Air NZ heading for turbulent patch on profits

By DANIEL RIORDAN

Air New Zealand is in for a tough year in 2001, but at least it will be in good company.

Most of its airline peers in this part of the world are facing the same conditions, and further mergers and takeovers are likely, warns the Centre for Asia Pacific Aviation in its monthly report on the industry.

Centre managing director Peter Harbison says airlines in the region have two choices. They can try to make profits or, more sensibly, prepare for the future by chasing growth.

Pursuing growth at the expense of profits will mean a return to the early 1990s, when airlines chased market share and revenue, and profit yields suffered.

"In this environment everyone faces reduced profits. But the weaker operators - especially those without global alliance partnerships - will sustain such heavy losses that market consolidation will soon be inevitable."

Most airlines have increased their market share through their national gateways since Asia's economic crisis hit in 1997 and foreign airlines cut their services.

This transfer of market share has lifted revenues, and in some cases profits, recently. But the double whammy of rising fuel prices and the strong US dollar - which increases costs and may soon squeeze discretionary travellers' dollars - threaten to make 2001 a difficult year.

Mr Harbison says that unless alliances and code share arrangements can soften the return of foreign airline capacity, the local airlines' recent market share advantage will be eroded.