Daily ShareChat: Air New Zealand

By Jenny Ruth

Tuesday 4th August 2009

Air New Zealand's profitability will be underpinned by cost reduction, capacity rationalisation and route optimisation initiatives, says Morningstar Research.

However, poor economic fundamentals and excess capacity are likely to put pressure on yields in the medium term, it says.

In late July, the airline said passenger numbers fell 5.5% in June and 6.1% in the year ended June with long-haul passenger numbers most affected, down 14% in June and down 10% for the year.

"We look for yields and passenger numbers to come under further pressure due to unfavourable economic conditions and a significant lift in overall capacity, notably in the trans-Tasman sector. This might prompt Air New Zealand to implement further capacity cuts," Morningstar says.

The airline's fuel bill might fall by $US335 million or $NZ560 million in 2010, based on the company's current hedge position and Morningstar's assumption West Texas intermediate oil will average $US72 a barrel, it says.

"Despite lower fuel prices, we believe profitability might not improve dramatically as Air New Zealand is likely to slash fares to stimulate demand."

Morningstar is forecasting the airline's net profit will have fallen from $218 million in 2008 to $65 million in the year just gone before rising to $80 million in 2010.

BROKER CALL: Morningstar Research rate Air New Zealand (NZX: AIR ) as accumulate.

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