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Air New Zealand has imposed an executive salary freeze and pay rise barriers for other staff as the airline battles soaring fuel prices and a deteriorating economy.
In a message to staff yesterday, chief executive Rob Fyfe said the airline was facing one of its most challenging periods as tough economic conditions hit consumers around the globe.
In a series of measures, Fyfe said his own salary, along with those who reported to him, would be frozen.
Figures in the annual report show the highest-paid employee - likely to be Fyfe - was on $1.61 million, up 69 per cent from the year before, reflecting the airline's strong performance.
Fyfe said the decision on executive pay would be reviewed when business conditions improved, "hopefully" some time in 2009.
Any pay increases for other managers on individual employment agreements would need to be achieved through a reduction in staff numbers or increased productivity.
Many of these managers would also experience a reduction in pay this year compared with the previous year, as their short-term incentive payment would be reduced due to Air New Zealand's financial performance, he said.
The airline has nearly 11,000 staff and Fyfe said each division had been challenged to identify opportunities to review nonessential activity and reduce numbers through attrition and nonreplacement of noncritical roles.
Unionised staff also face tougher negotiations.
"As we face these rocky times in the aviation industry, we are doing our best to achieve fair pay settlements for Air New Zealanders who are part of union collective agreements. However, it will be increasingly difficult to maintain increases in line with CPI if conditions continue to deteriorate."
The Engineering, Printing and Manufacturing Union has about 4000 members in Air New Zealand including 1700 engineers who had just achieved a 4.5 per cent settlement per year for two years.
"It looks like we got in in the nick of time," said national secretary Andrew Little.
"I think it's an interesting gesture to make - some of the engineers and airport services people took a bit of a hit in the last couple of years. A lot of them would have thought they've done their bit in turning around the airline, so I imagine this will go down reasonably well."
Air New Zealand has more than $1 billion in the bank and Little said all staff wanted to see the airline remain strong.
"In terms of leadership action I think it's good in this environment."
Jet fuel prices have increased by 60 per cent since the beginning of the year to more than $220 a barrel, forcing many airlines around the world into survival mode by cutting routes, laying off staff, adding extra charges and pushing up fares. According to the International Air Transport Association, 25 airlines have failed since the beginning of the year.
Air New Zealand has announced international route cuts, put up fares three times since March and warned that more increases appear inevitable.
Fyfe said that more than ever the airline needed to be looking at every aspect of the business to minimise cost and called on all staff to identify ways of cutting costs and generating revenue.
"We have made huge progress over the last five years in building a world-class airline thanks to the efforts of Air New Zealanders throughout the business and I am determined that we don't squander the gains we have made as we confront yet another crisis in the aviation industry."
