Air NZ reiterates warning to shareholders of increased competition

Friday 30th September 2016

Air New Zealand, the country’s national airline, reiterated its warning to shareholders that increased competition will hurt revenue this financial year.

Addressing the company’s annual meeting in Christchurch today, chief executive Christopher Luxon said the airline will see a return to “more normal” competitive market conditions this financial year.

The company has forecast 2017 earnings before tax will be more subdued in the range of $400 million to $600 million, based on a fuel price of US$55 per barrel for the rest of the year, compared to $806 million before significant items and tax in 2016.

Over recent years New Zealand has had a benign competitive environment, as historically high fuel prices saw international carriers leave the country. However, since fuel prices dropped, there has been a rapid expansion by international carriers from the US, China, Southeast Asia and the Middle East coming to New Zealand, Luxon said.

Healthy economic growth along with inbound tourism increasing 11 percent per year were drivers behind that capacity rise which is occurring over a relatively short period of time and that “results in pressure to our revenues during this year,” he said in comments that coincided with an announcement the airline intends to make a $75 million bond offer to retail and institutional investors in New Zealand.

Luxon said last year's result also benefited from favourable foreign exchange rate hedges of $112 million, which won’t be repeated in the 2017 financial year.

“We recognise the environment will be a bit choppy this year as the market adjusts to this increased capacity,” Luxon said. However, the earnings forecast, if achieved, would still be a solid result and among the best in the airline’s history, he said.

Air New Zealand still has a number of comparative advantages, including an alliance-driven Pacific rim network with United Airlines, and Air China being added as revenue share alliance partners this year.

Membership of the Airpoints programme has also grown 17 percent in the past year to over 2.2 million members, with a wider number of partners to earn points with.

Luxon said the airline would grow its overall network capacity 4-to-6 percent in 2017.

Domestic network capacity will rise by 7-to-9 percent, mainly in increased flights to Queenstown and Dunedin, while it will lift by 3-to-5 percent across the Tasman and Pacific Island, mainly to Honolulu and services to Australia, and by 4-to-6 percent on the international long-haul network, with over two-thirds coming from the Houston and Buenos Aires routes.

The shares fell 0.3 percent to $1.855.

BusinessDesk.co.nz

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