Japan flights review as yen makes travel more expensive

UPDATED:

Air New Zealand is reviewing its flights from Japan as a decline in the yen crimps the value of Japanese sales when it brings the money home.

The New Zealand dollar has surged 17 percent against the yen this year as aggressive monetary easing in Japan contrasts with expectations the next move in New Zealand interest rates will be up.

"The Bank of Japan's change in monetary policy which emerged earlier this year resulting in a structurally weaker yen has significantly impacted profitability on the Japan routes," Air New Zealand spokeswoman Emma Field says. "The weaker yen results in lower New Zealand dollar receipts."

Last month the airline flagged its annual earnings will more than double this year, and it has previously signalled plans for a $110 million profit improvement from its long-haul services by 2015, which had been an under-performing part of the company.

The significant depreciation of the yen necessitated a review of Japan capacity, Air NZ chief financial officer Rob McDonald says in notes prepared for an investor presentation today.

The airline plans to suspend its Osaka service from September 30 to focus on Tokyo, having already suspended service on the route this year during the low demand months of April to June, it says.

The change in Japan's monetary policy is intended to have a stimulatory effect on consumer demand although this may take some time to filter through and is likely to be seen first in the Japanese domestic market, Air NZ says.

Shares rose 2 percent to $1.53 and have gained 15 percent this year.

The kiwi dollar recently bought 83.96 yen, up from 71.62 yen at the start of the year, having touched a high of 86.43. The local currency has gained as Bank of Japan governor Haruhiko Kuroda presides over near-zero interest rates, while New Zealand governor Graeme Wheeler has them at 2.5 percent.

Air NZ has a formal foreign exchange management policy to enter into foreign exchange contracts to manage economic exposure to fluctuations in foreign exchange rates. Any exposure to gains or losses on these contracts is offset by a related loss or gain on the item being hedged.


12.50am:

Air New Zealand is reviewing its Japan flights after a decline in the yen made fares here more expensive, crimping demand.

"Significant depreciation of yen necessitated review of Japan capacity," chief financial officer Rob McDonald says in notes prepared for an investor presentation today. The airline was not immediately available for further comment.

Shares in Air New Zealand rose 1 percent to $1.515 and have gained 16 percent this year.

Last month the airline flagged its annual earnings will more than double this year and it has previously signalled plans for a $110 million profit improvement from its long-haul services by 2015, which had been an underperforming part of the company.

The New Zealand dollar has surged 17 percent against the Japanese yen so far this year. The kiwi recently bought 83.96 yen, up from 71.62 yen at the start of the year, having touched a high of 86.43.

The kiwi's outperformance can largely be attributed to diverging central bank policies with aggressive monetary easing in Japan contrasting with expectations the next move in New Zealand interest rates will be up.

Bank of Japan governor Haruhiko Kuroda is presiding over near-zero interest rates while New Zealand governor Graeme Wheeler has them at 2.5 percent.

(BusinessDesk)

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4 Comments & Questions

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Time for Air NZ to review its idiotic compulsion to extort money.....+$100 for two kilos over the 23kg mark....which most airlines without a deathwish don't enforce this side of the 30 kg mark.
Time to decide whether you are a 'player' or an EasyJet/Ryan Air/JetStar competitor....if the latter, don't trouble the NZX with kamakazi shares.

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Or the alternative explanation is Air NZ management have failed to stimulate the Japanese market and increase volumes.

Who let the outgoing management team carry off millions of dollars in bonus payments while this was the condition of one of the company's strategic markets?

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Air NZ uses its monopoly position on Japanese routes to inflate airfares - it often costs more to fly to Tokyo than the US. I have little sympathy for its crying when the exchange rate works against them.

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Good comments #1, #2 and #3.
Air NZ never seemed to drop its prices when the yen was strong so, of course, the Japanese market voted and went to other destinations in Asia, which are now very well serviced with a slew of LCC entrants.
Unless Air NZ refresh their strategy to the market and figure out how to compete with these cheaper flights we should expect that those lost visitor numbers are gone forever.

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