Air New Zealand still in intensive care after $376 million loss

By Nick Stride

Friday 8th March 2002

Air New Zealand said yesterday it would be back in profit by 2004 but analysts weren't convinced by its claim it was off the critical list.

A cocktail of strategic and operational moves continues to dog the airline, which announced a $376 million bottom-line loss for the December first half. That compared with a $3.8 million profit a year ago.

The company booked a $75.6 million, from continuing operations and a $350 million one-off charge from the collapsed Ansett.

On the operational front, ABN Amro analyst Malcolm Davie said yields, a critical indicator, had slumped appreciably since the first half of 2001 "but they haven't given us a lot of information."

Overall revenue passenger kilometres (RPKs) were down 4.7%, compared to the first half a year ago, to 10.8 billion.

In the New Zealand market the company benefited from Ansett New Zealand's demise, recording a 27% lift in RPKs. But international RPKs fell 7.7%, more than offsetting the gain.

Load factors, which slumped in October and November, stabilised over the past two months.

The post-September 11 fall in air travel was most pronounced among high-yielding business travellers, the airline said. But it had unwound most of its fuel price hedging in September and had therefore benefited from October's price falls.

The average cost was $US30.3 a barrel, compared with $US45.9 a barrel a year ago.

Chief executive Ralph Norris said the company was off the critical list following "corrective action" but still in intensive care. The outlook was "challenging."

Mr Davie said that, in addition to operational issues, a raft of strategic issues remained outstanding.

Among these are the company's debt levels, which are still high after last year's recapitalisation that saw the government take a 82% stake. Gearing at December 21 was 93.8% but has since fallen to 53.1%.

Mr Norris said the company's capital base was "sufficiently stable, albeit not strong."

The sell-off of non-core businesses would continue. The Jetset travel arm has gone and the ski business, nzski.com, is looking for a new owner.

The company would also look to reduce its gearing ratio through increased profitability, Mr Norris said.

Finance minister Michael Cullen said Air New Zealand's performance had been broadly in line with expectations, and acknowledged it would take "a little while" to deliver results.

Rattle those sabres, Ralph

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