Air NZ likely to rise above volcanic cloud

By Christopher Adams

Market concern over the impact of a volcanic ash cloud on Air New Zealand's business will remain low unless a major "system shutdown" takes place, an analyst says.

Despite the disruption caused by the eruption of Chile's Puyehue-Cordon Caulle volcano, the NZX-listed flag carrier has continued all its services. Other airlines such as Jetstar, Qantas and Emirates have had to cancel some flights.

Air New Zealand said it operated 473 flights on Sunday, carrying 26,500 passengers domestically and to Australia.

To avoid the ash, the carrier has flown its domestic routes at a maximum of 5500m, well below normal cruising altitudes.

And Air New Zealand flights leaving Christchurch and Wellington for Australian destinations have taken different flight paths than usual to avoid the cloud.

"The extra distance involved required the use of 10 per cent more fuel, but has meant customers were able to safely get to where they needed to go," said Air New Zealand's chief pilot, David Morgan.

The company's share price closed unchanged at $1.05 last night.

Goldman Sachs analyst Marcus Curley said it appeared the financial impact of the disruptions would be marginal.

"[Air New Zealand] have already suggested they are going to make a loss in the six months to June," he said. "So [the ash cloud] just adds to those woes, really."

Curley said that during last year's Icelandic eruption - which cancelled more than 100,000 air services across Europe - market concern around the financial impact on airlines only began when flights were called off.

"If [Air New Zealand] got a system shutdown, then clearly market interest in this issue would increase," he said.

Forsyth Barr analyst Rob Mercer said the disruption had the "nuisance factor" for the airline. "Anything of this nature that leads to a one-, two- or three-week disruption adds costs, reduces revenue and impacts short term earnings," he said.

But Mercer said he did not see the ash cloud putting a big dent in the company's underlying value.

"A $5 increase in the fuel price is probably more material in terms of overall impact."

Meanwhile, James Coddington, chief executive of ski field operator NZSki, said the ash cloud would be another challenge the firm would have to deal with if the problem dragged on.

Presently, warm temperatures have resulted in the company's ski fields - Coronet Peak, Mt Hutt and the Remarkables - staying shut because of a lack of snow.

"If the ash sticks around for a couple of weeks it would certainly have a significant impact on us," said Coddington.

"People's travel plans will be disrupted and they can't ski unless they can get here."

Tourism New Zealand chief executive Kevin Bowler said forecasts suggested the ash cloud would be a problem for a few days, not weeks or months.

"I wouldn't expect that it would have a medium or long-term effect on people's interest in travelling."

- NZ Herald

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