National carrier bounces back

By Graeme Kennedy

Friday 30th August 2002

Air New Zealand chairman John Palmer says the carrier has pulled out of its potentially fatal nose-dive after its horrific $1.4 billion loss a year ago with a relatively modest $319 million loss for the year ended June.

The company this week reported an after-tax profit of $39 million but the bottom line was dragged down by abnormal items which included $389 million in costs relating to the Ansett Australia collapse, a $34.6 million reduction in deferred payments to Ansett's former owner News Corporation and $52.6 million from a change in accounting procedures regarding the Air Points frequent-flyer scheme.

Mr Palmer said Air New Zealand's progress had been faster than anticipated but warned that the battle to achieve acceptable commercial results was "far from over." He said earnings of more than $100 million before interest and tax for the 2003 year were achievable.

He said the carrier's strategy was focused on the introduction of its new fewer-frills low-cost domestic and regional services from November 1 and upgrading its long-haul international operations in 2004.

Revenues fell 9.5% to $3624 million due largely to reduced capacity and international passenger demand after September 11 while expenditure dropped 11.4% to $2953 million.

International available seat-kilometres were down 8% to 26.1 billion but domestic ASKs rose 21.5% to 3.6 billion following the collapse of Qantas New Zealand.

The international load factor was up from 71.9% to 73.1% while domestic was slightly down at 66.7%.

Mr Palmer said there was a general recognition within the company that its current form was not a long-term option.

"Air New Zealand is recovering from a major failure of previous strategy, it has a weak balance sheet, poor profitability and operates in an industry that is volatile and under intense pressure," Mr Palmer said.

"Under these circumstances the board is compelled to make changes to strengthen the company and would be foolhardy if it ignored any potentially valuable option.

"That is why we are seriously discussing the potential for a strategic partnership with and equity investment by Qantas.

Both airlines see potential benefits from such a partnership in terms of the competitive pressures confronting us in international markets."

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