Air NZ profits plunge 90pc to $21m

Air NZ chief executive Rob Fyfe at this morning's release of the airline's financial results. Photo / Brett Phibbs.

Air New Zealand reported a 26 per cent fall in full year normalised earnings before tax of $145 million, which the company said positioned it as one of the top airline performers globally.

Bottom line net profit was down 90 per cent to $21m.

Chairman John Palmer acknowledged today the result fell short of delivering shareholders an appropriate commercial return.

Amid gloomy economic conditions, a combination of excess capacity, deteriorating demand and significant discounting had all worked against Air NZ, he said.

Despite that, the company had been able to adapt to the conditions and enhance its financial position.

An unchanged final dividend of 3.5c per share is to be paid. Air NZ is 77 per cent-owned by the Government.

The company said operating revenue for the 12 months to the end of June was down 1.2 per cent, or $58m, on a year earlier to $4.6 billion.

Excluding the favourable impact of the weakening New Zealand currency, operating revenue fell 6.9 per cent.

Passenger revenue fell by $74m on a 7.6 per cent fall in demand, as measured in revenue passenger kilometres. That decrease was offset by a $188m positive foreign exchange impact due to the weaker New Zealand dollar, Air NZ said.

The company's net benefit from foreign exchange movements was $272m compared with last year.

Air NZ said that despite deteriorating economic conditions, its financial performance in the second half of the year improved dramatically against normalised earnings before tax at the half year of $26m.

Air New Zealand chief executive Rob Fyfe said the operating environment was likely to remain turbulent.

Until supply was aligned with demand, the airline sector would not achieve a satisfactory commercial performance, he said.

While demand was stabilising, yields remained under significant pressure, fuel prices had resumed an upward trend and Air NZ was unlikely to achieve the same level of net hedging gains.

The company would continue to invest in new products, technology and customer service, while keeping a strong focus on reducing costs and becoming more efficient, Fyfe said.

No area of the business would be immune from change as new developments in domestic, Tasman and long haul airlines were rolled out.

While some certainty was provided by hedge positions relating to foreign exchange and fuel price, demand remained difficult to predict, Fyfe said.

"Although there are some early indicators that the slump in travel demand may be showing signs of having bottomed out, it would be naive to think that there won't be bumps on the road to economic recovery."

Air NZ reported profit before tax of $7m. That was calculated by subtracting the $138m net impact of derivatives that hedge exposures in other financial periods, from the $145m normalised earnings before tax. The airline also reported a $14m tax credit.

Key highlights

-Normalised earnings* before taxation of $145 million

-Normalised earnings* after taxation of $118 million

-Operating revenue down 1.2 per cent to $4.6 billion

-Passenger demand down 7.6 per cent

-Net cash position $1.6 billion, up 22 per cent

-Final dividend of 3.5 cents

- NZPA