$89M loss by Air N.Z.

Press, 16 September 1982, Page 1

$89M loss by Air N.Z.

PA -Wellington ' Air New Zealand recorded an operating loss of nearly $9O million in the 1981-82 financial year. Its annual report, released yesterday, showed a loss of $89,603,000. compared, with one of $43,629,000 'the previous fin--ariciabyear. - '

The airline's revenue of $557,229,000 in the- 1980-81 financial year increased to $659,473,000 last year, but expenditure also increased: from $600,858,000 to $749,076,000.

The 1981-82 operating loss represented a net deficit of $49,008,000 once extraordinary items and tax credits were taken into account.

The net deficit for the 1980-81 financial year was $30,832,000. The chairman of the airline, Mr Bob Owens, said in the report that the increase in total revenue was “sizeable" at 18.3 per cent, but continuing cost increases had caused the 25 per cent rise in expenditure. ;

The biggest single increase in expenditure was for wages and salaries, he said, but the decline in the value of the New Zealand dollar contributed to rising costs in many other areas.

Mr Owens said special attention had been directed to a cost-reduction drive in all of the airline's activities.

“At this early stage of the new financial year marked progress has already been made in achieving the turnaround sought .in the programme. “I am confident that during the current year w’e will see the company achieving many of the benefits accruing from action taken last year and this year, paving the way for a return to profit by the end of 1983,” the chairman said.

Among the cost-cutting moves being taken was a reduction in staff numbers. Mr Ow'ens said that through attrition, leave without pay, and early retirement the airline’s staff had been reduced from 8798 at April 1. 1981, to 8172 last March 31. The chairman said that in an environment of unprecedented losses by almost all international airlines, Air New Zealand's operating loss was a “sobering reflection on the inability of the industry, to resolve the difficulties facing it worldwide.”

The Minister of Civil Aviation, Mr Gair, said in a statement that the details ofthe airline's financial situation had already been canvassed publicly. “The report does, however, convey a clear commitment by the board and management to the company's programme of restructuring. This. Mr Gair said, “gives me confidence that the airline can obtain its objective, given no further deterioration on the international scene, of reaching breakeven by the end of the 198384 financial year.”

Mr Ow’ens said Air New Zealand would give detailed attention to continuing to save costs. “Many cost factors, however, remain beyond the airline’s control.”

He said fuel prices — for a long time “the bogey of the industry” tended to stabilise last year but were likely to continue to rise because of New Zealand’s declining dollar and geographical position.

Tax imposts and other Government charges on the airline continued to climb, Mr Owens said. Tax paid on fuel and pas-

sengers. plus dues on domestic and international operations paid to the Government and local authorities, climbed from $29.25M in the 1980-81 financial year to S39M last year, a rise of 33 per cent.

While these charges would mostly be passed on to the consumer in the long run. they caused a sizeable shortterm burden. Mr Owens said.

“I must emphasise again the enormity of the financial problems facing the airline,” Mr Owens said. “Industry problems aside, the climb back to profitability is clearlv an immense task.”

Mr Owens said the factors contributing to the international “financial blight" were many and complex. Fewer people were travelling on too many airline seats because of depressed world economic conditions and some airlines had engaged in such desperate competition — fired by the “destabilising" effect of deregulation — “that the list of casualties may increase in the foreseeable future."

In many cases, the fare levels offered had been totally inadequate to cover costs or to provide a return on investment, Mr Owens said. Interests charges to the industry had risen and money normally set aside for depreciation and fleet, replacement had been swallowed up adjusting cash flow. Many airlines had found it necessary to borrow money to meet cash-flow losses, he said. -•

While some slight relief from mounting losses seemed likely towards the end of 1981. unprecedented deficits occurred in the last quarter of the financial year in most sectors of the industry.

There was an increasing prevalence of greatly discounted fares, resulting in lower yields. This situation still existed and gave little hope of a recovery in yield for at least the next year.

"It is clear that fare wars are not going to solve individual airline or industry financial problems.

“A return to a more balanced commercial environment of orderly co-operation is necessary if the chaotic crises of aviation today are to be eliminated in the near future,” Mr Owens said.

“As an international carrier. Air New Zealand has not been immune from these influences. Despite determined efforts to increase yields and reduce costs it has recorded a massive over-all loss.”