KEY POINTS:
Air New Zealand is sitting on a billion dollar war chest and plans to keep hold of the money in case tougher times strike the aviation industry.
The airline has outlined its financial position and future strategies and challenges to MPs at a select committee hearing this morning.
Air New Zealand Chairman John Palmer says the company is running a conservative balance sheet and is holding well in excess of $1 billion in cash.
He says it is a "deliberate and prudent strategy" given the uncertain environment the airline is entering.
Mr Palmer says the money will allow the company to cope with any market downturns or intensifying of competition.
Air New Zealand has also been defending the rates it pays to its Shanghai-based air crew after facing a barrage of negative publicity for paying Chinese cabin crew far lower rates than their New Zealand counterparts.
Air NZ CEO Rob Fyfe says the Chinese staff are paid $46,000 a year compared with the $58,000 received by New Zealand air crew. He says part of the difference is due to the fact the flying hours for Shanghai-based staff are only 75 per cent of those of New Zealand-based crews.
Mr Fyfe says some of the coverage of the issue has focused on the Chinese crews' base salary rate which bears no resemblance to their total pay package when additional allowances are taken into account.
Air New Zealand is confident it can withstand competition and high oil prices but it worries about the attractiveness of New Zealand to environmentally conscious foreign tourists.
"The market does look uncertain," Air New Zealand chief executive Rob Fyfe told Parliament's finance and expenditure select committee.
But he said Air NZ had a strong balance sheet and a world class product.
"If we see any downturn in demand, assuming we can maintain demand for the destination and the attractiveness of New Zealand, we believe we are well positioned to perform strongly relative to our peer group," he said.
The airline has signalled it expects its financial performance in the year ended June 30 to be better than last year but since then the oil price has risen by US$20 ($26) a barrel.
He said the airline did not have "undue confidence" about its position but it believed it was well-positioned in the current environment.
"The biggest challenge is maintaining the attractiveness of New Zealand as a destination," he said.
Mr Fyfe said research in the United Kingdom showed that 38 per cent of passengers considered their carbon footprint when they fly.
"New Zealand has seen a decline in tourism numbers out of Europe in the last 12 months. There is no direct correlation at this early stage between environmental issues and that decline in inbound tourism.
"But it is something that genuinely concerns us and much of what we can do here in New Zealand in terms of adventure is available in shorter haul destinations," he said.
It was important therefore for the airline to be seen to be taking an environmentally responsible position. The airline was buying more fuel efficient aircraft and had announced a scheme which allowed customers to offset their carbon footprint.
Mr Fyfe said Air New Zealand was first and foremost a tourism business. Two-thirds of its long haul passengers were visitors to New Zealand.
The cost of jet fuel used by the airline had risen from US$30 ($38) a barrel five years ago to US$130 a barrel. The airline used 9 million barrels of fuel a year, so the fuel bill has increased by US$900 million a year in five years. Some of the cost had been offset by hedging.
"Contrary to popular belief our business works better on a commercial footing with lower fares and more passengers," Mr Fyfe said.
Small airlines could not afford to dump capacity in a market, he said.
Chairman John Palmer said having the Crown as a major shareholder had not been a major issue for the airline and the relationship with finance minister Michael Cullen "has worked well". He said that more liquidity in the number of shares would improve the share price.
The airline had no intention of calling on shareholders for funding.
- NZPA
