Air NZ profit slashed

By Phil Boeyen, ShareChat Business News Editor

Tuesday 20th February 2001

Air New Zealand (NZSE: AIRVA) has produced a predictably feeble half-year profit of $3.8 million, down dramatically from the previous year's $127 million.

It is also warning that the outlook for the second half is uncertain, and there is potential for further deterioration in operating results in the short-term.

The poor interim result was foreshadowed in November last year when the company announced that it was facing a number of hurdles including pressure in the Australian domestic market, higher fuel prices, and adverse foreign exchange movements.

On top of this the airline group says the integration of Air New Zealand and Ansett has progressed at a slower pace than anticipated, and savings to date have not met initial expectations.

"In addition, it is expected that the competitive nature of the market will continue to restrict revenue-based integration improvements," says chairman Selwyn Cushing.

The inclusion of Ansett in the latest result pushed total revenue to $4.3 billion compared with $1.8 billion the previous period, and cash flows from operations rose to $189 million from $158 million.

However higher net interest costs more than tripled to $115 million, mainly due to financing the purchase of Ansett, with proceeds from the Air NZ rights issue only being received near the end of last year.

Leasing costs also almost doubled to $217 million, adding to a pre-tax Group trading loss of $1.1 million for the six-month period.

Aside from a tough Australian domestic market, increased price competition and more competitor capacity also affected trans-Tasman performance, although load factors were steady.

If trans-Tasman business is excluded, capacity was higher on international flights, with load factors increasing on the Pacific and Atlantic routes.

The airline says its domestic New Zealand business performed strongly, consolidating its position in the local market and growing total seat capacity by 7% with load factors of 65.7%.

Both overall seat capacity and load factors fell on flights operated by Ansett International, mainly because of reduced capacity to Fiji. Air NZ has a 49% stake in Ansett International.

Despite the dull outlook the airline says its full year result could be improved if it completes a number of asset sales before the end of the financial year.

These would include selling the rest of its shares in Dutch global network company, Equant, and its Christchurch engineering base, and could add over $100 million to the airline's coffers.

Selwyn Cushing says since taking up his appointment the airline's new CEO, former Qantas executive Gary Toomey, and his new management team have been developing a profit enhancement programme aimed at significantly improving results.

"It will, of course, take time for these initiatives to be reflected in profits."

He says the airline is reorganising its management from a business unit structure to one of functional units, and will also give priority to integrating the Air New Zealand and Ansett accounting and management reporting systems.

"In respect of longer term strategy, plans are being developed in the areas of future fleet requirements, growth opportunities, product improvements, brand positioning, total customer service levels and alliance arrangements."

"The strength of our brands, the size of our operations and the quality of our service along with key alliance partnerships, gives us the opportunity to build an overall network and customer offering to position us as a strong and competitive global airline," says Mr Cushing.

The company is paying an unimputed dividend of 4 cents per share. Air NZ shares, which took a hammering after last November's profit warning, have been marked down again in early trading following the latest result.

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