16 Mar 2011

Air NZ routes could be cut in quake aftermath

8:10 am on 16 March 2011

Air New Zealand is warning it may cut some domestic and international routes as it tries to recoup some of its expected losses from the earthquakes in Christchurch and Japan.

Shares in the airline plunged 11% on Tuesday, after it warned its underlying profit will fall below the $100 million mark.

Air New Zealand chief executive Rob Fyfe is in Japan supporting Tokyo-based staff.

He says the airline is looking at all ways to cut costs, including aircraft routes and frequencies, to make sure capacity is aligned with demand.

Mr Fyfe says passenger patterns in and out of Christchurch are still unusual, but are starting to return to normal.

He says the airline has experienced a lot of cancellations from international customers since the Christchurch earthquake.

Mr Fyfe says the airline is looking at bookings from Japan after the 1995 Kobe Earthquake to see how the latest quake will affect passenger loadings.

Fuel costs worsen situation

Analysts say surging fuel price hikes could further dampen Air New Zealand's profit.

The airline has hedging in place, but observers say it is mainly for crude oil prices, not jet fuel, and the gap between the two prices has doubled on average since the beginning of the year.

The company increased airfares last week to cover the higher cost of jet fuel, which is adding almost $10 million a month to its operating costs.

Morningstar senior analyst Nachi Moghe says that too could act to dampen air travel.