Air New Zealand to cut 3500 jobs, become ‘much smaller’ airline

Air New Zealand will cut around 30 per cent of its workforce, or 3500 staff, saying its likely to emerge from the COVID-19 crisis as a ‘much smaller’ airline.

Air New Zealand is set to cut its staff numbers by 3500 positions.

Air New Zealand has announced plans to cut 3500 jobs and says it will probably emerge from the COVID-19 pandemic crisis 30 per cent smaller, and a predominantly domestic, carrier.

The news came in a letter to Air New Zealand staff from CEO Greg Foran. The letter was also shared with investors in announcements to stock exchanges in Australia and New Zealand.

“It is shaping up that the size of the Air New Zealand workforce will reduce by up to 3500 roles in coming months,” said Mr Foran, who took on the chief executive role at the airline at the start of February.

“No areas will be immune whether it is our most senior leaders through to new joiners. The situation we find ourselves in is nobody’s fault. And I am acutely conscious that a smaller Air New Zealand also comes with a significant impact on many of our suppliers, some of whom will probably have to reduce the size of their workforces.”

Air New Zealand CEO Greg Foran. Picture: Getty Images

The news came as The Australian revealed that Virgin Australia had asked the federal government for a $1.4bn rescue package to keep the airline operating beyond the end of the coronavirus crisis. Virgin’s plan included provisions for the government to take over the airline if the rescue loan could not be rapid within about three years.

Mr Foran said Air New Zealand had high costs and almost no revenue coming in, and that burdening the business with excessive debt would cripple its chances of recovery once the pandemic threat subsided.

“Air New Zealand is an expensive business to run with operating costs in the billions,” Mr Foran said.

“Before COVID-19 came along and wiped out global air travel, we had annual revenue of around $NZ5.8 billion. After paying all our bills, that saw us end the last financial year making a profit of $NZ374 million. And we had over a billion dollars in the bank, which was our version of the rainy-day account in case an unexpected event hit our business.

“Unfortunately, COVID-19 has seen us go from having revenue of $5.8 billion to what is shaping up to be less than $500 million annually based on the current booking patterns we are seeing. That’s right – a drop of more than $5 billion dollars. This has the potential to be catastrophic for our business unless we take some decisive action.”

Mr Foran said the industry was not likely to bounce back quickly.

“The harsh reality is that most countries will take a cautious approach to allowing international tourism in the next year, New Zealand included. And international tourism flows make up two-thirds of Air New Zealand’s revenue.”

Mr Foran said it was possible Air New Zealand would emerge from the crisis as a “much smaller airline”, saying it could be years before the carrier returned to its current size.

“Air New Zealand of pre-COVID-19 employed 12,500 people around the world. Clearly, we will be smaller for some time and we will need fewer staff. We expect that even in a year’s time we will be at least 30 per cent smaller than we are today,” he said.

“Therefore we are planning to be a domestic airline with limited international services to keep supply lines open for the foreseeable future.”

While Air New Zealand had $NZ960m in cash reserved, staff costs alone came to $NZ100m a month at a time when very little revenue was coming in, Mr Foran said.

The airline was working with New Zealand’s government to see how the country’s wage subsidy plan could be employed, but said these measures would still not be enough to avoid job cuts.

“The subsidy is … 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 per cent smaller than we are today.”

Flight radar images of New Zealand in recent days showed the country to have virtually no aviation activity.

International and domestic services have been slashed by 95 per cent with chief revenue officer Cam Wallace revealing that on Saturday, Air New Zealand carried just 670 passengers. They would normally transport 48,000, he said in a tweet.

Qantas, Jetstar and Virgin Australia have all suspended flights to New Zealand due to travel restrictions and lack of demand. Air New Zealand is maintaining just seven return services a week to Australia, including three between Auckland and Sydney and two each between Auckland and Melbourne and Brisbane.

Like almost every airline, Air New Zealand’s share price has been hammered by the coronavirus crisis, falling 70 per cent since China first announced a ban on international group travel.

After closing at $2.88 a share on January 24, on Monday Air New Zealand shares closed at 89 cents.