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Current as of 18/09/14 07:40PM NZST

Grant Bradley

Aviation, tourism and energy writer for the Business Herald

Lift-off for Air NZ outlook

Outgoing CEO Rob Fyfe says the airline's bullish outlook is far from wishful thinking. Photo / Natalie Slade
Outgoing CEO Rob Fyfe says the airline's bullish outlook is far from wishful thinking. Photo / Natalie Slade

Air New Zealand shares soared 13.4 per cent to $1.015 after it forecast it can double its pre-tax profit to $182 million in the current financial year.

The airline said it was well positioned to continue the growth path it had been on before the global financial crisis hit in 2008.

Rob Fyfe said the bullish outlook was far from wishful thinking from a departing chief executive.

He and his successor, Christopher Luxon, were quizzed by the board on Wednesday and were able to assure directors of figures behind the projections.

"The view was absolutely yes," Fyfe said yesterday after releasing details of the airline's performance last year. After-tax profits dipped 12 per cent to $71 million for the year ended June 30 - a figure higher than analysts' forecasts.

Operating revenue improved to $4.5 billion and pre-tax profit was up 21 per cent to $91 million.

Although the industry was the most volatile he had worked in, Fyfe said he was confident of the upbeat forecast based on the airline's strengthened grip on the domestic market, benefits from its transtasman alliance with Virgin Australia, more efficient planes and efficiencies which included a reduction of more than 400 jobs during the past year.

Currency hedging which had hurt the airline was now rolling off.

Fuel costs for the airline were up 24 per cent during the year but it was coping and learning to live with reduced demand from Europe.

"The only risk is if for some unforeseen reason the fuel price goes even higher and China instead of slowing from 7 per cent to 6 per cent goes to negative, but they're low-probability issues," Fyfe said.

Overall trends pointed to fuel prices stabilising or falling and efficiency gains were locked in.

"It's not like we're hoping those things come through, they're already there," he said.

"We would have been delivering this sort of outlook 12 months ago without the Christchurch earthquakes and the Japanese tsunami."

The company's chairman, John Palmer, said the airline had been conservative with its profit forecasts previously but was obliged to issue a "significant statement" because the market had not picked up on pre-tax profit upside ahead.

In the domestic market - the bulk of Air New Zealand's revenue - leisure travel was growing although there was some fall-off in business travel during last year's Rugby World Cup.

The deployment of more Airbus A320s was saving the airline 20 per cent on fuel bills.

Across the Tasman the 19.99 per cent stake in Virgin Australia and the alliance with that airline had allowed Air New Zealand to offer "a true Australasian network" including a previously hard-to-reach corporate market.

Fyfe said Air NZ held about 52 per cent of the market share across the Tasman, ahead of its 50 per cent capacity share, which delivered a "market share premium".

Air New Zealand had formed an alliance with Japan's ANA and other tie-ups were likely.

"Having to purchase new aircraft at $100 million or $200 million a pop is very challenging on the balance sheet," Fyfe said.

"Being able to partner with other airlines and utilise their equipment and capacity makes sense.

"You can expect to see more and potentially quite significant partnerships and alliances over the next 12 months."

Air New Zealand was able to use Boeing 777-300s on its United States-Britain routes which had 19 per cent fuel savings on older 747s.

Flights to Los Angeles, San Francisco and Vancouver were being increased and the airline was exploring further destinations in North America and assessing the opportunities in South America.

Fyfe took a swipe at airport charging, particularly by Wellington International Airport. He said the airline was reducing domestic fares while facing monopoly charges that would increase $25 million this coming year.

The Airport Association's chief executive, Kevin Ward, hit back yesterday saying: "Airport charges are a very small fraction of domestic fares, and the average charge per passenger is barely more than the credit card fee charged by the airline."

Beach for Fyfe

After seven years at the top, Rob Fyfe will leave Air New Zealand on New Year's Eve and with one part of his future sorted.

"It's the beach for a couple of months," he said.

But that's about all that's nailed down.

He and his successor, Christopher Luxon, have worked closely together for the past few months and travelled around all parts of the business.

"I've got so much to do between now and then [December 31]. I guess I'm starting to reflect as the time draws nearer."

Fyfe, 51, is still chairman of the Star Alliance and on the board of the International Air Transport Association.

"There are plenty of people who want to talk to me but it's hard to find the time at the moment," he said. "I'm getting contacts from people in the industry as well."

Fyfe said he was resisting the temptation to commit to anything too early. He would like to remain in the country, whether in the short term or medium term.

Air NZ chairman John Palmer said Fyfe was in the top echelon of chief executives he had worked with or observed during his career.

"The state of the company culturally , operationally and we hope shortly financially is a tribute to his leadership."

But Air New Zealand, which says it paid $172 million in airport charges to New Zealand last year, says it recovered just $21 million in credit card fees.

- NZ Herald

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