Air NZ reviews Japan flights as weaker yen crimps profits

Tuesday 14th May 2013

Air New Zealand, the national carrier, is reviewing its flights from Japan as a decline in the yen crimps the value of Japanese sales when it brings the money home.

The New Zealand dollar has surged 17 percent against the Japanese yen so far this year as aggressive monetary easing in Japan contrasts with expectations the next move in New Zealand interest rates will be up.

"The Bank of Japan's change in monetary policy which emerged earlier this year resulting in a structurally weaker yen has significantly impacted profitability on the Japan routes," said Air New Zealand spokeswoman Emma Field. "The weaker yen results in lower New Zealand dollar receipts."

Last month the airline flagged its annual earnings will more than double this year, and it has previously signalled plans for a $110 million profit improvement from its long-haul services by 2015, which had been an underperforming part of the company.

The significant depreciation of the yen necessitated a review of Japan capacity, the airline's chief financial officer Rob McDonald said in notes prepared for an investor presentation today.

The airline plans to suspend its Osaka service from Sept. 30 to focus on Tokyo, having already suspended service on the route this year during the low demand months of April to June, it said.

The change in Japan's monetary policy is intended to have a stimulatory effect on consumer demand although this may take some time to filter through and is likely to be seen first in the Japanese domestic market, Air New Zealand said.

Shares in Air New Zealand rose 2 percent to $1.53, and have gained 15 percent this year.

The New Zealand dollar recently bought 83.96 yen, up from 71.62 yen at the start of the year, having touched a high of 86.43. The local currency has gained as Bank of Japan Governor Haruhiko Kuroda presides over near-zero interest rates while New Zealand Governor Graeme Wheeler has rates at 2.5 percent.

Air New Zealand has a formal foreign exchange management policy to enter into foreign exchange contracts to manage economic exposure to fluctuations in foreign exchange rates. Any exposure to gains or losses on these contracts is offset by a related loss or gain on the item being hedged.

BusinessDesk.co.nz

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