Air New Zealand posts 24% decline in 1H profit

Thursday 23 February 2017 09:56 AM

Air New Zealand posts 24% decline in 1H profit as competition mounts

By Rebecca Howard

Feb. 23 (BusinessDesk) - Air New Zealand posted a 24 percent fall in first-half pretax profit in the face of increasing competition both at home and abroad but fared better than analysts expected.

Pretax earnings fell to $349 million in the six months ended Dec. 31 from $457 million in the same period a year earlier, the Auckland-based company said in a statement.

Net profit in the first half fell 24 percent to $256 million. Operating revenue was $2.6 billion versus $2.7 billion in the prior year. Basic earnings per share were 22.8 cents versus 30.1 cents in the prior period.

New Zealand's national carrier was forecast to post a 45 percent decline in first-half earnings to $186.5 million on a 2.6 percent decline in revenue to $2.63 billion, according to Forsyth Barr analyst Andy Bowley. Last month Craigs Investment Partners downgraded their price target for Air NZ shares to $2.09 on the prospect of weaker-than-expected earnings given increased competition among carriers and rising fuel prices.

Brad Gordon, investment adviser for Hobson Wealth Partners, said the stock may get a lift on the better-than-expected result. "Cost management was key," he said.

Air NZ chief executive Christopher Luxon said "the last six months saw unprecedented levels of international carriers adding new services to New Zealand. As expected, the change in the competitive landscape in a relatively short period of time has impacted our airline's profitability when compared to the prior year".

In recent years, for example, Qantas Airways and American Airlines gained approval for a tie-up operating between Auckland and Los Angeles, competing with Star Alliance members Air New Zealand and United Airlines in routes between New Zealand and North America and earlier this month Qatar Airways celebrated the arrival of its inaugural flight to Auckland. Jetstar's entry on domestic regional routes has pressured Air New Zealand’s domestic load factors and yields.

Luxon said, however, the airline responded swiftly by adjusting its capacity plans and accelerating the exit of older aircraft and while net profit was sharply lower it was the second highest result for an interim period in the airline's history.

According to Luxon, lower fuel prices benefited operating costs but were partially offset by the adverse impact of foreign exchange, he said.

The board declared a fully-imputed interim dividend of 10 cents a share, which is consistent with the prior period.

Looking ahead, chairman Tony Carter said he expects the revenue environment will improve from the first half on continued strong growth in inbound and outbound tourism, although higher jet fuel prices will be a headwind.

Based on the current market environment and expectations for the average jet fuel price in the second half of the year of US$65 per barrel, Air New Zealand said it is targeting 2017 earnings before taxation in a range of $475 million to $525 million.

The shares last traded at $2.15 and have fallen 6.7 percent over the past 12 months.

(BusinessDesk)

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