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Current as of 25/05/17 02:40PM NZST
Aviation, tourism and energy writer for the Business Herald

Air NZ profit taking off

Airline set to announce increase that should put negative publicity in the background.

The Boeing 787-9 Dreamliner will be an important aircraft for Air New Zealand. Photo / Peter Meecham
The Boeing 787-9 Dreamliner will be an important aircraft for Air New Zealand. Photo / Peter Meecham

Air New Zealand is set to announce a sharp increase in profit this week which the airline will welcome as a shift in focus from the negative publicity that has hit it this year.

The airline's underlying profit is tipped by Forsyth Barr to rise to $330 million for the year to June 30, up 29 per cent on the previous year.

Net profit is expected to rise from $182 million to $234.3 million, according to analyst Andrew Bowley who said growth could slow from here but he expected management to outline ways earnings will be lifted in the medium term.

Craigs Investment Partners, while acknowledging the inherent risk in investing in airlines, particularly after the strong run Air NZ has had over the past two years, said the company remained in a strong position to increase earnings in the coming years.

The firm also expects earnings growth of around 30 per cent for the 2014 year followed by double-digit growth in 2015. The figures would represent the strongest result in more than a decade for the airline which is one of the best performers for its size and one of the few to have an investment grade credit rating.

The airline carries around 13 million passengers on 200,000 flights a year but has suffered a run of bad publicity recently prompting stern messages to staff to lift their game from chief executive Christopher Luxon. After the stranding of passengers in Hawaii, Luxon said the the airline had badly let down customers and events like that had a big impact on the airline's reputation in the wake of revelations of pilots having a row on a flight from Perth, procedures not followed during a low visibility landing in Christchurch, a former cabin crew member's involvement in importing drugs and the bussing of passengers from Christchurch to Nelson during the storm at Easter after flight cancellations.

The bad publicity came as Air New Zealand is about to launch a new phase of growth with the arrival of the first of its 10 Boeing 787 Dreamliners which will be joined by two others by the end of the year. It is also adding 777s to its fleet as it prepares to quit the last of its 747 Jumbo jets.

Forsyth Barr's Bowley said this would result in significant savings.

"We were told at the recent investor day that management's relentless focus on costs should result Air NZ set to announce healthy take-off in its profit

in a flat CASK (cost per available seat km ex-fuel) on a go forward basis. In combination with fuel burn efficiencies from newer more efficient aircraft, cost management is a key driver of further earnings growth."

Alliances and deals with other carriers will continue to help the airline.

Christopher Luxon.

The final approval for the Singapore Airlines revenue sharing alliance this month gives Air New Zealand more scope to build its business in Southeast Asia, said Bowley. Other key alliances include those with Cathay Pacific and Virgin Australia, in which Air NZ has a 25 per cent stake.

The Air NZ result will contrast markedly with those of Qantas and Virgin Australia which will report their full-year results at the end of the week. Qantas, facing tough domestic competition and suffering on its long haul network, could report a bottom line loss of up to A$1 billion ($1.1 billion). Virgin suffered a half year loss of A$83 million.

Just on 20 per cent of Air NZ was sold by the Government last year, raising $365 million for the sale of 21 million shares at $1.65. The share price rose from 88c two years ago to a high of $2.29 this year. It closed at $2.13 on Friday.

Annual result

When: Wednesday
What to look out for: A big lift in profit, new earnings opportunities announced
Tailwinds: Newer efficient fleet and capacity growth, domestic dominance, alliances paying off, cost cutting
Potential headwinds: Rising oil prices, a sharp fall in the Kiwi dollar, global instability and natural disasters cutting appetite for air travel

- NZ Herald

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