Yesterday they said they would wait and see yet today they put fares up by 10%

Air New Zealand has announced a 10% increase in domestic and international airfares from May 1, saying it's responding to recent significant rises in jet fuel prices.

"Fuel is now our number one cost. We regret having to increase fares but the numbers are stark," says chief financial officer Rob McDonald.

The price of benchmark Singapore Jet Fuel has more than doubled from around $US40 in April 2004 to $US89 a barrel today, he says.

This means Air New Zealand's fuel bill has risen from $480 million in the 2004 financial year to nearly $1 billion this year.

In the last month alone, fuel prices have increased by nearly $US10 per barrel, he says.

Until now customers have been shielded from much of the effect of these price rises by the airline's fuel hedging programme, McDonald says.

But recent falls in the New Zealand dollar against the US dollar and the fact Air New Zealand's more favourable fuel hedges have rolled off compound the situation and mean this shortfall must now be addressed, he says.

The airline will still not fully recover the increased cost of jet fuel from the fare rise, he says.

McDonald says the business is very sensitive to fuel price rises - every $US1 increase in the price of jet fuel forces down the airline's annual gross earnings by $US8 million before hedging.

Air New Zealand has recently made efforts to reduce costs, including a restructure of its wide body maintenance, cuts to corporate head office staff levels and combining the flying of Freedom and Air New Zealand A320 aircraft on the Tasman into one operating company.

The airline has also applied to the New Zealand Ministry of Transport and the Australian Competition and Consumer Commission to code share - or share seats - on the Tasman with Qantas to rationalise excess capacity and flying.

The company says it has saved a total of $293 million since 2003, but the magnitude of recent fuel price rises mean these cost reduction measures are now not enough.

Following a District Court ruling in November 2005, Air New Zealand incorporated fuel surcharges into its advertised prices, so the latest increase in fuel costs will simply be reflected in increased fare prices.

Air New Zealand also says it acknowledges delays in revising pricing in its internet booking system and an update of its IT systems means fuel will be included in pricing that appears in the online process from May 15.

The airline says it will continue to "rigorously monitor" its business and underperforming routes or business units are candidates for immediate review.

Source: TVNZ

[Edited 2006-04-21 08:26:25]