Fuel costs see Air New Zealand profit fall 34 percent

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February 28, 2019
Air New Zealand profit
An Air New Zealand Boeing 787-9.

Net profit at Air New Zealand fell 34 percent to $NZ152 million in the first half of the financial year as the airline wrestled with increased fuel prices.

Pre-tax earnings fell 35 percent to $NZ211 despite a 7.1 percent increase in operating revenue.

The airline said the revenue growth was more than offset by the 28 percent rise in fuel price that produced a net headwind of $NZ131m.

Operating cash flow remained flat at $NZ475m and the airline declared an NZ11-cent dividend.

Chief executive Christopher Luxon reiterated his previous warning that the rate of growth in the New Zealand market was slowing from previous years to be more in line with other developed markets.

READ Air New Zealand cuts profit guidance, capacity growth

The airline said this was most visible in forward bookings for domestic leisure and inbound tourism and predicted the growth rate in the second half would be half the 12-month average of 8 percent.

Air New Zealand is reviewing its network, fleet and cost base to reflect the new environment.

“While we continue to expect solid growth across our key markets including domestic New Zealand, we cannot ignore signals that the rate of growth has slowed somewhat from prior years,’’ Luxon said.

“We pride ourselves at Air New Zealand on being nimble and able to quickly adjust our business to reflect the changing macro environment and this time is no different.”

The airline confirmed a revised outlook issued on January 30 that its pre-tax earnings for the full year would be between $NZ340m and $NZ400m based on the slower revenue expectations for the second half.

The forecast assumes an average jet fuel price of $US75 per barrel.

It said its response to the slower revenue growth environment would include reduced capacity growth, changes to domestic pricing and market development.

This included the announcement this week that it was reducing its lowest fares across the domestic network, shrinking some by half.

“We are committed to ensuring that air travel is more affordable than ever for Kiwis, whether they are flying from the main centres or from regional airports,’’ Luxon said.

“With prices as low as $NZ39, and with our unmatched network of over 400 flights a day to 20 different destinations in New Zealand, there has never been a better time to get out and explore this amazing country.”

The forecast growth for group capacity was reduced to the lower end of the previous plan of 4 to 6 percent.

The airline also said it would maintain its Pacific Rim strategy by exploring profitable growth opportunities, increasing connection opportunities via Auckland and leveraging alliance partnerships.

Recent routes launched to Chicago and Taipei had performed ahead of expectations and Air New Zealand recently launched a third daily Singapore-Auckland service.

But it signaled in its investor presentation a rationalization of Pacific Islands capacity growth and reduced flying to San Francisco and Los Angeles.

The airline has forecast investment of $NZ1.2 billion on aircraft and associated assets through to 2022 but said it had made no assumptions on the cost of replacing its Boeing 777-200 aircraft.  An announcement on this is due in the fourth quarter of the current financial year.