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MARCH 2019

Week 9


Air NZ Rolls on post-Trent cost savings

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March 1st 2019

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As Air NZ’s 787s return to service, airline can trim ‘hidden costs’ from grounding. Read More »

As Air New Zealand’s (Air NZ) 787s return to service post Trent engine repairs, airline can trim 'hidden costs' from grounding.

Airlines worldwide have projected costs in the tens of millions of dollars from lost revenue and replacement charters for aircraft grounded by Rolls-Royce Trent 1000 engines. Yet Air New Zealand reminds that costs and inefficiencies extend beyond the direct line.

Air NZ’s CASK (cost per available seat kilometre) ex-fuel grew 1.6% in interim 2018-2019, despite cost reductions. CFO Jeff McDowall largely blames indirect and hidden costs from Trent 1000 groundings for the increase. Air NZ previously estimated NZ$30-40 million (US$21-27m) in direct costs.

McDowall described the additional costs as consequential, for example a last minute aircraft swap, or proactive, such as employment levels. “We've actively held more staff to make the schedule more resilient and provide our customers with a better level of support when they're seeing disruption,” he said. In particular, cabin crew numbers were up while pilot productivity decreased.

For the six months to December 31, 2018, Air NZ increased capacity by 4.3% but labour costs rose faster at 5.8% (NZ$37m). Underlying that was an increase in full-time equivalent staff by 6.3%, or 690 people. Air NZ attributed the bulk of it higher costs to Trent groundings. Additional growth was due to Air NZ receiving its A321neo and needing more staff during the introduction period.

“Typically, we run a very disciplined, focused rostering cost base. We don't have a lot of [fat] in the schedule, which is great for efficiency, but it means in a period of operational uncertainty, it reduced our level of resilience,” McDowall said. Air NZ is now focused on reducing additional costs.

From June to December last year, Air NZ had up to five 787s grounded. At February 28, two 787s were grounded. The carrier expected to have only one aircraft grounded from April 1 and for the situation to be resolved by September 1.

Chairman Tony Carter said in a letter “while the Trent 1000 engine issues are not within our direct control, how we choose to respond certainly is”.

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