National air carrier Air New Zealand Ltd says it is freezing the salaries of its most senior executives and reviewing its non-essential operations.
Pay increases for managers on individual contracts will be achieved through a headcount reduction or increased productivity, chief executive Rob Fyfe said in a statement.
Air New Zealand has 20 top executives in this country earning more than $250,000 each, with two earning over $800,000 and one on $1.6 million a year.
The airline is wrestling with soaring fuel costs and slumping demand for seats, and last week announced its fourth fare increase this year in a bid to offset a 58 percent rise in jet fuel prices over the past six months.
Airfares across many routes will increase from July 17, rising by an average of 3 percent for fares sold in New Zealand for Tasman and domestic flights, and by 5 percent for fares to North America, Asia and United Kingdom.
Air NZ deputy chief executive Norm Thompson said with jet fuel now above $US170 ($NZ228) a barrel, the fare increases would only partially absorb the higher cost of fuel.
In May, Air New Zealand predicted rising costs would drive down its annual profit by more than 23 percent.
Today Mr Fyfe said he had challenged each division to identify non-essential activity and chances to reduce staff numbers through attrition and non-replacement of non-critical roles.
The salary freeze applies to himself and executives who report directly to him, and the income of other managers will fall because bonuses are linked to the airline's financial performance.
Mr Fyfe said his airline was trying to reach fair settlements for workers employed under collective agreements, but it would be "increasingly difficult'' to lift wages in line with inflation if conditions continued to deteriorate.
"Air New Zealand faces one of its most challenging financial periods as tough economic conditions hit consumers around the globe,'' he said.
The freeze on executive salaries would be reviewed when business conditions improved, "hopefully sometime in 2009''.
He called for all New Zealanders to identify ways in which the airline could contain its costs or generate more revenue.
