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Address by Ralph Norris, MD Air New Zealand

December 9, 2002

Address by Ralph Norris, Managing Director, Air New Zealand

You have had access to the NECG report for more than an hour now, so it is not my intention to go through the material in great detail.

Before opening up the floor to questions, however, I would like to pull together a few strands, where information in the report is in separate places, or the report does not cover some of Air New Zealand’s plans.

I would also like to repeat the point that John made. The economic report is not Air New Zealand’s report. It is that of an independent consultancy.

The consultancy listened to our views, but what is expressed is their assessment. We are not distancing ourselves from the report, but we want to ensure that this subtle but important point is understood as questions arise.

There are five points I want to cover, and they are employment, new services, fares, competition commitments and why we chose Qantas.

We are saying the alliance will create an additional 200 jobs in our highly skilled engineering sector. In the report, in section 5.4 under the heading of engineering, the numbers do not add up to 200 new jobs. The report covers the difference in jobs with the alliance compared to jobs without it.

Currently, many of the engineers at our Engineering Services operation are employed as short-term contractors and their work is underpinned by Air New Zealand successfully tendering for ad-hoc, third party contracts. Their ongoing employment is dependent on Air New Zealand continuing to win sufficient tender work from other international airlines and defence forces.

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In the 2001/02 financial year we won 43% of the work Qantas put out to international tender at a value of $20 million, and this supported the employment of some 100 engineers.

Provided that we continue to meet the high technical standards and efficiency requirements of Qantas, we expect that Qantas’ growth and the alliance will result in an increase in out-sourced heavy maintenance work from Qantas creating an estimated 124 new jobs.

2 In addition we will be able to invest some $100 million in new engineering infrastructure. This will create the opportunity to continue tendering for even more maintenance work from other international airlines, requiring more staff and increasing the overall engineering workforce by 200 over the number we currently employ.

Without the alliance we would not be prepared to invest that $100 million in new infrastructure.

In section 5.3 the report also touches on employment opportunities in the tourism sector.

Within the report you will see that it is estimated that as a direct consequence of the alliance approximately an additional 53,000 tourists will visit New Zealand each year.

Qantas will also be actively marketing Air New Zealand and New Zealand as a tourist destination in those markets in which it has a strong presence.

Based on the accepted tourism industry ratio of one new job in tourism for every 14 tourists, that would amount to 3,786 new jobs, so the estimate of 2,500 additional jobs in tourism is extremely conservative.

A part of the $1.4 billion in economic benefit accruing to New Zealand is the opening of potential new routes such as Auckland / Adelaide, Auckland / Canberra, Auckland / Hobart, and Wellington / Canberra.

Anyone who has had to fly to those destinations will know just how time consuming and tiring they can be at present without direct routes.

Opening up those new routes would also free up seats on existing trans Tasman flights, encouraging more people to fly.

There are also some points I want to make about airfares.

We are on record as saying we are committed to more affordable fares, and through Express Class we have demonstrated our approach is to get more people to fly, more often.

We have committed to maintaining the Express Class concept and extending it to trans Tasman flights, adapted to take into account the longer flying time.

We are also committed to retaining Freedom Air as a no frills Trans Tasman carrier.

Within the NECG report you will see some modelling has produced a range of fares for various services three years out.

The report says that with the alliance, in three years time, on average air fares compared to today’s fares will likely rise by 3.1% on domestic services and 1.7% on the Tasman. Occurrences outside the control of the airline could impact on these percentages.

These are obviously projections, but are an estimate by NECG to put future airfares into context.

The point I want to draw is that the gains the NECG report says will flow from the alliance are from efficiency not from increased airfares.

Another factor that will contribute to the retention of affordable airfares on domestic routes is the arrival of new competitors. The NECG report makes it clear that the 3 emergence of a no frills operator on domestic routes is far more likely if the alliance proceeds than if Air New Zealand and Qantas continue their current head-to-head battle.

Air New Zealand’s view is that there will be a no frills airline operating domestically within three years.

As part of the application to the regulators, the airlines have also proposed to enter into enforceable commitments designed to facilitate new competition. These include:

- Facilitating new entrants including , if necessary, access to terminals, ground services and engineering facilities for new entrants

- Not taking unreasonable actions in relation to capacity and prices on routes where it is the sole operator and

- Ensuring the specific delivery of public benefits negotiated with regulators.

My final point is to answer the question as to what I see as being the biggest hurdle to public acceptance of the alliance going ahead?. My answer is “that we have chosen Qantas as our alliance partner.” The hurdle is not that people don’t want us to form an alliance, or that the deal is one sided or that the benefits are not there. The hurdle is that we have chosen Qantas, an Australian airline.

I have said it before, and I will repeat the statement. If Air New Zealand could choose any airline in the world with which to form a commercially viable alliance, our first choice would be Qantas.

They are our natural alliance partners, and we will work exceptionally well with each other.


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