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Air NZ 1H profit falls 61% on costs, weak demand; job cuts loom

Friday 24th February 2012 1 Comment

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Air New Zealand, the state-owned carrier, posted a 61 percent drop in first half profit on higher fuel costs and a fall in international passenger numbers amid a weakening global economy.

Profit fell to $38 million in the six months ended Dec. 31, from $98 million a year earlier, the Auckland-based company said in a statement. Sales rose 2.2 percent to $2.3 billion.

“The price of jet fuel has doubled over the last three years but a weak global economy is hindering our ability to pass on these higher fuel costs to passengers,” said Rob Fyfe, chief executive.

The Rugby World Cup did little to offset weakness in the European and Japanese travel markets. The airline plans to focus on in-flight products and services, deployment of the new Boeing Dreamliner and cost cutting, including through alliances such as the partnership with Virgin Blue. It will explore opportunities in South America, Asia and North America, as well deepening its network into China.

In its interim report today Air New Zealand announced its first charter flight to South America in September. The flight will take the All Blacks and fans to Buenos Aires for the first game against Argentina in the expanded Four Nations competition. Tickets and packages will go on sale in the coming weeks.

The airline is working to improve its position with a number initiatives are already in place to help target its profitability including job cuts, it said today.

“We plan to remove 441 roles from the business before the end of the financial year,” Fyfe said. “A total of 266 of these roles are being exited through non-replacement of roles or non-renewal of contracts, of which 193 have already been achieved. The removal of the remaining 175 roles will result in redundancies and we begin the consultation process with affected staff this morning.”

Air New Zealand domestic capacity has increase 3.2 percent following the exit of rival Virgin Australia. In the last six months it announced a new service between Auckland and Paraparaumu. Mt Cook is set to become the 28th domestic destination when it trials a new route between Christchurch, Mt Cook and Queenstown next summer.

The airline has targeted a series of initiatives to improve the airline’s profitability by more than $195 million per annum by 2015. Given the 2012 financial year performance to date and the global economic environment, achieving last year’s result will be a challenge, Fyfe said.

The board has declared an interim dividend of 2 cents per share.

Shares in the airline were at 89 cents yesterday and have fallen 2.2 percent this year.

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Comments from our readers

On 24 February 2012 at 11:03 am Bennett Medary said:
I am very keen to support our airline and am a gold elite traveller on AIRNZ. A few weeks ago I had to travel o the UK and was a little shocked at a $14K price for business class return. I was advised that Emirates price on the new A380 was $9K. I simply could not substantiate a $5K loyalty premium and reluctantly went with Emirates (AKL-SYD-DBX-LHR) for the fist time. I still prefer AIRNZ business class overall, however not at anything like that premium. I could also travel Emirates 1st class "private suite" on the A380 for the same $14K and I can confirm that is a significantly better experience than AIRNZ business class, even with the additional hops, if you want to spend that much at all. I don't see how AIRNZ can stem the loss of market share against that level of competition. I want to fly AIRNZ and I want to fly Business Class. I can no longer justify that to the UK, however I probably can to the USA for now. The contraction of services to LAX probably means some pretty hefty fares in that direction as well.
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