, money being ploughed back into new planes, new lounges and new technology.
Butthe past 16 months haven't been so golden for the airline. Starting with Rolls-Royce engine problems which grounded up to four Dreamliners at a time, a spike in fuel prices last year, competition that won't go away and ebbing demand, the airline was forced to recalibrate its expectations.
Today, Air New Zealand released the results of a review which started early this year and it confirmed forecast growth during the next three years of 3 per cent to 5 per cent on average, down from 5 per cent 7 per cent, to reflect a slower demand growth environment.
Demand is growing but not at recent rates, so it will defer $750 million worth of aircraft orders and continue to carve costs out of the business.
Annual cost-cutting campaigns have found $50m in savings during the past three years and have now been extended, while a further $60m in savings (from total operating expenses of more than $4 billion) has been targeted for the next two years.
The airline is moving past the fallout from the Dreamliner engine issues - which necessitated costly lease deals and significant disruption and will deliver a bottom-line hit of $40m in the current financial year.
There will be a reduction in overhead costs by about 5 per cent, which will be delivered through a combination of reprioritisation of spend, process efficiencies and automation.
A ''targeted review' of the operations cost base is also underway.
An Air New Zealand Airbus A321NEO at Auckland Airport. Photo / Jason Oxenham
There's no word on any job cuts among the staff of close to 12,000, but unions say they've been given the very clear message about keeping costs down.
E tū has 5000 members at Air New Zealand and says it has been talking to the company about relevant trends.
''We would rather be proactive and address any problems or financial pressures before they get out of hand. We take an 'eyes wide open' approach," says the union's head of aviation, Savage.
The company and unions signed a deal in 2015 which aims to have no involuntary redundancies where if a part of the business needs to decrease in size to maintain productivity, unions and the airline look for ways of creating work elsewhere or allowing natural attrition to reduce the impact.
Savage says workers want the company to succeed and warns against wholesale cuts.
''They are dedicated and committed aviation workers so they have no interest in a race to the bottom on safety and standards.''
Significantly, the airline is deferring spending on new planes. It always maintained flexibility to slow the addition of new Airbus narrow-body planes for domestic and trans-Tasman operations but today has detailed deferral of delivery times for the four A320/A321 NEOs and two widebody aircraft to replace its ageing Boeing 777-200s.
The airline has deferred by one year the delivery of three A321NEO aircraft planned to operate on the domestic network and delayed by two years the delivery of one A320NEO aircraft designated for trans-Tasman services.
Deferring by at least four years the delivery of two long-haul aircraft to replace the airline's B777-200 fleet will decrease the level of capital expenditure expected in the 2020-2023 financial years. The replacement programme will start in 2023 but two aircraft will be delayed by up to four to five years.
The eight-strong 777-200 fleet has an average age of 13 years and replacing those planes early next decade had been a priority and a big statement of changing the look and feel of its long-haul product.
Air New Zealand does, optimistically, note that it can accelerate the delivery schedule if demand levels increase.
And it's not all pull back.
Air New Zealand faces intense competition from other airlines so can't afford to.
Its business-class cabin is being shown up by rivals and after a year's research and development will introduce an enhanced business cabin on the long-haul fleet from the end of this year.
It's also promising a new, more spacious, economy product on the long-haul fleet from the middle of next year.
Air New Zealand will start flights to Seoul, South Korea at the end of the year. Photo / AP
Air NZ is following other airlines and is offering free Wi-Fi on all enabled international aircraft from today.
A $50m lounge revamp in nine sites continues and a new route has been announced in the Pacific Rim where the airline has its main focus.
From November the airline will fly three times to five times a week to Seoul in South Korea and increase frequency on newly launched Taipei and Chicago routes to up to five times a week at peak times.
Luxon says he is confident in the airline's ability to successfully adjust its operations to reflect changing market conditions.
"The steps we are taking today will provide a strong foundation for future earnings growth. We are deferring aircraft deliveries and related capital expenditures, adjusting our capacity growth plans and driving sustainable efficiencies throughout our cost base to better reflect the slower demand growth we are seeing in the market."
In February the airline reported a 34 per cent drop in net profit to $152m, driven mostly by higher fuel costs.
It has maintained its full-year guidance for annual pre-tax earnings forecast of $340m to $400m doom from guidance issued last year of $425m to $525m. Its shares have fallen 22 per cent this year and late this morning were trading unchanged at $2.48.
