Air NZ cuts could hurt Qantas

Air New Zealand's drive to slash costs could lead to rival Qantas cutting 200 ground handling jobs early next year.

The airline, which has just announced 110 job cuts in its heavy engineering division, is reviewing its ground-handling contracts in Australia. The airline has used Qantas as its ground handler in Australia for decades but is looking for ways to cut costs, particularly on the cut-throat transtasman routes.

Chief executive Rob Fyfe has previously indicated that renegotiation of Air NZ and its low-cost subsidiary Freedom Air's ground-handling contracts represent their biggest cost-cutting opportunities in Australia.

Qantas' rivals for Air NZ's ground-handling business include Menzies Aviation, Patrick Air Services and Aero-Care.

An Air NZ spokesman said the airline was "still on track to announce a decision early in the new year".

About 300 Qantas ground staff lost their jobs earlier this year when Singapore Airlines ended the company's long-running ground-handling contract.

Menzies already does Freedom Air's ground handling in Melbourne and Sydney and has applied to do Air NZ's in the two cities.

Early this month, 25 ground handling staff at Air NZ's Christchurch base opted to take voluntary redundancy after the airline failed to win a new contract with low-cost Qantas subsidiary Jetstar.

Meanwhile, the Centre for Asia Pacific Aviation said in its annual outlook that 2006 would be a make-or-break year for many airlines in the region, including Air NZ.

Airlines would need to consolidate and lay the foundations to upgrade fleets and routes networks.

"There will be a delicate balance between traffic growth and meeting capital needs," said centre executive chairman Peter Harbison.

"This will inevitably bring into focus pressures for outsourcing and cost-reduction - and inevitably added tension in industrial relations."

The centre said Air NZ's long-term success depended on its ability to reduce operating costs, including its decision early next year on whether to outsource 500 engineering jobs.

"As with Qantas, the airline is driving to enhance productivity through progressive labour reforms and more flexible working," it said. "It's improbable that these changes will be introduced without upheaval."

The final decision on the remaining 507 engineering Air NZ jobs under threat will be made in February after more talks with unions.