Airline's new boss wields axe

A week into the job, Air NZ chief Rob Fyfe outlines cost-saving measures. Picture / Richard Robinson

Air New Zealand hopes to save $100 million over the next five years by shutting its heavy aircraft maintenance operation, as it finds it harder to raise ticket prices to cover soaring fuel bills.

Less than a week into the job, chief executive Rob Fyfe told investors at the company's annual meeting yesterday that high oil prices had more than halved Air New Zealand's annual profit forecast by $135 million to $100 million.

Sending all its big aircraft - Boeing 747s, 777s and 767s - overseas for maintenance should mean quick cost savings for the airline, after the initial $13 million cost of the 600 job losses.

Global large-scale aircraft maintenance companies, many with 10 times the scale of Air NZ's operations, were able to offer airlines more competitively priced service.

An aggressive marketing campaign, seeking to sell Air NZ's engineering services to other airlines, had failed to win enough business.

Coupled with declining work from Air NZ itself, the decision was made to outsource heavy maintenance. A final decision, after worker consultation, is set to be announced by December 19.

Company chairman John Palmer said 2006 profit before unusuals and tax should be around $100 million, down from the $235 million the year before.

Fyfe said the main reason for the drop was an inability to keep raising the fuel surcharge to cover fuel costs.

"That fuel surcharge - not surprisingly, each incremental surcharge gets harder to make stick."

As the surcharge impost got higher, fares began to be discounted so plane loads could be maintained.

"We're seeing that we're hitting that threshold now - you get some leakage in your ability to retain the fuel surcharge. That's the primary driver of the revised guidance."

Palmer had earlier told shareholders unhappy at the poor performance of the airline's share price that illiquidity caused by the Government's 82 per cent shareholding had acted as a drag on the price.

"We think a greater public free float will be beneficial to the share price and it is a limitation. There is no fixed view at this stage about the Crown's reaction to that. But it is something we will be exploring with the Crown as to whether there is value for them and all shareholders in paying some attention to the free float," said Palmer

He said that while the topic of a potential Government sell-down was not "high on the agenda at the moment", he did expect to be "furthering discussions" with the Crown.

Neither were there any plans for a company buy-back of shares.

Fyfe's predecessor, Ralph Norris, often took the opportunity of annual shareholder meetings to take a swipe at airports and their pricing.

Palmer yesterday turned the heat up even further, launching a blistering broadside on local airports. He compared the $5000 landing charge for a Boeing 747 aircraft at Auckland Airport with $2700 at Los Angeles, Brisbane's $3300 and London's $3900.

"The time is long overdue for an appropriate regulatory framework to ensure airport charging practices reflect economic reality," he said.