Improved profit for Air NZ despite obstacles

Air New Zealand yesterday announced an improved profit for the six months ended December and poured more money into the Government's coffers through an increased interim dividend.

The national carrier is nearly 80% owned by the Government. The interim dividend of 5c per share will boost government accounts by more than $40.2 million.

Air NZ's profit before taxation and unusual items of $159 million for the period was a 62% increase on the previous corresponding period. Profit after tax was up 58% at $115 million.

Operating revenue was $2.3 billion for the six months, up $205 million, or 9.6% on the previous corresponding period.

Investors dumped the stock after the announcement with the share price falling 11c to $1.65, an 18-month low.

Air NZ deputy chairman Roger France said the results represented a solid operating and financial performance despite high fuel prices and increased competition.

‘‘Despite high fuel prices, tight labour markets and a currency that is making New Zealand less competitive as an international tourist destination in some markets, we have produced a solid result and have proven our ability to do well against competition.

‘‘As the twin challenges of higher input costs and increased competition continue to put pressure on the business and across the industry, we are prepared to make the bold decisions necessary to maintain our customer service leadership and maximise long-term profitability,'' he said.

Fuel prices continued to provide the company with a significant challenge. Fuel was the largest operational expense and although Air NZ had a hedging programme in place designed to protect the business from shortterm volatility in the market, continued high fuel costs remained a concern.

With no easing of oil prices predicted in the near future, the company's investment in more fuel-efficient aircraft and the decisions it made on where to fly them were increasingly important, Mr France said.

The unhedged price of fuel increased by 13% from $US82 per barrel to $US93 per barrel, resulting in an $87 million cost increases. Volume increases added another $32 million to total costs. The total cost was offset by $38 million of hedging taking the net cost increase to $81 million.

At current prices, fuel costs in the second half of the year would be substantially higher as the benefits of the company's fuel hedging programme were reduced, he said.

Aviation remained a highly competitive industry. The entry of new competition into the New Zealand domestic market meant that capacity had run ahead of growth in demand on the main trunk routes.

The airline had more changes planned for the next six months that would improve its competitive position and its customer experiences, he said.

Chief executive officer Rob Fyfe said Air NZ had mostly completed its current investment cycle, and that was reflected in much lower capital expenditure demands.

Capital expenditure for the full 2008 financial year was expected to be about $300 million, which included the cost of the recently introduced Q300 aircraft and the start of the proposed upgrade of the in-flight entertainment system on the A320 and B767-300 fleets.

The next big investment cycle would start in 2010 when progress payments on the new B787 and B777-300ERS aircraft increased ahead of their scheduled delivery dates in the 2011 financial year, he said.

The standout feature of the period had been the $1867 million revenue growth from increased traffic, he said.

Increases in labour costs added $47 million to total costs in the period, he said.

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