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UPDATED: Air NZ shares hit 2-month high on profit growth, fatter dividend

UPDATED: Air New Zealand [NZX: AIR] shares rose to a two-month high after the government-controlled national carrier boosted annual profit 45 percent on increased passenger numbers and capacity, and said it will double shareholder returns with a special dividend.

The shares rose as high as $2.20, and were recently up 1.4 percent at $2.18, having climbed 31 percent this year, outpacing a 6.4 percent gain in the NZX All Index over the same period. The stock is rated an average 'buy' based on six analyst recommendations compiled by Reuters, with a median target price of $2.30.

Net profit rose to $262 million, or 23.6 cents per share, in the 12 months ended June 30, from $181 million, or 16.4 cents, a year earlier, the Auckland-based company said in a statement. That was in line with brokerage First NZ Capital's forecast. Normalised pretax earnings climbed 30 percent to $332 million, as revenue edged up 1 percent to $4.71 billion.

The board declared a final dividend of 5.5 cents per share, taking the annual payout to 10 cents, and also declared a special dividend of 10 cents, following a review of the company’s capital structure and consideration of the current and expected medium term liquidity and gearing.

"The result itself very much met market expectations - the special dividend was the cream on the top," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "That got the share price a little firmer today."

Air NZ has been upgrading its fleet of plans and increasing ties with other airlines, including a code-share agreement inked with Singapore Airlines and increasing its stake in Virgin Australia.

Hamilton Hindin Greene's Williamson said while the special dividend was welcome, Air NZ needs to maintain the strength of its balance sheet in the face of its capital expenditure needs.

"They don't want to stretch the balance sheet too much - it doesn't take much for some worldwide event to affect international air travel," he said.

The airline expects more earnings growth in 2015 based on forecast market demand and fuel prices, excluding earnings from its stake in Virgin Australia.

Chief executive Christopher Luxon told an analysts' briefing the airline expects group capacity to grow about 6 percent in the 2015 financial year as new aircraft come on stream, supporting the forecast lift in earnings.

Air NZ increased its investment in Australia-based Virgin to 25.99 percent in June, having first sought an alliance with the airline in 2010 after a potential tie-up with Qantas Airways was knocked back in prior years. The New Zealand carrier has also entered into an code share alliance with Singapore Airlines, a fellow investor in Virgin.

The airline increased passenger numbers 2.34 percent to 13.72 million, with a 1.2 percent lift in revenue passenger kilometres to 14.85 million. Short-haul yields improved 0.3 percent to 17.1 cents per revenue passenger kilometre and long-haul yields increased 0.9 percent to 10.7 cents/RPK.

Operating cash flow shrank to $730 million from $750 million a year earlier. Air NZ had cash and equivalents of $1.23 billion as at June 30, and net debt of $384 million.


Comments and questions

it's all very well the profit incentive driving every other consideration, but Air New Zealand is now getting too pricey for many New Zealanders to afford.

it can cost between $600-$700 return to fly from, say, Nelson alone, let alone much higher fares elsewhere from the South island to Auckland - $369.00 or higher, one-way - and when it comes to parents with two children, this is unfair and unaffordable. The price doesn't have to be so high.

Why doesn't Air New Zealand offer decent family discounts?

Why are children over two years old charged as if they are adults?

This is the sort of thing that gives capitalism a bad name - the greed for profit when a monopoly, like this airline,with no competition when flying to the provinces, hikes up its fees...once it's got rid of any competitors.

And what greed motive has led to this airline now charging to book a specific seat? Utterly excessive - a click of the mouse adds no new cost - so why are we charge for it?

With what many regard as underhand behaviour, Air New Zealand and Qantas between them managed to drive Origin Pacific into the ground - a great little arline offering terrific service.

It's about time some notion of morality accompanied this power-play of profits before everything else... and the degree of showing-off is also very much a real factor among competitor CEOs of different corporations.

What about the human factor?

How can grandparents living on superannuation afford to fly to visit their grandchildren - really tough, when families are now so fractured, and the elderly find driving difficult?

As the privatisation of the market has increasingly turned avaricious, with profits to shareholders the prime aim - even at the expense of good service. It t lays the far Right open to deserved criticism of their blinkered, grab-what-you can ideology.

what about fairness? Good service to the public is just as important - particularly when the public had to bail out Air New Zealand when it was going under - something which, according to the far Right ideology of compete or go under, should never have happened!

Ah, the hypocrisy of it all - as well as the greed.

A significant portion of this obscene increase in profit has been made on the backs of Aucklanders. The residents of Auckland are now bombarded with aircraft noise 24 hours a day. This is as a direct result of the Nextgen Arrivals Manager system. This system requires specific aircraft engine settings (noisy) which control the speed and rate of descent of the aircraft. Planes are now at lower altitude, slower speeds, accelerating and air braking over the entire Auckland isthmus.

Departing planes are turning from the runway centreline at 3000ft or below and in a slow, near level ascent, with noisy engine settings, traversing densely populated Auckland suburbs. This is where a huge portion of the increase in profit has been achieved. Fuel saving at the cost of the lives of Aucklanders. Brutal.

Auckland Council, the largest shareholder in Auckland airport is set to make millions as the airport becomes more profitable as a direct result of this system. It is cruel, it is venal, it is no less than theft.

The so-called SMART flight-paths have been a disaster for all residents living, working and learning under them. They are noisy and continuous. They were designed to achieve 'greater fuel efficiency' after a directive from the ICAO however this is clearly greenwash. It is the exponential growth of budget air-travel that is the elephant in the room of "fuel efficiency'. In addition the so-called SMART flight paths were unable to be flown by ANY of the planes they were designed for. The Draft report on the so-called SMART flight paths was ridiculous. None of AIALs targets had been achieved and yet they propose to add a second so-called SMART flight path (read overhead motorway) over another set of residents at some time of their choosing in the future.
How about AirNZ partnering with Kiwirail to bring back the overnight sleeping cars so that customers can elect to travel between Auckland and Wellington (and the stops along the way) without adding to aviation gas fuel consumption? This could be a win-win situation for both entities. The main trunk line is electric - as most of NZs electricity is from renewable sources. This would be a meaningful step in the right direction of true fuel savings and efficiencies. As would simpler options such as; retrofitting winglets onto their fleet and using electric propulsion engines so aircraft are not taxiing to and from the runways by using their aviation fuel engines.
Massive profits, bonuses for those at the top table, a greedy tax take by a floundering Government and a severely compromised quality of life for thousands of people under new and noisy flight paths - not much of a result to my mind.

Amen, Plane Truth. Your name says it all. There has been a conspiracy of silence, particularly from the Herald which survives on airline and travel full page colour ads. Sad.
And from the Nat govt MPs who clearly have been fitted with ear plugs and had the whip cracked on them. Interesting that no flight paths traverse Parnell, to keep the Boss happy.