Uncertainties facing airlines says Air NZ’s Fyfe

A Dominion Post report says that Air New Zealand chief executive Rob Fyfe says the industry could be in for a significant reshaping.

If jet-fuel prices do not ease there will be a “rapid and significant” reshaping of the industry by the end of next year, Air New Zealand chief executive Rob Fyfe says.

After three price rises since March, more fare increases appear inevitable, as are more changes to the network and the type of planes used.

“We can’t rule out further fare increases in the near future,” Fyfe said.

Several airline bosses around the world have recently made dire predictions about the future of the industry unless drastic measures are taken, including mergers and sharp fare increases.

Malaysian Airlines managing director Idris Jala has warned “if these adjustments don’t take place, and quickly, the airline industry will collapse and have a ripple effect throughout the entire world economy”.

Air New Zealand last week increased its fares a third time since March to cope with jet-fuel prices that have remained north of $US170 a barrel while crude oil has climbed above $US145 a barrel.

Airlines buy protective hedges to lock in future fuel prices, but those are rolling off.

“The price of fuel is currently sitting in a zone where many airlines are living off hedging programmes,” Fyfe said.

“But if these prices persist, and perhaps even climb past $US200 a barrel for jet fuel, then I believe we will see a rapid and significant change in the shape of the industry over the next 12 to 18 months.”

Air New Zealand was in a strong financial position with about $1.2 billion of cash in the bank, relatively low gearing and the next wave of big jet purchases not due till the end of 2010, Fyfe said.

But a 60 per cent increase in fuel since January resulted in two profit downgrades ahead of its June 30 balance date from $268 million before tax to below $200m.

September looms as a key month because it is the time that all airlines around the world must commit to the services and capacity to serve the Northern Hemisphere winter.

Air New Zealand’s traditional low season is April to early June. The challenge for management is to estimate demand and the price of fuel six months out and come up with a range of potential scenarios.

“If jet-fuel prices persist, then it is possible that we will see substantial change in the way we approach our network in next year’s low season,” Fyfe said.

Services have already been reduced on some poorly performing routes and Boeing 747-400 replaced with smaller 777-300ERs on some others, including the flagship Auckland to London route via Los Angeles from September.

But there could be a silver lining as airlines begin to defer record orders for new aircraft.

Air New Zealand has been offered earlier production slots for 777-300ERs it has on order by airlines wanting to cancel or delay their own deliveries.

It is understood there has also been an offer to sell Boeing 737-800 slots which could allow Air New Zealand to fast-track the replacement of its smaller 737-300 domestic jet fleet.

Fyfe would say only that “the easing of the aircraft market may present us with the opportunity to acquire efficient capacity more economically than has been possible in recent years”.

However, he said the airline was not looking to bring forward fleet purchase decisions.

A Report by The Mole from The Dominion Post