Air NZ posts best result in 10 years

A report in The Dominion Post says that Air New Zealand has posted its best annual result in 10 years, a $214 million after-tax profit for the year to June, more than double the $96 million last year.

Chief executive Rob Fyfe said profits would increase again next year, even taking into account the arrival of Pacific Blue on the main trunk routes in November, he would not put a number on it, however.

A fully imputed final dividend of 5c, up from 2.5c, will be paid on September 27.

Chairman John Palmer said the final dividend, combined with the 3c dividend for the first six months and the special dividend of 10c, takes total distributions to shareholders to $190 million.

The Government, as 76 per cent shareholder, will get $144 million.

The $268 million profit before tax and unusual items was 79 per cent higher., but Mr Palmer warned that the airline could not rest on its laurels, with many aspects of the airline industry remaining “challenging” and the impact of continuing turmoil in global financial markets remained unknown, he said.

Fuel prices had also continued to put pressure on profitability in the past year.

“We continue to protect against short-term fluctuations with our hedging programme, and have increased our efforts to conserve fuel wherever possible.”

Air New Zealand paid an average US$89 a barrel for fuel during the year, 16 per cent more than the previous year.  It has 62 per cent of its fuel hedged at US$70.5 a barrel.

Mr Fyfe said Air New Zealand had moved into the next phase of a transformation programme, with profitability in 2007 driven by revenue gains rather than cost-cutting.

Total revenue of $4.3 billion was $492 million higher and passenger revenue rose $338 million to $3.5 billion, of which $181 million was the result of increased passenger numbers and the balance from improved yields.  Passenger numbers rose 5 per cent to 12.5 million.  That increase outstripped capacity growth, resulting in increased market share and load factors gaining 1.5 per cent to 76.5 per cent.

Yields improved largely on the back of the new premium business class and premium economy class cabins.

Profits and loads on the Tasman had also improved to a point where they were now in line with other parts of the network, Mr Fyfe said.  He would not detail trans-Tasman profits.

Air New Zealand reduced capacity on the Tasman after competition regulators turned down a bid to merge the trans-Tasman business with that of Qantas.

Mr Fyfe said changes were being made to the Tasman operation, including increased leg room in seats reserved for the dearest fares and interactive in-flight entertainment, “to cushion us from the next capacity wave that we expect to hit the market”.

Cargo revenue also gained 9 per cent to $396 million, driven particularly by growth from China to New Zealand.

The restructured engineering division has won a $45 million maintenance contract for Hawaiian Airlines aircraft and this week renewed a $110 million contract to service the air force’s C130 Hercules, P3 Orion aircraft and Iroquois helicopters for six years.

Total costs of $3.4 billion were $321 million higher.  Fuel costs were up $165 million at $1.1 billion, making it the biggest single expense.

Though savings of $128 million had been achieved, “a large proportion of our performance improvement came from increasing core revenue” as a result of network changes, new routes and aircraft, and cabins improving yields.

At least a further $74 million in savings would flow into this year from restructuring airport services and an expected 3 per cent saving in fuel costs stemming from more efficient aircraft and operating procedures.

Report by The Mole