THE PRESS THURSDAY, DECEMBER 21, 1978. New Year dilemma for Air N.Z.

Press, 21 December 1978, Page 16

THE PRESS THURSDAY, DECEMBER 21, 1978. New Year dilemma for Air N.Z.

The traditional wish for a "happy and prosperous New Year" must have a hollow ring for Air New Zealand as 1979 approaches. Confronted by industrial disharmony, falling profits, climbing costs, more competition, threats to established markets, and the increasing clamour within New Zealand for fare reductions in line with those proposed overseas, the airline can hardly be expected to move into the New Year with the same degree of confidence that it has enjoyed in the past. Indeed, 1979 will prove a crucial year for the survival of the airline as a profitable operation. While other international carriers, including its main competitors, were this year reaping record profits. Air New Zealand experienced a decline of 53 per cent — from 811.7 M to §SM. It was the first drop in profit for seven years and was attributed in part by the airline’s chairman, Mr C. W. Mace, to the trend towards cheaper fares. In his annual report, Mr Mace warned that fares “could not be reduced or maintained at their present levels in the face of continuing cost increases without greater productivity.” He was “cautiously optimistic” that the trends would diminish, or that the decline in traffic growth would be reversed.

Far from diminishing, however, those trends are now more of a threat than ever. On the one hand, the airline is in danger of losing a substantial slice of an important market from Australia to North America; on the other hand, the revenue from the remaining market will be pared to an even greater degree by the introduction of cheaper fares necessary for the airline to remain competitive on international routes.

Unpalatable as such a move must be for Air New Zealand, it can no longer procrastinate in announcing new fare structures which should make New Zealand travellers less inclined to bypass their airline in search of cheaper

routes overseas. Even the Minister of Civil Aviation (Mr McLachlan) agreed this week that the airline must reduce fares to survive. But the solution to the dilemma is not as simple as that. Unlike its competitors, Air New Zealand has had little capacity in the past to benefit fully from the advantages of the cheaper “top-up” fares. Its DCIO aircraft up until now have carried above average loadings, particularly on its North American services.

Unlike the much larger Boeing 747 jumbos of Pan American, Qantas, and British Airways, the DClOs have had few empty seats available for lower fare-paying passengers to enable the budget-type rates to be a profitable exercise. In fact, forced by the need to remain competitive, Air New Zealand is already carrying loads that are producing lower revenue than those of a year or two ago. And the position will be compounded as even cheaper fares are extended over more routes in an era of increasing costs and cut-throat competition.

The air.ine is also expected to decide soon on the purchase of much larger aircraft for its international routes, a sizeable outlay in the vicinity of S4SM each. If, as predicted, three are purchased, the airline’s existing 8151 M debt still owing on its DCIO fleet will be almost doubled.

Perhaps the New Year resolution of Air New Zealand should be to recognise publicly the difficulties now threatening its already slender margin of profitability and decide whether it can continue to operate against much stronger carriers on the highly competitive routes across the Pacific, or whether it should withdraw and consolidate within a domain closer to home. Whatever its decision, Air New Zealand should do its utmost to ensure that travellers on its domestic services are not forced to subsidise any international losses.