Air NZ profit tumbles 90% on higher fuel, labour and maintenance costs

Thursday 27th August 2009

Air New Zealand, the national carrier, posted a 90% slump in annual profit as operating costs rose and increased rivalry in weak markets drove down fares.

Net income fell to $21 million, or 2 cents a share, from $218 million, or 20.7 cents, a year earlier, the Auckland-based company said in a statement. Revenue fell 2% to $4.7 billion and the airline maintained its passenger load factor by cutting capacity by 7.2%.

Air New Zealand is one of a handful of carriers, along with rival Qantas Airlines, to keep earnings in the black in the face of a global slump in air travel tied to worldwide recession and fears of swine flu. Chairman John Palmer today said the way the global airline industry deploys capacity can’t be sustained and the national carrier is looking at whether it has the right structure going forward.

“We do have to ensure both structurally and operationally we have a footprint for reasonable economic returns over time,” Palmer said on a conference call.

The International Air Transport Association has forecast the industry will post combined losses of US$9 billion this year.

“Few airlines are making profits and even fewer are paying dividends, so our result is a positive one in the global airline context,” Palmer said. The air travel market is “likely to remain turbulent” and the Australasian market “will not achieve a satisfactory commercial performance” until supply is aligned with demand, he said.

“While demand is stabilizing, yields remain under significant pressure, fuel prices have resumed an upward trend and we are unlikely to achieve the same level of net hedging gains,” Palmer said. “The same agility displayed in the 2009 financial year will be imperative through the next year.”

Normalised earnings before tax fell 26% to $145 million.

Shares of Air New Zealand, which is majority-owned by the government, fell 2.4% to $1.22. They have gained 30% this year. The airline will pay a final dividend of 3.5 cents, bringing the year’s payments to 6.5 cents.

In July, the latest figures available, Air New Zealand’s long-haul passenger numbers tumbled 16.9%, paced by a slump in traffic from Japan. The carrier cut capacity by 9.7%, trimming its passenger load factor by 6.1 points to 81.6%.

Qantas, which last week posted a 97% drop in annual profit, said there has been improvement in passenger volumes while yields had stabilized.

Air New Zealand had net cash of about $1.6 billion at balance date, allowing the airline to make investments in its services including adding fuel-saving winglets and dryers to its Boeing Co. 767 fleet and upgrading inflight entertainment.

The results included a $375 million negative impact from fuel hedging compared to a year earlier gain, while the net impact of foreign exchange movements, including hedging gains, was a $272 million benefit.

Businesswire.co.nz

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