Government still in talks with Air NZ in expanded cross-agency air travel contract

The government is still negotiating with national carrier Air New Zealand in a cross-agency air travel contract that will add a number of new airlines to the list of approved flyers.

Former Economic Development Minister Steven Joyce asked for the contract to be retendered last year as heightened competition prompted a review of the benefits from all-of-government procurement, which had delivered $37 million in savings for the Crown. The new contract comes into effect next month, and the airlines already on the list include Emirates, Etihad, LATAM, Lufthansa and Austrian and Swiss airlines, Qantas Airways for international routes and Jetstar on domestic, Singapore Airlines, Sounds Air, United Airlines and Virgin Australia.

"We are still in discussions with other air travel suppliers, including Air New Zealand, with a view to including them on the panel," a Ministry of Business collaborative procurement spokesperson said in an emailed statement.

The contract is shared by national carrier Air NZ, Emirates, Lufthansa, Qantas and Singapore Airline. Air NZ had been the sole supplier for domestic routes but has since faced increased competition from an expanded Jetstar offering and the introduction of several smaller regional airlines.

Jetstar group chief executive Jayne Hrdlicka said her airline provided up to 500 flights a week across 11 routes and nine destinations and its low-fare model made economic sense for the government.

"Government officials and employees will now be able to travel with Jetstar's low fares for domestic and regional flights," Hrdlicka said.

Air NZ and Qantas report earnings this month, and New Zealand's national carrier is forecast to post a 45% decline in first-half earnings to $186.5 million on a 2.6% decline in revenue to $2.63 billion, according to Forsyth Barr analyst Andy Bowley.

Last month Craigs Investment Partners downgraded their price target for Air NZ shares to $2.09 on the prospect of weaker-than-expected earnings given increased competition among carriers and rising fuel prices. Air NZ shares were recently up 0.2% to $2.105.

(BusinessDesk)