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Air NZ Developing "The Consumer's Airline"

Tue 28 May 2002

Air New Zealand will make major changes to its domestic and international airline operations over the next 18 months to improve services to business and leisure travellers under a new strategy announced by the company today.

The company's new strategy has been shaped by clearly expressed consumer demands for lower fares, more choice of flights, simplified booking and purchase processes, and improved loyalty benefits for frequent flyers.

The strategy will be implemented progressively over the next 18 months across three key areas of Air New Zealand's airline operations.

* New Air NZ domestic & Freedom Air services and Frequent Flyer Rewards programme changes will be implemented on 27 October 2002. Broad details of the new products and services being introduced in this phase are announced today.

* Air NZ International short-haul services (Trans-Tasman, Pacific Islands) are being expanded in schedules taking effect in October and November this year. New international short-haul product and service specifications are being developed for introduction next year. Details of the new international short-haul product and services specifications will be announced nearer the implementation date

* Air NZ International long-haul services (Asia, Japan, the Americas, and Europe) - are also being expanded in November schedules. New international long-haul product and service specifications are scheduled to be announced next year.

Priority is being given to the development of the vital Air New Zealand domestic main trunk operations which provide the core of the company's business, and where further competitive challenges are most likely to develop in the near future.

Introducing Air New Zealand "Express"

Air New Zealand will introduce a new Express class service on the main trunk domestic routes operated by its Boeing B737-300 fleet. The start-up date for Air New Zealand Express is 27 October this year.

Air NZ Express will offer passengers substantial reductions in fares and more seats per flight.

Air NZ Express aircraft will be fitted with 136 seats, compared to 122 at present. The additional 14 seats per aircraft will be achieved by the removal of the separate business class cabins currently fitted on Air New Zealand B737-300s.

During 2003, new, ergonomically-designed seats offering increased knee space will be installed progressively on Air NZ Express aircraft.

A new in-flight snack service - including offerings of tea, coffee and water - will be provided on all Air NZ Express flights. There will be no in-flight meal or alcoholic beverage offering.

Details of the new fare structure will be announced in July, closer to first on-sale date for Express services.

Freedom Air Expansion

Freedom Air's trans-Tasman operations will be expanded to provide new, low-fare services to Queensland from Auckland, Wellington and Christchurch, in addition to its existing range of trans-Tasman services. .

The new Freedom Air services will go on sale in July for flights commencing on 27 October this year. An additional Boeing B737-300 will be acquired to provide the capacity required to introduce these services, increasing the Freedom Air fleet from 4 aircraft to 5.

Freedom Air operations on core domestic main trunk centres (Auckland - Christchurch, Auckland - Wellington) will be maintained.

International Short-haul Service expansions

Air New Zealand will expand its operating capacity on international short-haul(Tasman and Pacific Island) routes in November. The key changes are:

* Auckland to Sydney : the number of flights per week will increase from 20 to 28

* Auckland to Fiji : the number of flights per week will increase from 7 to 8.

* Christchurch to Sydney: the number of seats available per day will increase 38% with the up-gauging of one of the two daily B737-300 services to a B767 operation.

The development of new product and service specifications for Air New Zealand International short-haul services is well advanced, and significant changes will be introduced next year. Details of these changes will be announced closer to the implementation date.

International Long-haul Service expansions

Air New Zealand is also expanding its operations on international long-haul routes to the United States and Asia this year. The key changes are:

* Auckland - Los Angeles : the number of flights per week will increase from 10 to 14 (a 40% increase in capacity) from November.

* Auckland-Honolulu : the number of flights per week will increase from 2 to 3.

* Auckland - Tokyo, Japan: capacity increased 23% last month with the introduction of daily services to and from Narita.

* Auckland - Kansai, Japan : the number of flights per week will increase from 6 to 7 in November.

* Auckland-Hong Kong: the number of flights per week will increase from 5 to 7 in November.

* Sydney-Los Angeles : the number of flights per week will increase from 3 to 5 in November.

New product and service changes for Air New Zealand International long-haul services are currently being evaluated, and will be announced next year.

Air Points reward programme enhancements

The strongly-supported Air New Zealand Air Points reward programme will be significantly enhanced by changes which will be introduced in October, at the same time as the first major airline service changes.

The Air Points programme will be modified to provide more points earning opportunities for frequent domestic flyers using the new Express service.

Air Points redemption opportunities will be enhanced with currently scheduled international service expansions. The Air Points programme will continue to offer other unique benefits to its 800,000 New Zealand members, such as Companion Fares.

Domestic Lounges

Koru Club lounge layouts in main trunk centres with Air NZ Express services will be improved to offer more group seating arrangements suited to working business travellers.

Access to Koru Club lounges will be offered on a fee-paying basis to Koru Club members and their travelling guests. Air Points Gold and Gold Elite customers as well as First and Business Class international passengers will also be admitted.

Simpler booking, purchase and seat selection via Internet

The Air NZ Website will be upgraded to provide Air NZ Express customers with simplified booking, purchase, and seat selection processes. The first improvements in "look and feel" will take effect in July, with more substantial changes effective in October.

Financial Impacts

The Group's current financial performance is ahead of the targets for earnings and gearing contained in the 5 year plan produced to support the recapitalisation of Air New Zealand at the beginning of this year.

The company's new domestic and international operating strategies provide the platform for achieving the continuing financial improvements forecast in the 5 year plan.

The revenue impacts of fare reductions in the implementation of the first phase of the strategy are expected to be offset by operating cost reductions, some market stimulation, and some market share gain.

Future year targets remain very challenging. No further earnings guidance can be offered at this stage. The company remains committed to the achievement of the targets contained in the plan.

ENDS

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