Air NZ shares fall 4% on weak first-half result

Friday 24th February 2012

Shares of Air New Zealand, the state-owned carrier, fell to a five week low after high fuel costs and a fall in international passenger numbers sapped earnings, leading to a 61 percent drop in first half profit.

Profit fell to $38 million for the six months ended Dec. 31 from $98 million a year earlier, although sales rose 2.2 percent to $2.3 billion.

Shares in the airline were at 89 cents yesterday and fell about 4 percent following the announcement, and were down 3.37 percent to 86 cents at 11 a.m. The board has declared an interim dividend of 2 cents per share.

“The bottom line is disappointing but it is still a creditable result for an airline when others are still struggling,” said Grant Williamson, director at Hamilton Hindin Greene. “I don’t see a lot of downside – the market got it right. In mid January the stock was trading around these levels.”

Air New Zealand is among five of the state-owned enterprises that the National-led government has air marked for a sell down over the next five years. The government currently owns about 73 percent of the national carrier. The airline said it is working to improve its market position with a number of initiatives already in place, including job cuts.

“We plan to remove 441 roles from the business before the end of the financial year,” said Rob Fyfe, chief executive. “A total of 266 of these roles are being exited through non-replacement of roles or non-renewal of contracts, of which 193 have already been achieved. The removal of the remaining 175 roles will result in redundancies and we begin the consultation process with affected staff this morning.”

Air NZ is seeking to improve profitability by more than $195 million annually by 2015. Given the 2012 financial year performance to date and the global economic environment, matching last year’s result will be a challenge, Fyfe said.

The Rugby World Cup did little to offset weakness in the European and Japanese travel markets. The airline plans to focus on in-flight products and services, deployment of the new Boeing Dreamliner and cost cutting, including through alliances such as the partnership with Virgin Blue. It will explore opportunities in South America, Asia and North America, as well deepening its network into China.

In its interim report today Air New Zealand announced its first charter flight to South America in September.

Domestic capacity has increased 3.2 percent following the exit of rival Virgin Australia. In the last six months it announced a new service between Auckland and Paraparaumu. Mt Cook is set to become the 28th domestic destination when it trials a new route between Christchurch, Mt Cook and Queenstown next summer.

BusinessDesk.co.nz

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