Daily ShareChat: Air New Zealand

By Jenny Ruth

Friday 4th September 2009

Air New Zealand's second-half profit before one-offs and tax of $125 million compared with $10 million in the first half, showing the airline was very profitable in the second half while the aviation in most cases was not, says Jason Familton, an analyst at First NZ Capital.

Air NZ continues to perform well operationally although the year ended June 2010 is likely to be more difficult than the year just past, he says.

"The aviation industry is clearly not out of the woods yet with the focus likely to be on yields over the next six months or so as airlines attempt to stimulate demand in what is clearly a very difficult environment," Familton says.

He is assuming short-haul yields will fall 5% and long-haul yields will drop 7.5% in 2010 as Air NZ passes on most of the benefits of lower jet fuel costs to its customers. The company has cut short-haul capacity by 7% and long-haul capacity by 10% to meet falling demand.

Familton has set his 12 month share price target at $1.58, applying a 10% discount to his composite valuation of $1.75, "to reflect, in particular, continued uncertainty around how much price discounting and yield decline is going to be required to stimulate demand and also the anticipated bloodbath on the Tasman as capacity runs well in excess of demand."

BROKER CALL: First NZ Capital rate Air New Zealand (NZX: AIR ) as outperform.

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