Air New Zealand is dropping fares in a bid to fill up planes across the Tasman. Photo / Brett Phibbs
Air New Zealand is dropping fares in a bid to fill up planes across the Tasman. Photo / Brett Phibbs
Air New Zealand is asking if some crew want to take leave without pay as the dramatic fall in demand forces the airline to cut capacity and slash fares across the Tasman.
The airline has described the fallout from the coronavirus as unprecedented and hours after releasing fares as lowas $69 to Melbourne, a spokesman said it had asked some staff for expressions of interest in taking leave without pay for a ''short period''.
Air New Zealand yesterday reported a 33 per cent fall in net profit for the last six months and says its full-year profit could be hit by as much as $75 million as a result of the coronavirus.
Airlines around the world have been rocked by the outbreak with hundreds of routes cut and an estimate it could cost the industry $44 billion in lost revenue in the Asia-Pacific region alone.
Aircraft have been grounded around the world as routes have been cut. Earlier this month Hong Kong airline Cathay Pacific, which has been hit extremely hard the coronavirus fallout on top of a drop in demand due to civil unrest, asked its staff to take three weeks off without pay.
Air New Zealand has about 12,500 staff, including about 130 who are effectively grounded in China. Asked about staffing in light of the fallout from Covid-19, the spokesman said the airline was ''continuing to work through this developing issue''.
He did not specify if any particular staff group had been asked about leave but said there had not been a hiring freeze at the airline where labour costs in the past six months totalled $656 million.
Well before the coronavirus struck the airline had called in consultants to strip $60 million in costs out of the business over two years, targeting mainly head office expenses.
Unions representing cabin crew, engineers and pilots were not able to comment on the airline's leave without pay request.
Why the fares came down
Chief revenue officer Cam Wallace said thousands to transtasman cut-price fares were released to stimulate the important market where the airline had aircraft needing to be filled.
''We have available aircraft and crew to fly them so we've got to keep going,'' he said.
Senior teams were meeting daily to respond to rapidly shifting demand patterns.
''We're seeing tremendous volatility in the market and we're having to micro-managing demand and pricing more than we have for many, many years,'' said Wallace.
Air New Zealand's chief revenue officer Cam Wallace. Photo / Jason Oxenham
Airlines are high volume, and generally thin margin businesses and when passenger numbers drop off they respond by dropping fares or cutting capacity.
On the Tasman route, Air New Zealand, Qantas and Virgin Australia have done both.
''What you're seen from all the three main carriers on the Tasman is pretty aggressive pricing,'' said Wallace.
Promotional fares from Auckland and Christchurch to Melbourne start at $69, to Brisbane $79 the same price as Auckland-Sydney and Wellington-Sydney. The fares are for travel from mid-March.
''There's going to be huge competition for a smaller number of international travellers and that's the dynamic we're seeing - in the short term anyway,'' said Wallace.
The Tasman was one of the few markets where people can go for a weekend and demand responded quickly to bargain prices.
He said steep discounting was not as likely on Pacific Island routes where demand was holding up and to the United States where bookings were strong.
Business travel warning
The airline was watching its corporate and business bookings closely, a valuable component of its $6 billion annual revenue.
The Washington-based Global Business Travel Association said overnight the coronavirus has the potential to threaten the entire global business travel industry by wiping out $890b in annual spend, 37 per cent of what was forecast for this year.
Under duty of care obligations fewer firms are sending staff to places where they risk contracting the virus. Wallace said filling seats usually occupied by corporate clients could mean more late-notice discounting.
Air New Zealand pulled out of daily Shanghai services. Photo / Bloomberg
When asked whether having such low promotional fares opened up the airline to more criticism of notoriously high regular fares to some regional destinations, he said the airline had worked hard to put good deals into the domestic market.
''We're very confident that we have a lot of capacity in New Zealand and a lot of price stimulation. Just because we're putting a very low price to Australia doesn't mean it comes as the cost of those (NZ) destinations.
Domestic demand was holding up.
''There's an obvious reason for this because people are less concerned about travelling in New Zealand as we speak.''
There would also be good deals when Air NZ re-enters cities in Asia it has canned or pulled back from, including Shanghai, Seoul and Hong Kong. It has cut capacity to Asia by 17 per cent.
''When we get set re-enter some markets whether it be China or South Korea in the future you would expect that we'd be restarting with lower loads and that would necessitate some lower pricing to build those.''
