Turbulence over Tasman

The difference between a nimble Air New Zealand and a behemoth Qantas Airways was revealed yesterday when the Australian airline revealed a statutory after-tax loss of $A2.8 billion for the year ended June.

The statutory loss was being reported in Australia as the airline's largest after Qantas took a $A2.6 billion ($NZ2.9 billion) write-down due to a company restructuring which included revaluing its fleet.

An underlying profit before tax loss of $A646 million ($NZ721 million) was a major reversal from the slim $A186 million profit reported in the previous corresponding period. Revenue fell 3.2% to $13.2 billion.

The company said there was a deterioration in the 2014 earnings from sustained revenue pressure and record fuel costs.

In contrast, Air NZ reported a vastly improved profit at all levels on Wednesday with the reported profit, or after-tax profit, rising 45% to $22 million.

Craigs Investment Partners broker Peter McIntyre said the market had reacted well to the Qantas result, with investors understanding progress had been made during the year. Qantas' operating cash flow in the period was $A1 billion and strong debt reduction was under way.

There was a clear strategy in place to drive earnings recovery, deleverage the balance sheet and build long-term shareholder value.

The accelerated $A2 billion Qantas transformation programme was set to gain momentum in 2015 and a return to a before-tax profit was expected in the current financial year, he said.

However, one of the main problems for Qantas was getting external investment into the company. Ownership of Qantas must be 51% Australian. All of its long-haul routes had struggled.

''Air New Zealand has been far more nimble than Qantas. It is a smaller airline, but Air NZ is very good operationally, making money off its domestic routes.''

Air NZ had also built up strategic alliances enabling it to operate long-haul routes without the infrastructure. That had allowed the airline to cancel some routes.

Air NZ had moved into the top tier of airlines while Qantas had struggled, Mr McIntyre said.

For Air NZ, domestic routes were the ''bread and butter'' and comparing New Zealand's national carrier with Qantas was very different.

Qantas' domestic earnings before interest and tax fell to $A30 million in the period, down from $A365 million in 2013.

Qantas chief executive Alan Joyce said the domestic operation suffered from demand below market capacity growth, continued pricing pressure, the resources and government sectors being weaker and unfavourable fuel costs.

The international division extended its losses to $A497 million from a loss of $A246 million as its revenue was affected by competitor capacity. The division also suffered from unfavourable fuel prices and foreign exchange transactions.

Mr McIntyre said Qantas shares had fallen from a high of $A6.06 in October 2007 to a low of A95c in December last year, giving a market capitalisation of about $A3 billion. At its peak, the market capitalisation was more than five times bigger.

Air NZ had not suffered from government ownership. Having a secure holding with the Government gave the company market strength.

The Government received dividends from the company but also had a say, allowing Prime Minister John Key to comment this week on price-gouging on New Zealand regional routes, Mr McIntyre said.

Jetstar, the discount division of Qantas, lost ground in New Zealand while claiming better yields on key routes.

The discount airline had 20.7% of New Zealand's domestic market at June 30, down from 22.4% a year earlier, Qantas said in its market report.

Passenger numbers dropped 7.7% to 1.72 million and revenue passenger kilometres fell 6.2% to 1.13 million. Capacity shrank 4.5% to 1.42 million available seat kilometres.

Qantas did not break out any financial figures for the domestic New Zealand service which is part of the wider Jetstar segment. Mr Joyce said the airline had gone through the worst as it overhauled its business and anticipated rapid improvement in the group's financial performance in 2015.

The airline saw substantial value in the Jetstar airlines which would be realised over time, particularly from Asian markets.

Qantas split its international and domestic businesses into separate segments which Mr Joyce said created potential for future investment in the international business.

''It will create the long-term option for Qantas International to participate in partnership opportunities in the international aviation market with a view to achieving further efficiencies and improved returns to shareholders,'' he said.

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