More Darkness before the dawn
Air NZ warns of further financial pain, including possibility of additional job cuts, on path back to profitability
Air New Zealand chief executive Greg Foran has launched an ambitious 800-day recovery plan to get back to profitability but warns of more financial pain to get there.
In the face of intensifying anger from unions he says more jobs are on the line, on top of the 4000 who have left the company voluntarily or been made redundant since it was gripped by the Covid-19 crisis in early February.
He revealed the airline would start drawing on a $900 million Government loan within months, defended its handling of the ticket refund issue and said he would take a more prominent public role for the airline in the future.
He said he was also confident the airline had a “deep bench” that would allow it to make up for the loss of three senior executives with close to 70 years’ operational, network and marketing experience.
Foran has been in the top job for just over four months and warned more labour cost savings would have to be made although further forced redundancy was a last-resort option.
“We would rather explore all other options [but] for the next financial year [Air NZ] will do well under half of what it was doing pre-Covid, and at this point we’ve taken out about a third of our workforce — if you can do the maths you can see we’ve got a little bit more that we can do,” he told the Weekend Herald.
But E tu¯ union says cost-cutting of a further $150m on top of initial labour cost reductions of around $370m will further damage relations within the airline after staff lost trust in senior managers during the first wave of redundancies.
Foran has outlined a three-step programme — “Survive, Revive and Thrive” — which over the next 800 days (the time of its August 2022 fullyear result announcement) is aimed at getting the airline back to “healthy profits” even though it may be only 70 per cent of the size it is today.
The Survive part of the plan would run until the end of August this year for the airline whose annual revenue evaporated from $6 billion last year to almost nothing for a couple of months.
Although there is encouraging domestic demand — which he said had come back sooner than forecast — there was still uncertainty about when a transtasman bubble could start.
When the crisis first hit the airline had hoped long haul international services — especially to the United States — may resume later this year but that had been pushed out well into 2021, he said.
In March the airline negotiated a two-tranche loan with the Government for $900m which it would tap into within the next two months as cash burn had seen its reserves dive from just over $1b to around $650m in five months.
Interest rates for the loan are high — ranging from 7 per cent to 9 per cent — and Foran said the airline had already had discussions with the Government about that. Although there is provision to convert that to equity, the Government’s 52 per cent stake felt “about right”, he said.
Foran has had a relatively low public profile since he started and he said this was due to his being deep in working through a survival plan for the airline.
The airline’s chief revenue officer Cam Wallace has been prominent on social media giving updates on operations and this week set out to defend it over sustained criticism of its refund policy.
“I think Cam came forward to do exactly what he needed to do and I’m very happy in my role to now lean in and do what I can do to communicate where we’re at in terms of refunds and credits.”
The Revive stage
He said the airline would be into the Revive section on September 1 if it had completed the Survive phase and reduced its cost base to match the much smaller business it was compared to preCovid-19.
“We are also hopeful that around this time the nation will well and truly have returned to level 1 and that Tasman and Pacific Island flying could be returning for leisure and business travellers,” he said.
On the transtasman bubble he said he hoped it could be in place for the July school holidays but accepted governments needed to make the decision after assessing the health risks.
“We are poised and ready and we’d like to see it happen as soon as possible in the most responsible way.” However, it was not factoring a return to long-haul flying of any note until next year.
“We believe that until there is a vaccine, effective treatment or elimination of the disease in key markets, the New Zealand Government will not fully open its borders for growth in long-haul air travel.” Digital would be at the core of what it does.
He said the airline would use information it has on its customers to help them book and travel and would be a digital company that “monetises through aviation and tourism” in a sustainable manner.
The Thrive phase
“As we thrive we will not focus on size, but on quality. We will be smaller, flying fewer routes but we will not change our outstanding reputation for care, compassion and heart.” The airline, which is now under intense pressure from customers over refunds, had these values which stood it apart, said Foran.
“We will also lead in areas relating to climate change, particularly carbon emissions.” The Tasman and Pacific Islands offer the best value option for customers.
“And we owe it to all the Air New Zealanders who have left us through redundancy, or who are on furlough, or who are on reduced hours, to achieve that and to get them back into the airline full-time.”
Air NZ’s shares rose 8.6 per cent or 13c yesterday to $1.64, the highest since March 12.
At this point we’ve taken out about a third of our workforce — if you can do the maths you can see we’ve got a little bit more that we can do.
Greg Foran, chief executive, Air New Zealand