Air NZ signals return to full health with $214m profit

By NZPA

Tuesday 28th August 2007

Air New Zealand announced its return to full fitness today with its best profit in a decade.

Its $214 million June year net profit more than doubled last year's result.

Although those that invested before the company collapsed in 2001 are still well behind, people who invested a year ago would have done very well. As well as the share price rising from $1.12 to $2.07 (although down 3 cents today), they would have received 18c per share in dividends.

The airline, 80% owned by the Government, declared a final, fully imputed dividend of 5 cents per share which is on top of the interim dividend of 3cps and a previously announced special dividend of 10cps.

The Government will receive $152m of the total payout of $190m.

Most of today's briefing dealt with counter-measures the airline plans to its latest threat from Pacific Blue. The Australian carrier last week announced plans to fly here domestically on main trunk routes. It is offering $39 introductory fares.

Chairman John Palmer said Air NZ would respond with even cheaper fares, turn part of its planes into budget cabins, and enhance services.

"We are up for the challenge and we are confident in our ability to meet that challenge."

Chief executive Rob Fyfe said that despite the new competition, the airline expected even higher profits in 2008.

The company had built up strong earnings momentum, particularly in the second half of fiscal 2007 and this had carried through into early 2008 with strong forward bookings, he said.

This year's result came from significant passenger revenue growth and a continued reduction in costs. Passengers carried increased 4.9 percent to 12.5 million and this, combined with improved yields drove up revenue.

Profits had risen despite ongoing competitive pressures, increased fuel costs and "excess charges at some New Zealand airports".

Operating revenue for the year rose over 13% to $4.3 billion.

Fyfe said restructuring begun after the 2001 collapse and Government bail-out was paying off.

"We firmly expect that the success we have achieved at home and in existing and new international destinations will continue over the next year as we further seek to expand our business."

Even the troublesome trans-Tasman route, that had driven the company on an unsuccessful quest for marriage with rival Qantas, had been turned around into profit despite the intense competition.

"Rather than `take a breather' we intend to continue to adapt our Tasman operation and significantly enhance our product and service proposition to cushion us from the next capacity wave that we expect to hit the market," Fyfe said.

Load factors on Tasman and Pacific Island routes rose from 70.9% in 2006 to 75.3% in 2007. That had significantly assisted profitability across the Tasman.

Plans to introduce Boeing 787-9 and 777-300ER aircraft would boost growth into the next decade, allowing greater flexibility, new routes to be opened, and would lower fuel costs.

Fyfe said restructuring had delivered a further $128m of revenue, productivity and cost benefits during the year.

Labour costs as a percentage of revenue fell from 22.7% last year to 20.6%.

Cash generated from operating activities was $584 million, $242 million more than in 2006 and the company was sitting on a cash pile of over $1 billion at June 30.

The company has hedged 90% of net US dollar operating cash flow at US67.1c. It has also hedged 62% of 2008 fuel requirements at $US70.50 ($NZ99.40) per barrel.

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