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Air NZ's profits dip but blue skies ahead

Shares in Air New Zealand rose four cents to $1.25 this morning as the fall in full-year earnings was softened by a positive outlook as demand and yields recover.The airline – 75% owned by taxpayers – revealed a normalised net profit after tax

Georgina Bond
Thu, 26 Aug 2010

Shares in Air New Zealand rose four cents to $1.25 this morning as the fall in full-year earnings was softened by a positive outlook as demand and yields recover.

The airline – 75% owned by taxpayers – revealed a normalised net profit after tax (which strips out the impact of fuel and foreign exchange hedges) of $92 million for the year to June 30, down $26 million or 22% on the same time last year.

Operating revenue fell $563 thousand or 12% to $4,5 million.

Air New Zealand chairman John Palmer said uncertainty surrounding the global economic recovery had continued to suppress demand for air travel over the past 12 months.

“This has been a really tough period and improving service while maintaining profit is a significant Air New Zealand achievement, by comparison with our global airline peers,” he said.

“The investments we are making in product enhancements, improved service and process efficiencies have driven customer preference which in turn creates market share and margin premiums, even in the current difficult times.”

Chief executive Rob Fyfe said the airline would focus on adding back capacity across the network in the year ahead as the industry showed signs of recovery with demand and yields on the comeback.

Long-haul yields were already up 11% last month, compared to the July last year.

A series of new initiatives would help strengthen its position in the market. This includes the new fleet of Boeing 777-300ER aircraft due to start flying from November with custom-designed seating including economy seating that converts from a row of three seats into a bed.

Further capacity will be available with the arrival of the first new fuel-efficient A320 aircraft for use on domestic and transtasman routes from February.

Air New Zealand will know by Christmas whether its proposed codeshare with Australian no-frills airline Virgin Blue has cleared the required regulatory hurdles.

If approved it will see the airlines share aircraft, passengers and revenue on the fiercely competitive transtasman route and domestic connecting flights.

Air New Zealand said this could result in up to 80 more flights across the Tasman each week and between $20-$30 million in annual benefits for the airline, with most of that from carrying more passengers

“We view partnerships with other airlines as important to allow us to compete with larger carriers,” said Mr Fyfe.

Forsyth Barr head of research Rob Mercer said the normalised profit result was in line with its target forecast of $95 million.

“This was a very good result, because we had been a touch worried that the second half may have deteriorated by more, particularly given the issues Virgin blue and Qantas had.”

Mr Mercer said the balance sheet remained strong with net debt of $122 million.

“For airlines it’s all about momentum and Air New Zealand is now through the hardest part.”

Mr Mercer expected Air New Zealand’s earnings to improve in the full-year as the new aircraft entered service and the 2011 Rugby World Cup provided a “summer yield” during next year’s winter.

Mr Fyfe said he expected domestic airfares to remain competitive following the exit of Pacific Blue from New Zealand in October.

New aircraft set to enter service from Air New Zealand and domestic rival Jetstar would more than double capacity lost by Pacific Blue’s withdrawal, he said.

“And we will be working hard to fill the seats, so competition should be vigorous.”

“If we aren’t competitive, there are other airlines that would like to jump in [to this market] so we will be working very hard to fill them.”

Air New Zealand will pay a final dividend of 4c per share, taking the full-year payout to 7c per share, up 8% on last year.

Shares in Air New Zealand have traded at between $1.46 and $1.02 over the last year.

Key highlights

• Normalised earnings* before taxation of $137 million, down $8 million
• Normalised earnings* after taxation of $92 million
• Operating revenue down 12% to $4.0 billion
• Passenger demand down 4.7%
• Passenger load factor up 2.8 percentage points to 81.8%
• Net cash position $1.1 billion
• Final dividend of 4c per share

Georgina Bond
Thu, 26 Aug 2010
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Air NZ's profits dip but blue skies ahead