Air NZ first-half profit drops 34 per cent to $152 million

Air NZ's earnings fell in the six months to December 31. Photo/Grant Bradley, NZ Herald.

Air New Zealand's first-half net profit has dropped by 34 per cent to $152 million in the first half to December but the airline is sticking with its guidance for the full year.

The net profit was down $80m, from $232m a year earlier.

The company said key drivers of the interim result included operating revenue growth of 7.1 per cent, which was more than offset by a 28 per cent increase in fuel prices and increased operational costs.

Air NZ said its earnings before taxation of $211m for the six-month period ended December 31 2018, compared to $323m in the prior period.

The company announced an 11 cent interim dividend, unchanged from the previous corresponding period.

Looking ahead, chief executive Christopher Luxon acknowledged the rate of growth in the New Zealand market was slowing from previous years to be more in-line with other developed markets.

"Accordingly, the airline will be reviewing its network, fleet and cost base to reflect the new environment," he said.

"While we continue to expect solid growth across our key markets including domestic New Zealand, we cannot ignore signals that the rate of growth has slowed somewhat from prior years," he said.

The airline's review of its network, fleet and cost base was progressing well and an update is expected by the end of next month.

Air NZ reaffirmed its full-year earnings guidance, issued in January.

"Based upon current market conditions and assuming an average jet fuel price of US$75 per barrel for the second half of the financial year, 2019 earnings before taxation is expected to be in the range of $340m to $400m," it said.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the result was on the soft side, relative to Craigs' expectations.

Lister said "you could drive a truck through" the range for the year, and that he expected the final result to come in at the lower end.

"They are coming off a very buoyant period and some of those tailwinds that they have enjoyed over the last few years have moderated," he said.

The previous guidance for the year was for pre-tax earnings of $425m to $525m.

In January's statement, the airline cited the financial impact of the problems that it has with some of its Rolls-Royce engines, and slower-than-expected revenue growth.

In a bid to stimulate local growth, Air New Zealand announced this week it would be slashing its domestic fares considerably.

The national carrier revealed cheaper fares on 41 domestic routes in what is the biggest shake-up of prices in more than a decade.

The airline said it would make 750,000 seats a year available for less than $50.

This does, however, come at a time when Air New Zealand is facing increased competition from international carriers.

Evidence of this competition was seen earlier this month when a price war between Air New Zealand and Hawaiian Airlines saw fares drop to record lows.

By late morning Air NZ's shares were down 7c or 2.7 per cent at $2.49.