Return to growth a long haul for Air NZ

Chief executive Rob Fyfe says Air New Zealand will need three years to get back to its pre-crisis growth path. Photo / Hawke's Bay Today

Air New Zealand says it could be three years before it is back on the growth path it was on before the global economic crisis.

The airline's normalised earnings after tax doubled to $64 million in the six months to December 31, as it cut costs in the face of a 4.6 per cent drop in passenger demand.

Operating revenue fell 15 per cent from a year earlier to $2.1 billion, while normalised earnings before tax rose $70 million to $96 million.

The airline - 75 per cent owned by the taxpayer - will pay an interim dividend of 3c.

Chief executive Rob Fyfe said the next 12 months would be one of the most defining in Air New Zealand's history.

"There is no question the next year will set the direction and identity of our airline for the next decade."

The airline had launched its new-look long-haul cabin interiors and in the next few weeks would unveil new services for economy travellers flying transtasman, where the intense airfare war continues.

"At the moment we tend to have a merged product that tries to meet everybody's needs."

The trading environment had stabilised and recovered, but demand and average fares remained significantly lower than previously. The challenge remained to improve passenger numbers and yields.

Fyfe said forward bookings were starting to firm and into next year the airline would start adding capacity.

The company had reduced capacity on its long-haul routes by 8.7 per cent in the half-year and by 8 per cent overall.

"This is not a rapid recovery. It will take us three years to get capacity back to where it was two years ago."

By then the delayed Boeing 787 will be in service. "That will give us a launchpad to grow the business again on the growth path that we were seeing previously. Our goal back then (two years ago) was 5 per cent a year," Fyfe said.

As part of the cut in operational costs, 566 staff or 5 per cent of the workforce had been laid off, overtime cut by 11.4 per cent and the leave liability cut by 29 per cent.

Staff costs had been cut by $15 million. But as capacity was reinstated, staff numbers would increase.

The cost of fuel was down 35 per cent compared with the same period last year. Combined with lower consumption due to less but more efficient flying, the airline saved $335 million.

Total expenses fell 18 per cent to $1.67 billion.

While total long-haul demand fell by 7.3 per cent and Asian routes remained soft, there was some recovery in United States routes.

The airline is investing in new cabin interiors for new Boeing 777-300 aircraft due in November. Domestic demand was up 4.8 per cent.

UBS analyst Jason Bloom said the airline benefited from the exit of Qantas and the arrival of Jetstar, picking up business accounts and exploiting the newcomer's teething troubles.

On the Tasman demand was down 2.9 per cent and Air New Zealand cut capacity by 10.5 per cent.

If current exchange rates continued, there would be a foreign exchange hedging loss of around $20 million in the second half compared with a gain of $24 million in the first half. Air New Zealand shares closed down 2c at $1.29.

AIR NEW ZEALAND

Six months to December 31

2009
Revenue - $2.05b
Ebitdaf - $382m
Net profit - $56m

2008
Revenue - $2.42b
Ebitdaf - $356m
Net profit - $24m