Air New Zealand profit hit by quake, fuel costs

HAMISH RUTHERFORD
Last updated 05:00 16/03/2011

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Air New Zealand is losing money after being hit by higher fuel costs and natural disasters, amid warnings that more listed New Zealand companies could cut profit forecasts in the coming months.

The airline, majority owned by the New Zealand taxpayer, warned that a combination of higher oil prices, weaker domestic demand and a downturn in business from Japan meant it would lose money in the six months to June 30.

Its shares plunged on the news, ending the session down 11 per cent at $1.06, the lowest closing price since July, and are down 21 per cent since last month's quake.

When Air NZ reported its first half results on February 24, it predicted that despite rising fuel prices and the impact of the Christchurch earthquake, it would be profitable in the six months to June 30.

"The financial impact of the Christchurch earthquake is more severe than expected then," Air NZ said yesterday. "Further, the recent tragic events in Japan will also impact revenue in that important market."

Air NZ, which raised its fares by 7 per cent to 8 per cent last week because of higher fuel costs, warned that it would lose money in the second half of the financial year. A spokeswoman said the only "downward demand trend" it had seen was due to the Christchurch earthquake, with Japan showing the largest level of cancellations.

"There is also reduced domestic demand into Christchurch, as you'd expect."

The spokeswoman said other markets were "holding" but that it would be several weeks before it could determine a trend.

Weekly figures for international visitor arrivals are not currently being published because of disruption to Statistics New Zealand's Christchurch office, but tourism operators have been warning of cancellations since the Christchurch earthquake, in particular from Japan, a market that is highly sensitive to disasters and epidemics.

Air NZ said it had no plans to cancel its scheduled flights to Japan, but did not comment on additional charter flights it had scheduled last year to cope with an expected rise in tourist numbers.

Geoff Zame, head of institutional research at Craigs Investment Partners said Air NZ's statement, which came after Freightways profits warning on Friday, could be followed by more New Zealand companies warning of a downturn in trading following the earthquake. "Clearly there are a lot of challenges in the macro economy. It would appear the risks [to profit forecasts] are to the downside."

The market had been expecting Air NZ to report an after tax profit of $128 million in the year to June 30, but a second half loss would mean full year profits below the $96m reported in the six months to December 31.

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The flow of companies reporting a hit to profits due to the earthquake continued yesterday, with Australian construction company Downer EDI admitting the impact on its profits would be more than initially anticipated.

The company said government and private customers across New Zealand were delaying projects, meaning its underlying earnings could be cut by up to A$10m (NZ$13.6m).

Meanwhile, Westpac became the first major bank to reveal the possible cost of the earthquake, revealing it expected credit losses to rise by $30m-$100m.

Westpac said the precise impact was difficult to quantify because government responses were still being developed and insurance claims were being assessed.

- BusinessDay.co.nz

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