Air New Zealand will defer or cut around $NZ800 million from its cost base and new aircraft budgets as it tries to accommodate itself to a slower and lower future.
The airline said yesterday that a review of its businesses in the past three months (since a surprise downgrade in early January) had identified a number of cost savings of investment deferment.
The airline has called after the cut to 2018-19 profit guidance to between $NZ340 million and $NZ400 million.
The cuts are all about resizing Air NZ to meet what it sees as a future of slower demand and lower capacity growth.
Air New Zealand has, in fact, sliced its forecast growth rate in half. It has revised its planned network growth from 5-7% on average over the next three years to 3%-5%.
Aircraft capital expenditures of about $750 million will be deferred to ensure additional capacity better reflects the slower growth in demand.
Air New Zealand will also defer spending, which would result in cost savings of more than $US50 million a year, it said in yesterday’s statement.
Air New Zealand CEO Christopher Luxon said the cuts and other changes would positively impact revenue growth, capital efficiency, operating costs and the customer travel experience into 2020 and beyond.
The changes would re-align the business to ensure a return to earnings growth in what was a lower growth environment, Luxon said.
A new, more spacious, economy product offering would be rolled out on its long-haul fleet from mid-2020 and free wifi would be offered on all enabled international aircraft from Thursday yesterday.
As part of the airline’s previously disclosed lounge upgrade program, it said nine lounges across the network will be upgraded over the next two years costing about $NZ50 million.
The airline said it was also looking to cut overheads by 5% which “will be delivered through a combination of reprioritisation of spend, process efficiencies, and automation.”
And there will be a “targeted review of the operations cost base” – in other words, more cost-cutting, possibly staffing. The market liked the review results and had marked up the shares by 3.5% at the close to $2.38.
