Air NZ vows to keep London service

Air New Zealand boss Rob Fyfe is backing the airline's struggling service to London but warning of seasonal cuts to the schedule.

Responding to customer concerns that the route was under threat chief executive Fyfe said in a letter to staff the airline "had no intention'' of pulling out but indicated that it may cut flights.

He said the company was nearing the final stages of the review of its international service.

Air New Zealand saw earnings fall 45 per cent to $75 million for the year ended June 30 and said it was reviewing long-haul routes, leading to speculation London could face the chop.

"It's no secret that we are struggling to make London profitable, just as our competitors are also struggling in this task, not just on London but on most ultra-long haul routes,'' Fyfe said in the letter.

Short-term overseas visitor arrivals from the UK were down 2.6 per cent for the year ended November at 231,764, according to Statistics New Zealand.

Fyfe said the likely impact for London routes was that the airline would need to adopt a seasonally adjusted schedule that sought to better match capacity to weak passenger demand.

"This is not a new strategy, we have been doing this on our Hong Kong route for some time now,'' he said.

The airline flies to London daily from Los Angeles and five days a week most of the year from Hong Kong.

"It doesn't mean we're pulling out of London, and we have no current intention of withdrawing our presence from any market we serve, but it will mean adjusting our frequency to match demand where appropriate.''

Goldman Sachs head of research Marcus Curley said a strong market share on international flights in and out of New Zealand limited the scope for competition on short-haul routes.

"I don't think you're going to see outcomes from the review which are as hard-nosed as what people may expect because there are flow-on consequences from giving up on major routes,'' Curley said.

Lack of profitability on long-haul routes was an issue facing a lot of carriers, Curley said.

"It is a very tough operating environment at the moment.''

London was an important source market for the airline and the UK was the second largest source of inbound visitors to New Zealand after Australia, Fyfe said.

Last year Air New Zealand said that long-haul routes were losing more than $1 million a week.

"As a signal of our commitment to make London operations more profitable we have been restructuring our sales and marketing team in Europe to ensure we can maximise the revenue opportunities.''

"As a result you can expect to see some new routes announced during the course of the year and some additional capacity deployed on some routes while we will see capacity reduced on other routes where we are experiencing a shortfall in demand.''

Air New Zealand was well advanced in a review of costs across the business, and through natural attrition and the scrutinising of hiring had reduced the head count by almost 200 roles since the start of the financial year in July last year, Fyfe said.

Expenditure by UK visitors, excluding international airfares, was down 15.1 per cent for the year ended September at $577 million, according to the Ministry of Economic Development.

- Owen Hembry of the New Zealand Herald