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

Christopher Luxon, CEO of Air New Zealand
Air New Zealand 12-month price history (NZX.com)

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.

(BusinessDesk)

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