Air New Zealand Profits Despite Turbulent Times

Air New Zealand has today reaffirmed itself as one of the world’s top performing airlines, announcing normalised earnings* before taxation of $137 million for the 12 months ended 30 June 2010.

“The uncertainty surrounding the global economic recovery has continued to suppress demand for air travel over the past 12 months,” says Air New Zealand Chairman John Palmer.

“We continue to be more profitable than most of our peers on a comparable basis, with this financial performance reflecting the continued innovation and performance improvement that has seen us recognised with several major global awards including ATW magazine’s 2010 Airline of the Year.

“The investments we are making in product enhancements, improved service and process efficiencies have driven customer preference which in turn creates market share and margin premiums, even in the current difficult times.”

After reviewing Air New Zealand’s financial position and financial commitments the Board has declared a fully imputed dividend of 4 cents per share. This takes total dividends for the year to 7 cents per share, an increase of 8% on last year reflecting the improved outlook.

“The Board has strong confidence in the airline’s ability to adapt to change and return stronger profitability in the medium term, while also recognising the need for preserving financial flexibility through this extended period of uncertainty,” says Mr Palmer.

Key highlights

Normalised earnings* before taxation of $137 million, down $8 million
Normalised earnings* after taxation of $92 million
Operating revenue down 12% to $4.0 billion
Passenger demand down 4.7%
Passenger load factor up 2.8 percentage points to 81.8%
Net cash position $1.1 billion
Final dividend of 4 cents per share

Chief Executive Officer Rob Fyfe said Air New Zealand continues to perform well due to the exceptional effort of a team of 11,180 Air New Zealanders.

“They have given their best to connect families, friends and businesses while providing a uniquely and proudly Kiwi service, which is now recognised as one of the world’s best.

“Our wide range of business initiatives underway including significant capacity growth over the coming months will further strengthen our position in the marketplace,” says Mr Fyfe.

Air New Zealand last week successfully launched its new trans-Tasman and Pacific Island service with four choices of customer offerings on its Christchurch-Sydney service with airfares starting from just $169. As expected, bookings for the new product have been very strong. The rest of the network will go on sale from early September for travel from 17 November.

In parallel, the reconfiguration of the airline’s short-haul international A320 fleet to an all economy 171 seat cabin is increasing Tasman and Pacific Island capacity by 11%.

“In addition, our proposed trans-Tasman alliance with Virgin Blue will create a far better and more sustainable service through working together, providing a greatly enhanced offering to our customers that will stimulate demand,” says Mr Fyfe.

“We await regulatory approval on both sides of the Tasman to enable us to compete more effectively against the Qantas Group in the Australasian market.

“We have significant growth plans for our domestic jet operation with capacity increasing by 8% progressively from September, the equivalent of one additional Boeing 737 aircraft. Among the increases Auckland-Wellington capacity will go up by 9.0% and Auckland-Christchurch by 10.4%.

“Further capacity will be available with the arrival of the first new A320 aircraft from February next year and will see direct Dunedin-Auckland services increase by 46% from 13 to 19 per week, and Auckland-Queenstown capacity rise by 13.6%,” says Mr Fyfe.

On the long haul network, Air New Zealand is planning for on schedule delivery of the first of five Boeing 777-300ER aircraft, with early bookings strong for the new inflight product which is available for purchase on flights from Auckland to London via Los Angeles from April.


Outlook

The airline industry is showing signs of recovery with both demand and yields continuing to improve.

The airline is planning to increase capacity in 2011 across the network, particularly on domestic and trans-Tasman services, through the addition of new aircraft, configuration changes and increased utilisation.

Experience continues to highlight that earnings can be significantly impacted by changes in economic conditions or input costs, such as fuel price.

In recent years, Air New Zealand has demonstrated its ability to adapt to changing conditions and remain profitable in a tough economic environment. We are optimistic that operating earnings will continue to improve through the 2011 financial year.

* Normalised earnings exclude the impact of derivatives that hedge exposures in other financial periods. Statutory earnings before taxation were $123 million ($82 million after taxation), up $116 million on last year.