Air New Zealand Profit Declines

Air New Zealand today announced normalised earnings* before taxation of $75 million for the 12 months to 30 June 2011.

The result is 45% down compared to the 2010 financial year.

“When reporting our interim result for the first six months of the financial year in February, we gave a positive view about the prospects for our full year performance. Within a couple of weeks of that, the dual effects of the Christchurch and Japan earthquakes caused us to update our outlook for the second half, says Chairman John Palmer.

“These natural disasters and sustained high fuel prices dramatically altered what was shaping up to be a very positive full year result. Nevertheless, this backdrop of adversity has again highlighted the resilience of Air New Zealand in the most challenging of times. That’s a tribute to the hard work, innovation and adaptability our nation’s airline has shown over the past decade,” says Mr Palmer.

“The Board has confidence in the company’s capability to adapt through the current volatile conditions and return stronger profitability in the medium term. In that light the Board has declared an unimputed dividend of 2.5 cents per share. This takes total dividends for the year to 5.5 cents per share,” he says.
Key highlights
 

•  Normalised earnings* before taxation of $75 million
•  First half year profit $112 million, second half year loss of $37 million
•  Net profit after taxation down 1% to $81 million
•  Operating revenue up 7% to $4,341 million
•  Net cash position $860 million
•  Gearing improved to 46.7%
•  Final dividend of 2.5 cents per share (unimputed)

Chief Executive Officer Rob Fyfe says the operating conditions of the past six months were cumulatively the most difficult Air New Zealand has faced in the past decade.

“The combination of reduced demand for travel as a result of the devastating Christchurch and Japan earthquakes, additional capacity into Christchurch to assist the relief effort and compassionate fares for those affected by the Christchurch earthquakes resulted in an estimated $70 million negative impact on earnings,” Mr Fyfe says.

“Despite the challenging environment Air New Zealand delivered more game changing initiatives that have caught the attention of customers and competitors. In November we introduced our Seats to Suit product into the highly competitive trans-Tasman and Pacific routes which has been a great success. While we have increased capacity by 6.4%, it has been with a minimal increase to costs. We have gained market share and grown the market, with demand up 10.2% and load factors increasing 2.9 percentage points to 83.3%, compared to the 2010 financial year.

“In addition, the trans-Tasman alliance with Virgin Australia was approved by the ACCC and the New Zealand Ministry of Transport in December and combined operations commenced on 26 July 2011. The positive customer feedback so far is encouraging and we look forward to the resulting financial benefit as we progress through 2012 and longer term.”

Air New Zealand has also cemented alliances with Etihad and Virgin Atlantic during the year.

On top of these cornerstone initiatives to grow passenger revenues Air New Zealand has also seen a strong improvement in performance in its Cargo business with revenue up 9% to $278 million for the 2011 financial year.

Mr Fyfe says Air New Zealand’s international long haul network continues to struggle against the backdrop of high jet fuel prices and a rising Kiwi dollar stifling inbound tourism demand from key markets like the United States and United Kingdom, which also continue to experience tough economic conditions post the global financial crisis.

“International markets remain volatile and this has an impact on the demand for New Zealand as a destination. This has seen long haul routes in our network lose more than $1m a week in the first six months of this calendar year. No stone will be left unturned as we rigorously review our business model, the routes where our capacity should be deployed, our sales and marketing strategy and alliance partner opportunities. The process of change will start to take place this side of Christmas.”

Outlook

Air New Zealand is well placed competitively and there are a number of initiatives in place which we expect to deliver improved results. In the absence of further deterioration in global economic conditions and an escalation in fuel prices we expect a better financial performance in the 2012 financial year.

* Normalised earnings exclude the impact of derivatives that hedge exposures in other financial periods. Statutory profit before taxation was $73 million ($81 million after taxation).