Wednesday June 29, 2005
Air New Zealand is planning to make radical changes to its short-haul operations in the Tasman and South Pacific markets to cut losses in a move that is expected to have an impact on Qantas's cost-cutting plans.
Over the next 18 months, the airline will integrate its ANZ brand and low-cost Freedom Air leisure carrier under one operational umbrella built around the latter's cost model, with the two airlines' A320 fleets placed on the same AOC "to gain efficiencies from a single fleet type." The move will not affect ANZ's regional and long-haul operations.
According to ANZ Group GM-Airlines Rob Fyfe, the carrier is aiming to reduce cost per seat by 10% so that the group can at least break even on the cutthroat Tasman and Pacific Island routes. With the entry of Emirates and Virgin Blue subsidiary Pacific Blue onto Tasman routes, "there has been a 25% decline in yield over the past two years on the Tasman," Fyfe told ATWOnline.
Key to the strategy are cost savings that will result from the fleet integration and new staff being employed on the lower-cost Freedom Air contracts. Fyfe dismissed notions that the move would result in industrial action and said the process will be gradual and apply only to new staff hired to meet expansion.
The move to cut costs was anticipated as ANZ battles the increase in capacity from Emirates and low-cost Pacific Blue and prepares for the onslaught of Jetstar on Tasman routes later this year. However, the move to lower costs sharply on ANZ-branded products, which will retain a business class, has serious ramifications for Qantas, which until now has kept its three distinctive products--Qantas, Australian Airlines and Jetstar--operationally separate. The three-airline strategy was a response to meet significantly different market needs while being restricted by legacy labor contracts.
Qantas CEO Geoff Dixon has warned his staffs of cuts in some areas and of the hiring of lower-cost international flight attendants to reduce costs in international operations. The ANZ move to deliver its premium brand, at least on Tasman services, with staff employed under low-cost airline contracts adds pressure for Qantas to act.
