Air NZ lands record half year profit

RELAXED ABOUT QANTAS: "We don't spend a lot of time thinking about our competitors that deeply," says Air New Zealand CEO Christopher Luxon.
RELAXED ABOUT QANTAS: "We don't spend a lot of time thinking about our competitors that deeply," says Air New Zealand CEO Christopher Luxon.

Tightened expenses and lower fuel costs have helped drive Air New Zealand's half-year profit up 40 per cent to a record $140 million.

The national carrier's revenue dipped $38m in the six months to December 31, with less income from cargo and contract services, but that was more than offset by a $92m fall in expenses, driven by lower fuel and maintenance costs, as well as favourable currency movements.

The majority state-owned airline declared a fully imputed interim dividend of 4.5 cents per share, an increase of 50 per cent.

It also released guidance for the full year ahead for normalised pre-tax profit of at least $300m.

Air New Zealand shares climbed 1.1 per cent to $1.77 in early afternoon trading.

Chief executive Christopher Luxon said the company had worked hard on improving its cost base in an environment where it had not grown.

While the airline did not have a "magical blueprint" for further big cost-saving initiatives or restructurings, he said it would continue to focus on cost control.

The airline's big growth plans involve almost $2 billion invested in 22 new aircraft over the next three years, which are expected to increase seat capacity by about 8 per cent in the 2015 financial year.

"Our new aircraft will be significantly more efficient than those they replace and having fewer aircraft types drives unnecessary complexity out of our operations," Luxon said.

The new fleet's 20 per cent to 25 per cent improved efficiency was crucial, given that fuel was the single biggest - and largely unpredictable - expense for airlines.

"We have really consciously tried to build the business and our business plans assuming high levels of fuel," Luxon said.

"That's really important, because otherwise you use fuel as an excuse for poor performance."

Luxon said the continuing strength of Air New Zealand's alliances were a highlight of the first half, including a "truly transformative" proposed new alliance with Singapore Airlines.

The joint venture would lift off in December subject to regulatory sign-off, opening up 58 destinations in South-East Asia, where Air New Zealand had no presence.

Luxon said Air New Zealand was still optimistic about the future of Virgin Australia, in which it has a cornerstone stake of almost 25 per cent.

While getting the airline to profitability was a focus, he was happy with how it had challenged much larger rival Qantas in the difficult Australian domestic market.

"It's been a small airline that's taken on an 800-pound gorilla, and actually done incredibly well," he said.

Virgin shareholders including Air New Zealand poured A$350m ($378m) into the company late last year, but Luxon was coy about the prospect of a further top-up.

He said that while Virgin's cash position was fine, "it's only right that we are supportive shareholders".

Qantas today announced a loss of A$235m for the half year to December 31 and 5000 job losses as part of a A$2b cost-reduction programme over two years. The beleaguered carrier has pleaded with the Australian government to guarantee its debts.

Luxon insisted he was not "fixated" on the Australian government's decision or Qantas' results.

"We're completely relaxed about what the outcome of that could be," he said.

"We don't spend a lot of time thinking about our competitors that deeply."

Luxon took over from former charismatic chief executive Rob Fyfe at the end of 2012 and the record interim result shores up a solid start to his reign in the top job.

"I bounce out of bed most mornings ... fired up and ready to go," he told BusinessDay.

"I think I've got the best job in the country."

Fairfax Media