View Full Version : BIG change trans tasman for Air NZ

16th Jun 2005, 20:38
Radical changes? Hmmm, Air NZ going to a diferent level of service to Jetstar?! Give it some room?!

Air New Zealand is planning radical changes to its trans-Tasman services less than two years after introducing the lower cost Tasman Express model in a bid to stem heavy losses on the ultra-competitive route.

Express was designed to lower costs, increase passenger numbers and improve profits by lowering average fares around 20 per cent.

But managing director Ralph Norris said yesterday that while Express had stimulated traffic, it had failed to improve returns.

"A radical new approach and a degree of fortitude are required," Mr Norris told an accounting audience in Christchurch.

Mr Norris will leave the airline within the next few months to become chief executive of Commonwealth Bank of Australia in Sydney.

"A cross-functional team has been working hard to analyse the options for lowering our Tasman cost base, while at the same time improving not only revenue but yield."

Details of the changes would be revealed after a proposed group strategy was formulated by the end of this month, he said. It is understood that the changes would be designed to cut costs in order to boost revenue and yield, rather than a complete overhaul of the Express model.

AdvertisementAdvertisementExpress was billed as a new chapter in trans-Tasman aviation, using more efficient Airbus A320 jets. Cold food replaced a hot meal in economy.

Among the Air New Zealand's cost-cutting options are:

removing business class;
reducing the space between seats;
making passengers pay for food and drink; and
increasing internet sales and cutting out travel agents.

Any changes being considered were separate from any potential cooperation on the route with Qantas, an Air New Zealand spokesman said.

Centre for Asia Pacific Aviation Studies director Andrew Miller said the massive increase in capacity by foreign long-haul airlines, mainly Dubai's Emirates Airline, had not been foreseen at the time Express was developed.

Nor was it expected that a premium airline like Emirates would enter the market offering budget priced seats.

Mr Miller is a former Air New Zealand executive and architect of the Express model.

"The competitive arena has been a lot more competitive than either Air New Zealand or Qantas thought.

"If I was in Ralph Norris' place I would be reviewing the product as well, it is the sensible thing to do."

The total number of carriers competing on the Tasman has dropped to 10 from 13 last year in what Mr Norris has described as a "dog eat dog" market.

But Qantas' budget airline Jetstar has indicated it would enter the market by the end of the year, taking to three the number of budget airlines along with Australian-owned but Christchurch-based Pacific Blue.

A code share agreement between Air New Zealand and Thai Air announced this week could be a precursor to Thai pulling out of the Tasman route, Mr Miller said.

Air New Zealand expected to fly 2.3 million passengers across the Tasman this year, 11.6 per cent more than last year, Mr Norris said yesterday.

"Unfortunately, while everyone else has benefited, airlines have struggled to break even on the Tasman, with overcapacity leading to unsustainably low fares."

Mr Norris again accused Emirates of capacity dumping on the Tasman route, which had led to unsustainable low yields.

"Airlines such as Emirates can enter the Tasman and sustain losses as long as this market feeds traffic into the rest of its network," Mr Norris said.

In any other industry such behaviour would be "frowned upon by regulators"