Just One Effect of Covid-19 On NZ

A Letter From the CEO of Air New Zealand

Wherever you are in New Zealand or around the world, I hope that you are managing well with the impact of Covid-19.

Here at Air New Zealand we are certainly facing unprecedented times and I am incredibly proud of how our people are doing their part to ensure our nation continues to keep domestic and international supply lines open for the carriage of medical goods, cargo and essential services personnel.

We have had to cut more than 95 percent of our flights here in New Zealand and around the world. As a result, we are beginning the difficult process of materially reducing the size of our work force this week.

Air New Zealand is an expensive business to run with operating costs in the billions. Like any household or business, we have outgoings (utilities bills, lease payments etc) and income (revenue) to cover our bills.

Our revenue has decreased drastically

Before Covid-19, we had annual revenue of around $5.8 billion and made a profit of $374m in the last financial year. We also had around a billion dollars in the bank in case an unexpected event hit our business.

The global reduction in air travel has hit Air New Zealand hard and we are earning less than $500 million revenue annually based on the current booking patterns. This means we are dealing with a significant reduction of over $5 billion in revenue per year.

While we are expecting at least domestic bookings to increase again once the Level 4 Alert has been lifted, the harsh reality is that most countries (including New Zealand) will rightly take a cautious approach to opening their borders again. International tourism flows make up around two thirds of Air New Zealand's revenue, which means the lack of incoming tourists also has a flow-on effect on our domestic network.

In that light, it is clear that the Air New Zealand which emerges from Covid-19 will be a much smaller and largely domestic airline with limited international services to keep supply lines open for the foreseeable future.

Immediate action is needed to ensure our survival

Air New Zealand currently employs around 12,500 people around the world at a monthly labour cost of $110m. Given our operations will be much smaller for some time, we will need fewer staff. We expect in a year's time, we will be at least 30 percent smaller than we are today.

We have been collaborating with our Unions and our Air New Zealanders to explore how we can together reduce the costs of running our airline. Many Air New Zealanders have offered to take Leave Without Pay, reduce their hours or explore voluntary exits. We have also made savings from voluntary pay cuts by the Board of Directors, myself as Chief Executive Officer and my Executive team, and cancelling all incentive payments for staff on Individual Employment Agreements.

The Government's recently announced wage subsidy may provide some relief which would be helpful. We are working with the Government to determine how the subsidy can be applied in our business and in turn to the benefit of our people. The subsidy is, however, a short-term measure and doesn't right-size the business for the future, especially when you consider that even in a year, we will be 30 percent smaller than we are today. But we are grateful that the Government has put in place a scheme that means the cuts to the size of our workforce are not as deep as they would have needed to be without the subsidy.

The workforce reduction has started

The reality is that given we are expecting to be at least 30% smaller than we are today we will need to reduce the size of the workforce by up to 3500 roles.

The extent of this reduction is based on conservative assumptions and we may have to change these as the situation evolves, especially if the Level 4 Alert goes beyond the planned 28 days or border restrictions are in place for a prolonged period.

So, this week we have begun the process of consulting about large-scale workforce reductions in our international regions. New Zealand will follow. These are painful but necessary measures to ensure this country retains its national airline in the long term, albeit a smaller one.

We are committed to supporting affected Air New Zealanders as they transition out of the business. We are exploring redeployment opportunities and have in place a range of free independent services, such as budgeting, mental health counselling support and career advice.

I am conscious that a smaller Air New Zealand also comes with a significant impact on our suppliers, some of whom may have to reduce the size of their workforces as well.

Confidence in our iconic airline

These are unprecedented and challenging days. However, I am confident that by taking the necessary measures now, Air New Zealand will get through this difficult situation and one day return to serve all our destinations at home and many more around the world.

Thank you for your ongoing support of Air New Zealand and our people as we work through this.

Ngā mihi nui,

Greg Foran

CEO