Air New Zealand fares up by 5 per cent just as international travel about to take off

Air New Zealand’s international fares are going up by an average of 5 per cent across its network, just as border restrictions ease and more people can travel.

The airline says due to the rising cost of fuel and the impact of inflation generally across all parts of the business, it has had to review its fares.

”Unfortunately, Air New Zealand cannot absorb these increases, and so airfares on international routes will increase accordingly by (around) 5 per cent.”

The increases hit later this week for future bookings on the airline.Those Kiwis who have already booked to come home as MIQ requirements are dropped are unaffected but the increases will be a blow for those looking to take advantage of easier overseas travel for the first time in two years.

Staff costs are rising at the airline as it rehires crew, rebuilds its international network and its fuel bill,the second-biggest expense after labour, grows as it does more flying.

From tomorrow vaccinated Kiwis returning from Australia can self-isolate rather than go through MIQ and those new rules will, from mid-March, apply to those returning from other parts of the world.

Airlines struggling to recover from the pandemic have been rocked by steeply rising fuel costs, made worse by Russia’s invasion of Ukraine.

At Air New Zealand fuel costs were up 19 per cent to $174 million in the half-year to December 31.

Speaking after announcing an interim pre-tax loss of $376m last week, chief executive Greg Foran said just like other businesses,it faces broader inflationary pressure.

”As we begin to restart this business, airports aren’t going to hold back on price increases so we’re going to suffer inflation, just like everyone else in the country.”

He said he expected fares to fluctuate over the next few years.

”That’s what we’re seeing internationally. We’re seeing periods where fares decrease for a period of time to build capacity and volume and then once it gets built back you’re seeing some increases in prices as airlines try and work to get a return on their investment and then you’ll get some decreases as competition enters particular markets.”

As the airline battles through some of the toughest days of the pandemic, Foran said he’s optimistic it will get its massive capital raise of the ground.

It is forecasting a full year pre-tax loss of around $800 million and Foran said he’s comfortable the airline had done the work to emerge from the pandemic a ”great business.”

There is an important rider on the airline’s $1.2 billion-plus capital raising plan, it will go ahead subject to market conditions.There’s also more flexibility around the timing.

But Foran is confident that with what it knows right now, the raise will happen.

”We’re reasonably comfortable that by the end of March, we get this up and running.”

He’s not playing down what investors will have to contend with and see beyond.

”The remainder of this financial year is going to be hard going and that’s why we’ve come out and said we’re going to lose more than $800 million.We’re trying to thread the needle – and it’s a challenge,” he said.

”The crystal ball is still pretty cloudy. I can’t give you a date when it comes right and when it does come, right, it doesn’t all come right immediately at the same time.”

Two years into the pandemic it was as hard financially and operationally as it has ever been.

”It’s probably harder today in the airline than any time this thing started apart from the first day.”

About 100 staff were off work after catching Omicron or being close contacts, front line staff were taking rapid antigen tests (RATs) daily and the airline was making as many network changes as ever.This comes as it brings back 250 crew, restarts some Boeing 777-300 freight flights while several Dreamliners are sent back to Boeing for repainting of wings.

”We’re in this really interesting period where it’s as hard as it’s ever been but we know that we’ve got to get ready and get over it.”

Like Foran, the airline’s chair Dame Therese Walsh is not gilding the lily in relation to this financial year and said in commentary around the half-year result that 2022 will be the most difficult one yet for the airline.

“It would be easy to think the first year of the pandemic had the biggest impact on Air New Zealand’s finances.

“However, only the final quarter of the 2020 financial year was impacted, and in the 2021 financial year the airline was able to access relief support from the Government through various subsidies, PAYE deferrals and cargo support schemes.”

The domestic network largely kept flying across the 2021 financial year and the transtasman and Cook Islands bubbles gave a real boost to the second half of 2021.

”The 2022 financial year has and will continue to be much more heavily impacted, both by continued suppressed demand and rising costs,” said Dame Therese.

Pressure is mounting daily on the Government to scrap self-isolation for all arrivals before the phased removal of MIQ for international visitors in July.

Officials are now reviewing the timing of scrapping MIQ for all nationalities to move New Zealand into synch with most other countries and help salvage what is left of the international tourist industry.

Foran said the Government would be looking at how quickly and widely Omicron spreads through New Zealand and the impact on the hospital system as it reviews border rules.

But there was already ”a direction of travel” which gave the airline more confidence about easing of friction which sharply reduced demand.

”There’s no reason to believe that what has happened overseas won’t begin to play out here,” he said.

”There is no doubt that the more friction you put it, the harder the recovery becomes. And we’ve been obviously modelling that as we think about capital stack, in terms of the capital raise and understanding what the recovery rates have been like around the country and around the world.”

Auckland Airport research has found that self isolation could cut long haul demand by up to 95 per cent and transtasman travel by 70 per cent to 90 per cent.

Since the announcement of the easing of border rules, Air New Zealand had seen a surge in international bookings.

About 9000 Kiwis in Australia able to enter without MIQ had booked to come home and another 15,000 from the rest of world had booked for travel from the middle of March which is when they can enter quarantine-free.

”I think the wisdom of crowds is telling us that people can see something starting to happen – the beginnings are in so bookings April, May, June, July, August, are starting to show that people believe that they’re going to be able to travel without the same amount of friction that they’ve had in the past.”

Earlier this month the airline had more international sales than domestic sales for the first time since Covid started but that also reflected Omicron’s impact on domestic demand which is down by a third. More people are wary of travelling domestically.

Foran said there had been no reported increase in conflict between crew and passengers who may be upset about vaccine or testing requirements or mask use.

”We keep an eye on that and I hope it stays pretty good. I think by far and away the majority of people who travel absolutely want to do the right thing.”

He paid tribute to staff throughout the business in a very tough environment.

Foran said demand for business class seats – which are far more profitable than in economy – was uncertain but Air New Zealand was well placed because of its skew towards high end leisure passengers in its premium cabins rather than purely corporate travellers.

The airline will start rolling out new business premier cabins next year.

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