Impact will be ‘longer, deeper’
AUCKLAND: Air New Zealand faces continued Covid19 uncertainty but will dive deeper into a new digital strategy, leverage more from its loyalty scheme and has identified some international network changes for when it emerges from the crisis.
This week shareholders were warned the impact of the coronavirus would be ‘‘longer and deeper’’ than initially thought.
Chief executive Greg Foran said earlier this year it was thought the airline would shrink by a third.
‘‘Reasonably early on we felt that we would be 30% smaller. We hoped that by April of next year that we would be back at 70% of where we were preCovid but I think it is going to take quite a bit longer to recover to those levels.’’
In the meantime the airline — which has drawn down $110 million of a $900 million Government loan — faces an uncertain financial future.
Its chairwoman, Dame Therese Walsh, said Air New Zealand was still unable to give guidance for the current financial year as it, like all airlines, was coping with the worst economic crisis in its history.
This would mean a further loss on top of Air New Zealand’s $454 million aftertax loss in the past year.
‘‘Given the uncertainty surrounding travel restrictions and the level of demand as these restrictions lift, Air New Zealand is currently not able to provide specific 2021 earnings guidance.
‘‘However, each of the scenarios we are currently modelling suggest we will make a loss in 2021,’’ she said.
Airline top management told the virtual annual meeting of shareholders the airline would emerge smaller from the crisis, operating fewer widebody planes, and Dame Therese broached the possibility of selling engines and parts from Boeing 777s which were in deep storage for at least another year.
In a note to staff after the meeting Mr Foran said the new international border would focus on North America. It would make more of alliances and partnerships to ‘‘extend and protect’’ its reach.
Regarding Australia, a more ‘‘tailored’’ approach would be adopted towards business customers, which were more valuable, and the amount of flying yearround would be balanced to ensure fewer aircraft were on the ground.
Mr Foran said digital technology and tools would be at the heart of customer innovation and operational performance improvements.
The airline was also expanding its loyalty scheme ‘‘as a second growth engine’’ and was testing the new programme ‘‘with thousands of our customers across the country’’. Highvalue customers would be targeted.
‘‘We can see an Air New Zealand in the future that is smaller for a time, but even more efficient, operating fewer widebody aircraft. The difficult decisions we have made in the past several months, whilst painful, are with a view to making Air New Zealand even more profitable in the future.’’
Mr Foran was head of Walmart in the United States before taking up the Air New Zealand job and when asked if he would be applying his fastmoving consumer goods background to the airline he said it already ran a hybrid model and would continue to do so.
Its shorthaul operation was similar to lowcost carriers, while longhaul flights were full service.
‘‘Our intention would be to maintain that hybrid approach,’’ he said.
‘‘The actions we are taking are based on a range of scenarios that may or may not play out in the way we envision, but they are necessary in order to ensure we can pivot our business and our planes quickly to those routes that make sense in the new world order.’’
The 90minute meeting included a barrage of questions relayed from shareholders.
The airline will be charged between 7% and 9% for the $900 million loan and when asked why it was so high Dame Therese said the interest rate environment had changed since when the loan was urgently negotiated as credit markets were strained in March.
The airline’s level of borrowing would depend on how quickly it could resume normal operations, she said, reiterating the airline’s intention to raise capital in the first half of next year.
Staff across the entire business had made significant personal sacrifices, more than 3500 people having lost their roles, more than 600 leaving voluntarily and almost 400 taking significant reductions in their work hours.
Asked whether further layoffs were possible Dame Therese said the airline had just finished phase two of reviewing costs and was ‘‘stable’’ at present but further reductions would depend on how things played out.
‘‘Everything is under review at all times.’’
Dame Therese said the airline was not interested in getting into other options, such as ‘‘flights to nowhere’’, as its domestic network was recovering strongly and it was worried about the environmental fallout of flights to the Antarctic.
Dividends would be restored when financial conditions allowed.
Earlier, Mr Foran outlined to shareholders the extent of the crisis and again apologised for poor customer service.
From selling more than 30,000 seats on the domestic network each day last year to just a handful during Alert Level 4, Air New Zealand had never experienced this degree of change in such a short period of time.
‘‘This tested every aspect of our customer service proposition and although this situation was entirely unforeseen, and even our most pessimistic black swan event planning could not have predicted this, at times we did not just stumble, we fell. For that I sincerely apologise.’’ — The New Zealand Herald