Travel stocks hit as market awaits US trading

By Phil Boeyen, ShareChat Business News Editor

Monday 17th September 2001

Airline, airport and tourism shares are taking some of the biggest hits as the New Zealand sharemarket nervously waits for the US markets to reopen.

Air New Zealand (NZSE: AIRVA) in particular has come under further selling pressure in early trading Monday as it continues to fight for financial survival on two fronts.

Although flights to the US have resumed there have been several gloomy reports on the outlook for airlines globally in the wake of last week's US terrorist attacks.

The airline's future is also clouded by uncertainty over the cost of Ansett's receivership and exactly what it will be liable for in terms of worker compensation.

Auckland International Airport (NZSE: AIA) shares have also been marked down in early trading as the possible flow-on effects of both Air NZ's woes and the uncertain future of tourism begin to hit home. For the same reasons Tourism Holdings (NZSE: THL) is also being knocked back.

Ratings agency Standard & Poor's is in no doubt that there are tough conditions ahead for both Australian and New Zealand airports and airlines.

The agency, which on Friday downgraded Air NZ's long-term corporate credit rating B- from B+, says the US attacks will exacerbate the weak outlook that the industry already faced as a result of a global economic slowdown.

"Significantly, the short-term revenues of the Australian airports are exposed to a double hit. First, there is the slowdown in international air traffic, which also will affect domestic air travel growth.

"Second, there is the imminent demise of Ansett, Australia's second-largest domestic airline. Although Qantas Airways will be able to carry some of the passengers left by Ansett, and will benefit from a higher share of the domestic market (already 55%), the company remains exposed to the uncertainty of international air traffic patterns and fuel prices."

S&P says although previous problems in the Australian travel market, such as the pilots' dispute in 1990 and the Asian downturn, were relatively short-lived, the current conditions are extraordinary and could have a bigger and extended effect on passenger traffic.

"Should this be the case, Standard & Poor's will evaluate the airport operators' operational and financial strategies to withstand a prolonged slowdown in passenger traffic and the operators' ability to adequately service their debt obligations."

"In addition, the imminent decline in competition in Australian skies may lead to higher airfares and suppress domestic demand."

S&P says at this stage it does not expect an immediate threat to the long-term ratings of the eight rated Australian and New Zealand airports.

It says while New Zealand airports are as exposed to a downturn in international travel as their Australian counterparts, their strong financial position and no direct exposure to the failing Ansett group places them on a stronger footing.

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