Air NZ profit beats expectations

Last updated 08:38 30/08/2012
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Air New Zealand shares soared more than 13 per cent after the airline reported a better-than- expected profit for the year to June and forecast its profitability to double next year.

The majority state-owned airline made a tax-paid profit of $71 million, a 12 per cent fall on a year ago but well ahead of expectations. Total revenue was up 3 per cent to $4.5 billion.

Air New Zealand's share price gained 12c to close on $1.015, a nine-month high.

The company has declared a final dividend of 3.5c a share, giving a total dividend for the financial year of 5.5c.

Chairman John Palmer said the airline was well positioned to resume the growth trajectory it was pursuing until 2008 when the world was gripped by financial crisis.

"Despite the uncertain global economy, assuming our current forecast of market demand and fuel prices at current elevated levels, we expect to deliver a more- than-100 per cent improvement in normalised earnings before taxation in the 2013 financial year."

The worst effects of the Christchurch earthquake and tsunami in Japan were in the past, "which means growth opportunities are no longer suppressed', Palmer said.

Outgoing chief executive Rob Fyfe said cost reductions combined with new, more fuel- efficient planes, changes to the international network and a significant reduction in expected currency hedge losses underpinned the 2013 forecast.

A target to find $195m in "annual performance improvements" by 2015 has been revised sharply upward to $250m, of which $130m would be realised during the next year.

The long-haul market would return to profit this year after a restructure of the network found the targeted $110m profit improvements two years ahead of schedule. The long-haul network had been losing $1m a week last year.

Fyfe said the results came in an environment where the airline faced fuel costs up 60 per cent in the past five years, while airport charges had more than doubled.

Domestic fares had been reduced by nearly 6 per cent along with a marketing strategy of selling at least a million seats below $100 each.

'A lot of the growth will continue to come from the budget- conscious and the low-fare end of the market,' he said.

"If airport charges had not risen, we could have lowered fares even further for our customers."

Airports Association chief executive Kevin Ward said airport charges made up just a small fraction of domestic fares.

Fyfe said the successful trans- Tasman alliance with Virgin Australia could be developed to generate more dual-destination travel from North America to visit both New Zealand and Australia.

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There could also be more co- operation between the two airlines for aircraft servicing and airport services.

The alliance flies half of the total capacity on the Tasman and has just over 52 per cent of all passengers on the routes. Air New Zealand would continue to forge partnerships and alliances with other airlines, 'critical' to growing the network and passenger numbers without needing to buy additional planes, Fyfe said.

The airline was well placed to take advantage of the growth in tourists from Asia.

However, the slowdown in the Chinese economy could result in a marked reduction in the number of tourists from China during the next year, Fyfe said.

Routes to Japan and Europe continued to be weak, but there were 'strong opportunities in North America'.

The airline has added capacity to its United States destinations.


Contact Hamish Rutherford
Business reporter
Twitter: @oneforthedr

- Business


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