Air NZ pulls out of recession

Air New Zealand shares wobbled, but the airline posted a "rock-solid" interim net profit as it pulled out of the recession.

The airline more than doubled its net profit after tax for the December half, from $24 million in 2009 to $56m. Normalised earnings – which strip out hedging effects – were $96m pre-tax, up $70m. .

The result shows a big improvement on the airline's annual last August, when the normalised pre-tax profit was $145m. Nonetheless, Air New Zealand shares slipped on the news, falling 2c cent to $1.29 in a generally soft market.

Forsyth Barr analyst Rob Mercer said that was partly because the airline was projecting a weaker, though still profitable, second half, after benefiting from lower fuel costs in the first half. "You couldn't possibly draw any negative surprises out of today's announcement," he said.

"It's basically delivered a revenue-cost picture of profitability that reflects a good performance."

Air NZ chief executive Rob Fyfe said the trading environment appeared to have stabilised, but the interim result reflected a recessionary hangover.

Lower cargo volumes, yields and a 4.6 per cent drop in passenger demand pulled trading revenue down 15 per cent to $2.1 billion. But the result was offset by lower fuel costs and an 11 per cent cut in non-fuel trading costs.

Demand remained weak on Asian routes but the US showed signs of recovery and it was positive domestically. However, cheap fares and a slight drop in demand on the trans-Tasman and Pacific routes continue to be a challenge.

Mr Fyfe said he planned to announce some innovations next month which would shake up the trans-Tasman route and Pacific Island market. And he added that the airline's new economy "SkyCouch" and premium economy seats had yielded inquiries from several other airlines.

But they would have to wait while Air NZ worked out how best to extract maximum competitive advantage.

"The next 12 months will be one of the most defining in Air New Zealand's history," he predicted.

Asked whether the airline's fares could remain as low as they were, Mr Fyfe said some of the fare levels seen "are not sustainable in the long term but that will be dictated by the competitive pressures in the market".

The recovery in profit would be gradual for at least the next year, he said.

Chairman John Palmer said he expected the second half to involve a hedging loss of about $20m compared with a gain of $24m in the first half if exchange rates stayed where they were.

The airline declared an unchanged fully imputed interim dividend of 3 cents per share, payable on March 26.

Mr Mercer said Air New Zealand's outlook was firming in the medium to long-term, and the Rugby World Cup would provide a significant boost.

- © Fairfax NZ News