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Air NZ to keep regional fares low as Jetstar ponders exit

Wednesday 25th September 2019

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Air New Zealand says it won't hike fares on the routes that Jetstar looks set to exit, consistent with pricing changes it made earlier this year to stimulate travel in the regions. 

The national carrier will offer a special discounted fare for Jetstar customers who would otherwise be grounded if the Australian contender goes ahead with plans to quit the routes in November. Air New Zealand is also gauging whether it can add capacity to those routes that Jetstar may leave. 

"We know how important air services are for regional New Zealand and that’s why we’re stepping in to support Jetstar customers with a special discounted fare,” Air NZ chief revenue officer Cam Wallace said in a statement. 

The affected routes are between Auckland and Nelson, Napier, New Plymouth and Palmerston North, and flights between Wellington and Nelson. 

Jetstar had signalled its unprofitable regional routes were being monitored closely, and today said it plans to pull out due to softer demand and rising fuel prices. 

That announcement came just hours ahead of Air New Zealand's annual meeting - the last for chief executive Chris Luxon, who is expected to pursue a political career ahead of the 2020 general election. 

Luxon told shareholders that he hasn't seen any further slowdown in demand after signalling a slower pace of growth earlier this year, and that the company has adjusted to the new environment. That included restructuring airfares to stoke domestic tourism. 

"We have also overhauled our domestic network fares to make travel more affordable and further supercharge domestic tourism, specifically to regional New Zealand," Luxon said. 

Another initiative is improving the fleet's fuel efficiency. Shareholders will vote on a multi-billion-dollar purchase of Boeing 787-10 Dreamliners, which Luxon said will improve efficiency by 25 percent. 

Air New Zealand cited higher jet fuel prices as a headwind for the business, and chair Tony Carter, who also leaves the board at the end of today's meeting, said the current pre-tax earnings forecast of $350-450 million was based on average jet fuel prices of US$75 a barrel. 

"I would note that jet fuel has recently been trading above the US$75 dollar level, and we continue to closely monitor pricing along with our current fuel hedging profile," Carter said. 

Chair-elect Therese Walsh told shareholders the search for Luxon's replacement was progressing well and that the board expects to make an announcement next month. A replacement director for Carter is likely to be announced soon as well, she said. 

Air New Zealand shares were recently up  2.2 percent at $2.74. 

(BusinessDesk)

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