More flight discounts ahead as Air NZ fleet expands

Wednesday 25th February 2015

Kiwi travellers can expect competitive discounting on flights as Air New Zealand adds 12 percent capacity on its network in the next six months.

The airline today announced a record 20 percent lift in normalised earnings before tax of $216 million for the six months ending Dec. 31 following growth in revenue and yields. However, statutory net profit fell six per cent to $133 million due to equity accounting losses of $14 million from its cornerstone stake in Virgin Australia, tax increasing $35 million to $64 million, and fuel hedge losses.

Chief executive Christopher Luxon said the public can expect competitive pricing, though he wouldn’t be drawn on the likely size of any discounts, as the airline adds 12 per cent more capacity and other foreign-owned airlines become more competitive due, thanks to lower fuel prices.

The airline saved only $20 million from lower fuel prices, down 13 percent in US dollar terms, in the first half, which was partially offset by hedge losses of $26 million. Based on current fuel prices, it expects net savings on fuel costs in the second half of this year of around $82 million and a net benefit of $249 million in the 2016 financial year.

Luxon said Air New Zealand’s added capacity was more likely to drive cheaper travel than lower fuel prices. The airline is spending $3 billion on new larger aircraft over the next six years and is adding 10 aircraft to its fleet this year, including several ATR72-600s that will service domestic flights.

“We now have to fill these aircraft and will have to stimulate the market to fill those seats. There will have to be discounting of those seats to fill these planes up,” Luxon said.

He also said initiatives like the reintroduction of the popular Night Rider service and its extension to regional New Zealand have been a hit, as have Grabaseat’s low priced long haul fares to destinations like Los Angeles and Tokyo. He remains confident the airline can sustain profits while dealing with increased competition.

“In the last three years, whether fuel prices have been high or low, this company has been very fit and competitive with low-cost carriers, Asian carriers, and all over our network. Air New Zealand has been able to compete with anyone and do it well,” Luxon said.

Revenue rose 3.4 percent to $2.4 billion in the first half, compared to the same period a year earlier, underpinned by increased capacity and improved yields, which were up 3.8 per cent across the network.

Air New Zealand recommenced flying the Auckland to Singapore route last month and has also announced a codeshare agreement with Aerolineas Argentinas for the first direct Air New Zealand service to South America, starting at the end of the year. Luxon said he hoped New Zealand could become a hub for Asians and Australians wanting to fly to Buenos Aires.

The airline is also considering a fourth destination city in the US because of increased demand, with tourism numbers out of the US to New Zealand up 11 per cent. Luxon would say only the airline was considering several destinations on the eastern seaboard.

The board has declared a fully imputed interim dividend of 6.5 cents per share, an increase of 44 percent on the previous corresponding period.

Luxon said the airline was comfortable with its existing stake in Virgin Australia, which this month narrowed its losses for the first half to A$47.8 million, compared to a loss of A$74.3 million for the previous corresponding period. He said both the board and Virgin management were focused on getting the airline, which has called a truce on its domestic price war with Qantas, into profitability.

BusinessDesk.co.nz

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