Air New Zealand

By Dan Stratful

Wednesday 2nd November 2011

Air New Zealand (NZX: AIR ) provides domestic and international air travel to/from NZ with the NZ government owning a 75% stake in the airline. AIR has recently increased its stake in Australian based airline Virgin Australia (VBA) from 14.99% to 19.99% with the increased stake purchased at 29.7 cents per share. AIR reports that it has no intention of making a takeover bid for VBA and that the acquisition will be used to develop scale and reach in the region.

AIR experienced some of the toughest operating conditions in a decade in the financial year ending 30 June 2011 as oil prices skyrocketed to over $100 per barrel, a volcanic ash cloud emerged, and the Asia Pacific region experienced a series of unprecedented natural disasters which decreased travel demand.

This resulted in AIR reporting a profit of $112 million in the first half of the year but a $37 million loss in the second half with full year normalised earnings before tax of $75 million, down 45% on the previous financial year. With this bad year behind it AIR looks set to report a much improved result for the year ending 30 June 2012 as the company benefits from the Rugby World Cup and lower oil prices.

Investors considering AIR shares should be comfortable with the inherent risk associated with investing in the airline industry which is known to be volatile and higher risk, however AIR is considered to be one of the best run airlines in the world.

The government sell-down of its shareholding in AIR is a slight negative and could create an overhang of shares, however the government still intends to retain a controlling stake.

Status: GROWTH BUY

For sharemarket and fixed income trading enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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