NZ airline casualty likely in face of high fuel costs
An Independent Financial Review report says that at least one of the three competitors in domestic aviation will be forced out by high fuel prices, according to First NZ Capital analyst Jason Familton.
Addressing Air New Zealand’s March operating statistics and hedging policy, Familton said Pacific Blue was the most likely contender but Qantas, long established in the domestic New Zealand market, couldn’t be ruled out.
Pacific Blue, the Christchurch-based, trans-Tasman and domestic budget New Zealand arm of Australian parent Virgin Blue, is believed to have spent more than $20 million on start-up costs for its New Zealand domestic service, launched in November.
Familton said his outlook for Air NZ remains strong, but he anticipates weakness in its domestic performance to continue. Air NZ’s domestic business had underperformed since Pacific Blue started flying in New Zealand.
“We continue to view the three-operator structure in New Zealand as not viable longer-term, especially with the level of crude, and would not be surprised to see a change before the end of the calendar year.” Familton said crude prices could hasten changes in the marketplace.
He expected the downturn in the economy would also reduce passenger demand.
Last month, Pacific Blue’s general manager, commercial, Adrian Hamilton-Manns, told The Independent Financial Review he wasn’t worried about oil trading around $US100 a barrel. However, on Monday oil reached almost $US120 a barrel.
He believed passenger volumes would be stimulated by keeping fares low. Pacific Blue’s load factors were hovering around 80% after coming off 90% loadings during the Christmas period, he said.
Familton said Pacific Blue could not be viewed in isolation from its parent, Virgin Blue.
Shares in Virgin Blue Holdings fell 18.5% to a record low earlier this month after it warned its profit would more than halve in the wake of higher fuel costs and competition.
The carrier expected net profit to drop about 53%, from last year’s $A216m to about $A100m, on the back of an extra $A120m of fuel costs.
Virgin Blue is 63% owned by Toll Holdings and Richard Branson’s Virgin Group owns 25%.
Toll has been trying to sell its Virgin Blue stake without success. Toll said earlier this year it would consider reprivatising the company which is listed on the Australian Securities Exchange.
A Report by The Mole from The Independent Financial Review
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