Air New Zealand shares jump as airline flags earnings to double

Air New Zealand's shares jump 5.6% on good profit forecasts. Photo by Peter McIntosh.
Air New Zealand's shares jump 5.6% on good profit forecasts. Photo by Peter McIntosh.
Air New Zealand is looking a good sale prospect for the Government if it continues to get bogged down in political debate with the Labour and Green parties over the partial float of state-owned energy assets.

The partial sale of Mighty River Power has been upset by the Labour and Green plans to set up a single buyer of electricity should they be elected as the government next year. The Government was forced this week to add a supplementary disclosure on the Mighty River Power offer document.

Air NZ, majority owned by the Government, saw its shares jump 5.6% after the national carrier flagged its annual earnings will more than double this year.

The airline expects normalised before-tax earnings, which strip out unrealised movements in derivatives used to hedge its exposures, to be between $235 million and $260 million in the 12 months ended June 30. That compares with $91 million it posted in 2012, meaning earnings are set to gain between 158% and 186%.

Air NZ said the forecast was based on current market conditions and the trading environment.

The shares rose 8c to $1.52, and have climbed 10% this year. The stock is rated an average ''outperform'' based on seven analyst recommendations compiled by Reuters, with a median target price of $1.71.

Milford Asset Management senior analyst Will Curtayne said from Auckland the latest release looked positive for Air NZ but he warned the Government would remain cautious about selling down its stake in the airline to 51%.

''Air NZ is high-risk compared to the energy companies and the Government will be cautious about selling down at the wrong point.''

The key to the airline's latest success was the high dollar and lower oil prices. Both of those pointed in the right direction for the company, he said.

Air NZ was a well-run airline but airline stocks around the world were volatile. When all factors were pointing in the right direction, airlines could provide ''fantastic returns'', Mr Curtayne said.

Air NZ said it carried 1.362 million passengers in March, 5.2% more than a year earlier, and a 2.8% lift in revenue passenger kilometres (RPKs). Passengers carried rose 2.4% to 10.23 million in the financial year to date, with RPKs up 3.9%.

Short-haul passenger numbers were up 6.3% on the corresponding period last year. Tasman-Pacific demand increased 7.3%, reflecting the additional frequency on the Auckland-Honolulu route and the larger aircraft on the Auckland-Perth route.

On North America-United Kingdom routes, demand increased 9.3% and capacity increased 3%.

Demand was down 15.4% on Asia/Japan/UK routes and capacity down 19.5%, when compared with the previous period, as a result of the consolidation of China flying to Shanghai and the withdrawal of Hong Kong to London flights.

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