Provided by NZX
  • AIR2.3

    $ 0.0000%

  • Open 2.3 High 2.3 Low 2.27 Bid Price 2.29

    Offer Price 2.3 Value 1901805.65 Volume 833137

Current as of 24/03/17 07:39PM NZST
Aviation, tourism and energy writer for the Business Herald

What's clipped Air New Zealand's wings as profit drops 24 per cent

Air New Zealand is sticking to the script of airline economics.

As sure as a carrier has a good year, one not so good will surely some time follow.

And for the national carrier, that year has come. It's six-month result to December 31 was hardly a wipe out, it was the second best first half result in the company's history.

But following record results last year the slide in half-year profit is conspicuous Pre-tax profit fell 24 per cent to $349 million as revenue slid 3 per cent.

What's driving the fall?

Competition and more competition. Last year eight new airlines entered the New Zealand market, some other increased capacity and in the current six month period two more will start flying here.

Air New Zealand's chief executive Christopher Luxon said today the competition on international routes was now at unprecedented levels in the company's history.

The Middle Eastern carriers, Emirates and in the current financial period, Qatar affect Air New Zealand at the margins for long haul operations: "Our strategy is around the Pacific Rim - you don't go to the desert to fly to the Pacific Rim region."

However it was Emirates' maintenance of its capacity across the Tasman that was most challenging. Chinese carriers poured in seats last winter but he says there are signs of this levelling off.

"We talked about conditions being choppier - we've seen it as a transitional year where there is an oversupply of seats in the market pace because of the competition and demand has got to catch up."

When will that happen?

Air New Zealand has long maintained while it will stick around for another 77 years at least some of the airlines that have started services to New Zealand will pull back or pull out.

Already United has scaled back to seasonal services after launching daily flights from San Francisco last year. Oil is edging up in price and airlines without the historic ties to New Zealand and less efficient fleets are more likely to scale back.

Luxon says competition is right now at its high water mark and will level off over the coming year.

"I think there are a lot of new entrants who will be doing it really tough and that that's the problem - a lot of airlines lose money flying routes. We only add capacity when it's profitable."

What will this mean for fares?

Luxon says travellers have never had it so good but doesn't see them falling much further.

"I think it's been a pretty good time to be a traveller from this country in the 12 month period. I think we have seen competition level off."

He said Air New Zealand made decisions based on supply and demand week by week and month by month.

What does this mean for staff?

Most among Air New Zealand's 11,000 staff got a bonus of $2500 following its full year pre-tax profit of $663m last year.

But it is forecasting that to be in a range of $475m to $525m this year.

"The result won't be as strong as last year so bonuses across the board won't be as strong as they should. That will be a decision for our board at the end of the year," Luxon says.

What about oil prices?

Air New Zealand benefited by about $62m for the first half of the current year compared to the prior corresponding period. While they will be higher in the current year, the built in unit cost savings by running a more efficient and uniform fleet will help offset that.

Luxon says nearly half the 8 per cent cost savings over the past six months came from these long term efficiencies rather than cheaper fuel.

Any new routes on the horizon?

The airline is leasing an additional Boeing 787-9 Dreamliner which will join the fleet in the 2019 financial year to "support future capacity growth."

Luxon is coy on where that extra capacity may be but the airline is actively considering new ultra long haul routes in North America and South America.

New York, Toronto, Brazilian cities Sao Paulo and Rio de Janeiro are possibilities that have been in the mix before.

With the cost of deploying two wide body planes worth $300m on a long haul route and spending $150m a year on running costs, the passenger volume and mix equation has to stack up.

- NZ Herald

Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter

SIGN UP NOW

© Copyright 2017, NZME. Publishing Limited

Assembled by: (static) on production apcf03 at 26 Mar 2017 23:03:37 Processing Time: 37ms