Air NZ announces profit downgrade

New Zealand's tourism outlook will come under close scrutiny in the weeks ahead as the extent of the destruction in Japan becomes apparent, with Air New Zealand moving quickly yesterday to announce a profit downgrade.

At stake for the country's largest export earner, at $6 billion, will be not only inward passengers from Asia but also the flow-on effects in accommodation and tourism-related services around the country.

After the downgrade announcement, Air New Zealand shares were down 7c, or almost 6%, to $1.12 yesterday.

Last month, Air New Zealand announced that the reintroduction of jumbo jets to Tokyo was set for December, showing confidence at the time of Japan's growth potential.

However, last Friday, rising oil prices forced it to announce its domestic and long-haul fares would go up about 7%, with tickets to Australia and the Pacific up about 8% more.

Air New Zealand gave guidance just days after the Christchurch quake on February 22 that it expected to remain profitable in the second half of the trading year, but it revised that guidance yesterday.

"The financial impact of the Christchurch earthquake is more severe than expected then.

"Further, the recent tragic events in Japan will also impact revenue in that important market," it said.

Based on current fuel prices and demand trends, Air New Zealand does not now expect to be profitable in the second half-year, and full-year normalised earnings are expected to fall below $100 million.

Forsyth Barr broker Peter Young said tourism expectations out of Asia would come under further scrutiny after Japan's quake and tsunami.

"Given the widespread destruction in Japan, this will have a fairly big impact [on tourism in general] for New Zealand," Mr Young said.

He said Air New Zealand's exposure to increasing fuel-related costs was "huge" in its operation costs and yesterday's market guidance update was inevitable given fuel charges.

Despite the negative announcements and share price slide, Mr Young said Air New Zealand stock "still rated favourably" in the medium to long term, with a positive outlook based on the Virgin Blue transtasman alliance and Rugby World Cup.

- Additional reporting: The New Zealand Herald.

 

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