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UPDATE: Air New Zealand annual earnings fall 21% in competitive market, hikes dividend

Wednesday 23rd August 2017

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Air New Zealand's shares rose 1.5 percent after it said its full year earnings fell 21 percent in an increasingly competitive market but were still the second highest ever as the airline continues to benefit from lower jet fuel prices and the country's ongoing tourism boom. 

Pre-tax earnings dropped to $527 million in the year to June 30, compared to $663 million in the prior year, the company said in a statement. In June the company said earnings before taxation were likely to exceed $525 million.  In the prior year, the company had the benefit of $112 million in foreign exchange hedging gains and a less intensive competitive environment, said chief executive Christopher Luxon.  Current year hedging resulted in a modest loss of $6 million, it said. 

Net profit fell to $382 million from $463 million.  Earnings per share were 33.5 cents versus 40.8 cents in the prior period. Operating revenue slipped to $5.1 billion from $5.23 billion. 

"This year Air New Zealand faced an unprecedented increase in the level of competition from some of the world’s largest airlines and effectively rose to the challenge," said Luxon. As different airlines jostled for customers, Air New Zealand's passenger revenue decreased by $105 million to $4.4 billion, a 2.3 percent decline. Excluding the impact of foreign exchange, passenger revenue decreased by 0.5 percent.

Chairman Tony Carter also said that a significant increase in industry capacity was the main driver of the reduction in earnings.  He noted, however, toward the end of the year, conditions stabilised and positive revenue momentum emerged. 

Air New Zealand has been benefitting from the record tourism inflow. In the July 2017 year, a record breaking 1.9 million people arrived in New Zealand for holidays, according to the latest data from Stats NZ. The number has doubled since 2002 when the number of holidaymakers reached 1 million for the first time.

The board declared final fully imputed dividend of 11 cents per share, an increase of 10 percent on the prior year, bringing the full year declared ordinary dividends to 21 cents per share. The final dividend will be paid on Sept. 18 to investors on record at the close of business on Sept. 8.

The airline's board also awarded a company performance bonus of up to $1,700 to be paid next week to approximately 8,500 Air New Zealand staff who do not have other incentive programmes as part of their employment agreement.

Looking forward to the year ahead, the airline said it is optimistic about the overall market dynamics. Based on current market conditions and assuming an average jet fuel price of US$60 per barrel (which represents the average over the past two months), the airline is aiming to improve upon 2017 earnings, it said. 

Macquarie Securities said underlying earnings were ahead of expectations and the outlook is for improvement in FY18. It currently rates the company at neutral but "we noted we're positively biased." 

Over the next four years,  it plans to invest $1.5 billion in new aircraft, with most of the capital expenditure occurring by the end of 2019.  Gearing was 51.8 percent, an increase from 48.6 percent at the end of the 2016 financial year, reflecting the purchase of new aircraft and the payment of a 2016 special dividend, it said.

In the current financial year, it will focus on opportunities to further strengthen and build scale in its existing markets across our Pacific Rim network. This includes growing recently introduced routes such as Buenos Aires and Houston. "In response to good demand, you will also see some additional frequencies on our Hawaii, Bali, and Vancouver routes", said Luxon.  While he gave no specifics, he said the company is considering new destinations in the Pacific Rim. 

Domestically, Air New Zealand flies to 21 airports across New Zealand and in 2018, an important part of its growth will be further expansion in the regions. "In fact, over the coming summer months, we will be adding more than 60,000 extra seats to our regional schedule compared to last year," said Luxon. 

The shares last traded at $3.45, and have jumped 55 percent this year. 


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