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Up in the air

By Fiona Rotherham

Friday 2nd June 2006

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Within a week of becoming Air New Zealand chief executive last October, Rob Fyfe announced plans to axe more than 600 engineering jobs. Fyfe has since said 470 corporate jobs will go as half-year profits fall 45% and fuel costs rise 36%. Fyfe began his career in the New Zealand Air Force and, like Norris, has a banking background.

No stranger to tough decisions, Fyfe had to announce 500 job losses in his former role at ITV Digital in London before he joined Air New Zealand three years ago. He talks about change, challenges and getting chummy with the Aussies.

Did you plan to hit the deck running?
The first decision related to engineering was something I had initiated on day one of the job. It is important when you come into a role like this that you are very visible and people get a clear sense of what your strategic agenda is and what your leadership style is all about.

Should this restructuring have happened under Ralph Norris?
We had been trying for a couple of years to resolve those issues without success and that's what led us to ultimately conclude we would have to outsource that business. As it eventuated, the engineers agreed to work with us when that option was put on the table but I don't think there was an option for us to have accelerated getting to that point any faster.

What's behind the corporate restructure?
If you look at the cost base of our business, 25% to 30% is fuel and over 25% is staff. When you've got one of those big cost drivers in your business suddenly skyrocketing, you have to compensate somewhere else.

If you don't have scale, don't have size and can't go head to head with the big boys, the only thing you have got is speed. You have to adapt to the market quicker than the other airlines can and beat them in terms of reinventing your business. If you're going to do that, you have to cut the bureaucracy. We have the infrastructure of a large airline but we're a small airline.

Are staff cuts enough?
This allows us to tread water. With fuel prices going up and some slowing in tourist growth into New Zealand, this allows us to balance some of those factors out. We have plans to grow into new markets and have indicated we're going to start a service to Shanghai later this year, we're starting a second daily service into London and we have a number of other routes on our radar screen that we're evaluating at the moment.

Most other airlines that fly into this country largely all freeload. We spend $80 million a year in promoting New Zealand in offshore markets; that's more than Tourism New Zealand spends. If you look at those other airlines that fly into here - Qantas, Emirates, Singapore Airlines, Malaysian Airlines, Lan Chile - they don't have huge budgets promoting New Zealand. We're about to grow our capacity next year by 20%.

Are you confident there are profitable new markets to tap into?
We haven't tapped Canada nearly as much as we could, we haven't tapped South America as much as we could, Asia is growing rapidly and India is growing rapidly. We have no shortage of new markets to tap into and no shortage of opportunities to tap our existing markets where we're a tiny portion of tourism today. So I don't feel like the pond is too small. The key to me is how collectively as New Zealand do we harness our assets and focus them on the markets of greatest opportunity rather than having all the different industry players all doing their own thing and heading off in different directions.

How unsettling is this restructuring?
If I looked at our staff in engineering, manage-ment and long haul you're talking probably 6,000 staff impacted in some way by those changes. That's a lot to be going on simulta-neously. It creates anxiety and destabilises people. The challenge in my role is to create for people a sense of the future on the other side of this period of anxiety, so people feel the discomfort is worth it because they want to be a part of what we're building. I spend a lot of my time on communi-cations - 60% to 70% of my day.

How hard is it filling the shoes of someone as well respected in business as Ralph Norris?
It's a challenge. Our philosophies are similar but our style and execution are very different. I think it is absolutely critical when you're coming into a role like this that you are your own person. Likewise you have to be careful not to throw away everything that was your predecessor's just for the sole reason of wanting to express yourself in a different way.

Do you have the same mana with your workers as Ralph?
I wouldn't expect to at this point in time. I think it will take me some time to build the confidence of people that where I have led them to is a better place than where we came from. If I look at Ralph's position when he arrived here back in 2002 he took some time to build that credibility as well because this is an industry and a business that doesn't naturally warm to outsiders. You have to earn your credibility and their respect. If they give it to you too easily, then you can lose it too easily.

Are you happy with the balance of airline experience on your management team?
In the operational areas of the business it is absolutely crucial. In areas like sales and marketing we have more flexibility. Typically people running airlines have come up through the operational side and have a very risk-averse mindset. That leaches across from the operational side to the commercial side of the business. One of my big challenges is to create the dichotomy within the business so that people understand we can be very risk-averse -operationally but have a greater appetite for risk on the commercial side of the business and get people to understand those two things can coexist.

What is the thinking behind the proposed codeshare with Qantas?
Ever since Emirates and Pacific Blue arrived on the Tasman we've been losing money and lots of it. Faced with that scenario you have two options: increasing your revenue or dropping your costs. If we pushed our ticket prices up then everyone would just fly on other airlines. The easiest way to reduce costs in the airline business is to reduce the number of aircraft you fly. A codeshare allows you to reduce the number of aircraft and still offer your customers at least as good - and in this case much better - access to flights during the day.

How do trans-Tasman customers benefit?
We currently have 134 services a week. Under this proposal they'll be able to fly on 218. They earn loyalty points on all those flights, they get better connections and we believe, because we can get our costs down, that gives us a much better likelihood of being able to sustain the current low fares.

What are you saving - $40 million a year?
We haven't made that public.

Why are you repaying the $98 million in redeemable convertible notes Qantas holds?
Qantas bought those redeemable notes with the intention of taking a much bigger equity stake in Air New Zealand as part of the original alliance proposal in 2003. Given this is a standard codeshare it doesn't warrant an equity tie-up and Qantas's view is it doesn't need, nor want to, be a small minority shareholder in Air New Zealand.

Critics say this codeshare should require Commerce Commision - not just Ministry of Transport - approval here.
The issue we're trying to address on the Tasman - which is carriers we believe are dumping capacity into the market - the Commerce Commission has no authority to address those issues. To suggest it should have jurisdiction over our response to those issues seems somewhat unbalanced. We're confident we can get this approved over the next six months.

How demanding is your job?
I've never had, in any previous role, the sort of publicity I'm receiving now. That's to the point where I walk down the street and strangers come up to me and give advice on how the airline should be run. Actually, you get some surprisingly good ideas at times.

Are you in it for the long haul?
It is not worth going into a job like this where you have to give so much unless you're willing to make a long-term commitment. This does feel like the corporate job I want to do through to my retirement.

How old are you?
Forty-four. I look a lot older since I've taken on this job.

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