Aussie turbulence for Air NZ

Virgin Australia's first half loss will hurt Air New Zealand's interim profit.

Air New Zealand has a 25.9 per cent stake in the Australian airline and its accounts will reflect that share of the A$47.8 million first-half statutory after-tax loss suffered by Virgin.

Despite the impact from Virgin, Air New Zealand is on course to improve on last year's first-half profit of $140 million.

Craigs Investment Partners analyst Chris Byrne said Air New Zealand now had to account for the loss because of its level of control and chief executive Christopher Luxon's appointment to the Virgin board last year.

"There's a whole lot of accounting rules around what is control. They had been borderline and they said because they weren't on the board they were just an investor and had no control," Byrne said.

Virgin did not provide specific guidance for the full year, saying only that it expected an improvement on the same period last year and forecasting a A$50 million benefit from lower fuel prices, up from $3 million in the first half.

Byrne said Virgin could well be in profit for the full year, negating the half-year hit on Air New Zealand.

"Things are heading in the right direction over there but they [Air NZ] would want it better than it was," he said.

Air New Zealand will announce its half-year profit next Wednesday.

Virgin benefited from falling fuel prices, improved market share, higher yields and cost cutting that helped cut its after-tax loss, down 35 per cent from the A$74.3 million loss in the corresponding period in the previous year.

Virgin turned around a pre-tax loss of A$45.4 million to a A$10.2 million profit.

Chief executive John Borghetti said the airline's results for the six months were a "positive outcome with momentum".

It had been driven primarily by the group's continued progress in driving yield growth in the domestic market and the disciplined execution of a five-year A$1 billion cost-cutting programme.

The airline had already saved A$312 million in the past three years.

The improved financial performance comes as a domestic capacity battle with Qantas has eased and Borghetti said Virgin had succeeded in driving domestic yield growth.

Virgin had strengthened its balance sheet and had a cash position of $1.1 billion in the first half of the 2015 financial year, up from $783.8 million at June 30 last year.

Total group revenue increased 6 per cent to $2.4 billion compared to the previous period.

By Grant Bradley of the New Zealand Herald

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