The national carrier reported record earnings before other significant items and taxation of $806million, up 70%; the profit before tax rose 40% to another record of $663million; and the reported profit after tax also hit a new high at $463million, up 42%.
Operating revenue was up 6.2% to $5.2billion and passenger revenue of $4.5billion was up 8.9%.
The airline had operating cash flow of $1.1billion at balance date, down 2.4% and a cash position of $1.6billion, up 21%.
Importantly for shareholders, Air NZ declared a final fully tax-paid dividend of 10c per share, taking the full-year dividend to 20cps, an increase of 25%.
An additional fully tax-paid special dividend of 25cps was also announced, taking the Government’s dividend payments from the airline to $204million in cash.
Air NZ would also pay $200million in tax.
Permanent employees not participating in the short-term incentive programme received a $2500 performance bonus.
Chairman Tony Carter said the airline’s staff were critical to its success.
"We recognise the importance of working collaboratively with our unions through our high performance engagement programme to achieve results that benefit both our business and our people. This has been an important contributor to our ability to achieve efficiencies," he said.
However, Craigs Investment Partners broker Chris Timms and Forsyth Barr broker Damian Foster both remained cautious about the next six months for Air NZ.
Mr Timms said the 2016 result revealed a significant second-half deterioration, due to competitive pressures reducing passenger revenue per seat, which was continuing into 2017.
Profit before tax guidance was a large step down at $400million to $600million.
The special dividend of 25cps reflected the record result and reduced gearing following the Virgin shareholding sale.
Mr Timms said it was important to realise in a low interest rate cycle, and the subdued forecast for the next six months, the share price was likely to be supported by the dividend payments.
With the two dividends added together, it gave a return of 20% on the current share price of $2.25 and investors were likely to be attracted to the yield before the dividend payout.
"While there will be some disappointment at the lower forecasts, it is not likely the chief executive of an airline company will stand up and produce a record result and say he is going to beat it next year, given the competitive nature of the industry and the fluctuating oil prices," he said.
Mr Foster said although the result was consistent with guidance, it missed Forsyth Barr’s and market expectations.
Guidance suggested the market might have to temper forward estimates given consensus was currently about $689million.
The net tangible asset price for Air NZ increased from $1.66 per share to $1.76 at the end of the financial year but remained below the share price.
"The yield backdrop had deteriorated over the past six months and would likely continue to deteriorate over the next six months, given increasing industry capacity, particularly on long routes.
"We remain cautious on the earnings outlook and expect material downgrades to consensus following the result."
The special dividend would give investors an incentive to "hang around", Mr Foster said.
Despite the negative thoughts by brokers, Air NZ chief executive Christopher Luxon said 2016 provided the best results in the company’s 76-year history and he remained proud of the airline’s achievements.
Mr Luxon acknowledged there was increased competition as other international airlines added capacity in recognition of strong tourism demand for New Zealand.
"There’s no doubt customers have more choice but we are confident we have the right pricing, products and services to stay a step ahead of the competition as we grow our business at home and overseas."
At a glance
• Record profits for Air NZ Ordinary dividend and special dividend provide 20% yield
• Performance bonus of $2500 to 8200 staff
• Uncertainty about the next six months expressed by brokers
