2009 Air NZ profit hangs on fuel price

Air New Zealand has warned that its profit for 2009 will hinge on record fuel prices remaining below $US140 a barrel.

The airline, 75 per cent-owned by the Government, yesterday reported an annual net profit of $218 million, off 1 per cent on the 2007 year. Trading turnover rose 9.1 per cent to $4.667b.

A final 3.5c dividend increases the annual rate from 8c to 8.5c a share, excluding 2007's special 10c dividend. The gross dividend yield of 12.686c gives a yield of 10.6 per cent, based on yesterday's closing share price of 120, down 2c.

Chief executive Rob Fyfe said the volatility in fuel prices and uncertain economic conditions had made it difficult to accurately forecast a profit for next year. But the average cost of jet fuel would need to be below $US140 a barrel for the 2009 financial year for the airline to be profitable, he said.

Singapore jet fuel traded yesterday at US$136 a barrel, having peaked at US$181 last month.

At current prices, Air NZ's fuel bill for the 2009 financial year would be more than NZ$1.7b on an unhedged basis, compared with about $500m five years ago.

Yesterday's pre-tax profit was boosted by future hedge benefits under international accounting standards, worth $107m.

Stripped of those and unusual items and tax, the "normalised" profit was $197m, down 24 per cent%, in line with a downgraded forecast issued in April.

While revenue growth targets were achieved, the rise in crude oil and refining margins had taken the gloss off what would otherwise have been a record profit, Fyfe said.

Air NZ paid an extra $300m for the nearly 9m barrels of fuel it burns a year. The airline industry would go through fundamental change over the next year as it adjusted to cope with sustained high fuel prices.

But with $1.3b of cash in the bank, "we have a strong balance sheet and the business is in great shape to tackle the challenges of the current operating environment".

Fare increases to partially cover rising fuel costs started to impact on passenger numbers at the end of the financial year.

"We are acutely aware of the need to stimulate demand and will continue to sharpen domestic and short-haul prices," Fyfe said.

Further capacity cuts on the long haul international network were being considered to ensure seat numbers and aircraft type best matched demand.

Cashflow from operations rose 63.3 per cent to $743m. The net tangible asset backing rose from 128c to 145c a share.

- © Fairfax NZ News