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Air New Zealand slashes earnings guidance on engine issue, slowing travel growth

Wednesday 30th January 2019

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Air New Zealand has warned annual earnings may fall by as much as 37 percent as it deals with disruptions caused by the global Rolls Royce engine issues and slowing travel growth. 

The national carrier expects pre-tax earnings of $340-400 million in the year ending June 30, including the impact of the engine problems that reduced the frequency of flights on some routes. Earlier guidance for earnings of $425-525 million excluded the estimated $30-40 million hit from that disruption. Air New Zealand reported earnings of $540 million in the 2018 financial year. 

The Auckland-based company said the engine problems are expected to improve through the year, however, a slower pace of growth in domestic travel and inbound tourism has weighed on revenue. Air New Zealand has adjusted its schedule to increase capacity growth 4 percent for the June 2019 year, the bottom end of its 4-6 percent guidance. 

The airline's passenger numbers increased 4.5 percent to 1.77 million in December from a year earlier, taking the year-to-date total to 8.9 million, up 4.3 percent from a year earlier. 

"We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year," chief executive Christopher Luxon said in a statement. "Therefore, we have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward." 

Air New Zealand came under pressure from its engineers in the run-up to Christmas, with strike notices issued that threatened to disrupt 120,000 travellers during one of the airline's busiest periods. The E tū and the Aviation and Marine Engineers Association members wanted higher pay and to maintain existing work conditions. An agreement in principle meant the industrial action was averted. 

The lower earnings aren't expected to affect the return to shareholders, including the government's near-52 percent stake. The board expects to declare an unchanged interim dividend of 11 cents per share, or $123.5 million. 

"Air New Zealand remains committed to its distribution policy that looks through short-term earnings volatility to provide a consistent and sustainable ordinary dividend." 

The airline also benefited from cheaper jet fuel, with an assumed average price of US$75 a barrel for the rest of the year, giving an annual average price of US$81/barrel. That's down from the US$85/barrel forecast the earlier guidance was based on. 

Air New Zealand shares last traded at $3.27, and have increased 5.5 percent so far this year. 

(BusinessDesk)

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