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National transtasman air carriers Air New Zealand and Qantas are on markedly different courses, Air New Zealand having reported a healthy profit and buoyed by bright outlook, while Qantas, which booked a heavy financial loss, has announced massive redundancies.
Not only did Air New Zealand report a strong six months' trading to December, but the national carrier's full-year guidance is bullish as cost savings from an upgraded aircraft fleet start to materialise and fuel prices remain manageable.
Air New Zealand's fuel costs were down almost 10% at $572 million for the period, aided by the strong New Zealand dollar and cost savings elsewhere.
Air New Zealand booked a record interim six-month result yesterday.
While its operating revenue was down 1.6% from $2.36 billion to $2.33 billion, it made a 40% gain in both before-tax and after-tax profit, which were $197 million and $140 million respectively.
Air New Zealand, which is 53% owned by the Government, doubled its interim dividend from a year ago to 4.5c. Its share price was up 1.1% at $1.77 after the announcement.
In contrast, Qantas delivered a $A235 million ($NZ252 million) loss, and is axing 5000 jobs in a bid to make $A2 billion in savings.
Air New Zealand's first-half normalised earnings before tax were up 29% at $180 million, and chief executive Christopher Luxon said the carrier was on track to book a full-year result of more than $300 million.
''With new fleet additions and the growth that comes from that, our scale grows,'' Mr Luxon said at a media briefing.
Air New Zealand has $1.13 billion cash on hand and its debt gearing is up from 39.3% to 43.9%.
Air New Zealand's fleet this year comprised 49 aircraft, the company forecasting 50 would be operating by next year, including 25 Airbus A320s.
With almost $2 billion being spent on 22 new aircraft, Mr Luxton said he expected fuel savings of 16%-25%.
Currency hedging against fuel-price volatility is crucial for Air New Zealand, and Mr Luxon said the company had a hedging programme in place which ''can buy us some time'', with about 90% of US dollar operating cash flow hedged for second-half trading.
Craigs Investment Partners broker Peter McIntyre said while Air New Zealand's result was ''pleasing and strong'', it was driven by lower fuel prices and the high kiwi.
He said several aspects should be ''of concern'' to Air New Zealand, notably the 1.6% revenue decline, ''flat'' passenger revenue, an about 5% drop in cargo and 10% decline in contract services.
''The earnings uplift was again driven by cost out, lower fuel prices, a higher New Zealand dollar against the US and a long-haul capacity switch from loss-making Asian routes to North America,'' Mr McIntyre said.
Also, Air New Zealand was historically conservative in its guidance, erring on the side of caution by about 10%-15%, which ''implied'' a final figure of about $300 million-$345 million, he said.
Forsyth Barr broker Andrew Rooney said the first-half result was ''strong and high quality'', and if the impact of $24 million in transitional labour costs were excluded, profitability would have been ''significantly higher''.
''The strong result was driven by growth in local currency yield and load factors, and continued cost containment. Operating cash flow of $300 million supported the strong profit outcome,'' Mr Rooney said.
Also, Air New Zealand has boosted its stake in Virgin Australia to 24.5%.
Mr Luxon said Air New Zealand was taking a long-term view with regard to its Virgin stake, as Virgin was expanding its network, maintaining a strong market share and had recently completed a successful capital raising. Mr Luxon will take a seat on the Virgin board in coming months.