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Air NZ says full-year earnings to rise more than 17% after record first half

Air New Zealand [NZX: AIR], the state-controlled airline, said full-year earnings will rise more than 17 percent after reining in fuel costs to deliver a record first-half profit.

Normalised earnings before tax would be in excess of $300 million in the year ending June 30, the Auckland-based company said in a statement. It earned $256 million on that basis a year earlier.

The airline made the forecast after posting first-half profit of $140 million, up from $100 million a year earlier, beating the $130 million forecast of First NZ Capital. Normalised pretax earnings rose 29 percent to a record $180 million. Operating revenue fell 1.6 percent to $2.3 billion including a $49 million impact of foreign exchange movements.

Passenger revenue was little changed at $1.93 billion in the first half although the company was able to trim fuels costs by almost 10 percent to $572 million, helped by efficiency measures and the benefits of a strong kiwi dollar. Wage costs rose about 7 percent to $566 million and included some redundancies, training and maintenance while headcount remained little changed.

"We have worked hard on improving our cost base in an environment where we have not grown," said chief executive Christopher Luxon. That's allowed the airline to "continue to price fares competitively."

The airline will pay a first-half dividend of 4.5 cents a share, about 50 percent above the year earlier payment.

The shares rose 1.1 percent to $1.77 and are above the $1.65-a-piece price at which the government sold down 20 percent of the airline last November, leaving it with 53 percent. In the past 12 months the shares have gained 32 percent, almost twice the gains of the NZX 50 Index. They are rated a 'buy' based on the consensus of six analysts polled by Reuters.

The airline delivered a yield of 13.6 cents per revenue passenger kilometre, or RPK, in the first half while its load factor rose to 84.3 percent, better than the 76.7 percent load factor rival Qantas Airways achieved last year. The New Zealand company's unit costs improved by 3 percent.

While passenger yield and traffic both rose, cargo volumes fell 3 percent as it stopped servicing the Hong Kong-London route and rivalry trimmed cargo yields by about 5 percent.

Air New Zealand is upgrading and expanding its fleet, including Boeing 787-9s and 777-300s set to start in mid-2014 and to lift capacity by about 8 percent in 2015.

"With new fleet additions and the growth that comes from that, our scale grows," Luxon said in a shareholder presentation. "Our cost base continues to be a key strategic focus, allowing us to price our fares competitively."

As part of its strategy, Air New Zealand has increased ties with other airlines, including a code-share agreement inked with Singapore Airlines inked in January. In November, the airline said it would take up its full entitlement to the rights issue of Virgin Australia, taking its stake up to 25.5 percent and strengthening the alliance against arch rival Qantas. Singapore Airlines and Etihad Airways are other major shareholders of Virgin.


Comments and questions

Brilliant result and perfect timing - as Qantas announces today and is expected to announce a record loss and mass redundancies. Talk about puring on the pressure onto the arrogant Australians and payback time for their dubious behaviour around Ansett ! It is not the short term, but the long term that is important and Air New Zealand executives including - Norris, Fyfe, Thompson and Luxton and the senior management - take a bow.

The trick however is to continue to focus on the long term and dont pay much attention to Qantas' problems. Keep improving service (still a way to go here) and ensuring you are meeting the clients requirements to keep the loyalty you have worked so hard to build.

A note to Qantas on how to become profitable!!
Take a leaf out of the Air NZ fare price manual.
Have cheap fares between the major destination's within Australia, just like here in NZ, and put the knife into the provincial routes and twist it until the customer pushes the accept button, without any other options.
See HB Today newspaper on a Nana and 2 grandies $720 HB to Auck return!!!

"continue to price fares competitively." ??? You have to be joking.

Try telling that the the Provinces (Blenheim / HB etc) who get shafted every time a coconut.

Air NZ is a disgrace in the way they treat anyone outside a main city.

Politicians couldn't care less as they get super good treatment and perks. God forbid they upset each others cushy deals and hold the airline to account.

Try this - book a return fare Wgton to Blenheim for tomorrow and see what they nail you?

Well done to Team Air NZ. Lets keep all options open and hope that the 787/9 's do not have the the same operational problems as the the 8 series in terms of reliability..

Wgtn to Blenheim tomorrow.

$554 return.

Grab a seat while you can!

indeed. the fares on non-competitive routes are insulting. The solution is to fly NZ only when required and repay their support in the same manner they repay ours. i find SQ, Qantas and Emirates excellent for everything beyond NZ

Well done Air NZ
Before we get too excited about Qantas - remember Air NZ had to be bailed out of effective bankruptcy by the government - 10+ years ago. This set the platform for tremendous innovation and leadership that has created what we see today

Perhaps this is the similar point and opportunity for Qantas.

Luxton is stewarding the airline ok so far (needs to ramp up his personal human factors skillset though) - he is building on the legacy created by the likes of Norris, Palmer and Fyfe.

Ignore QANTAS - focus on the core business, continue to innovate and sell the rights to use new innovations as and when they are marketable (ie SkyCouch).

Above all else - unlike QANTAS - remain humble in your business.

Well Done Air NZ

Please privatise 100% of Air New Zealand immediately so we can all watch it's real value emerge

Joyce has brought no joy to Qantas :-(