Air New Zealand’s interim profit demonstrated management’s ability to adjust costs as operating conditions deteriorated, Forsyth Barr broker Damian Foster said yesterday.
The airline posted a lower operating profit for the six months ended December, citing "unprecedented competitive capacity" in the New Zealand market.
Mr Foster said cost control had been a key feature in recent years and would assist the company in the near term as the industry backdrop remained challenging.
"We anticipate lifting our full-year forecasts materially to reflect the updated guidance."
Operating earnings for the period fell 14% to $698million from $811million in the previous corresponding period. Sales revenue fell 4% to $2.58billion from $2.69billion.
The profit before tax fell 29% to $327million from $457million and the reported profit was down 24% to $256million from $338million.
Net debt was rising as profitability fell and the rate of capital expenditure remained at higher levels, Mr Foster said.
Gearing at 55.9% was above the company’s target band of 45% to 55%.
The board maintained its tax-paid interim dividend of 10c per share.
Chairman Tony Carter said based on the strength of the result, and the airline’s financial position, future capital commitments and trading environment, the board felt it appropriate to maintain the level of the interim dividend.
Chief executive Christopher Luxon said the swift response from the Air New Zealand team, focused on strong cost discipline and creating efficiencies within the operations, helped to ease some of the revenue pressure from new competitors and was a major driver of the strong result.
Lower fuel prices were a benefit to operating costs in the period but the positive fuel effects were partially offset by adverse changes in foreign exchange.
"We modified our capacity plans, accelerated the exit of older aircraft and made sure we were managing our costs well. All these actions, and our investments of recent years, really made the difference as we adjusted to a different competitive environment in New Zealand."
Mr Luxon acknowledged the role of the airline’s alliance partnerships in providing support and stability during the period of heightened competition.
The domestic network was feeling the benefits from increased tourism to New Zealand, continued strength in the economy and the roll-out of the airline’s new schedule on the jet and regional routes, supported by a modern and efficient fleet.
Air New Zealand was forecasting its total future capital expenditure through to 2021 would be about $1.6billion, he said.
Mr Carter said the second half of the financial year was likely to provide improved revenue, although higher fuel prices would be a factor.
Based on the current market environment and expectations for the average jet fuel price in the second half of the year of $US65 ($NZ90.45) per barrel, the airline was targeting before-tax earnings in the range of $475million to $525million in 2017.
Flying high
• Operating revenue of $2.6billion
• Operating profit of $698millon
• Operating cash flow of $376million
• Interim dividend of 10c per share maintained
