Air NZ's shares fly higher

By DANIEL RIORDAN aviation writer

Air New Zealand's rampant share price got another boost yesterday when the company said it expected to almost break even this financial year, not counting unusual items and tax.

The shares rose 5c (13 per cent) on Monday, and yesterday gained another 6c (14 per cent) to 49c - their highest level since September's Ansett write-off and announcement of a Government bailout.

But expert opinion is divided on whether the share rise is justified.

In a statement to the Stock Exchange before trading began, the airline said more passengers, including more tourists, and cost-cutting had meant trading performance over February and March had been "considerably better" than expected.

The company now expected to do much better than its previous forecast of a full-year loss of $63.4 million (before unusuals and tax) - although it said its final result remained subject to industry volatility and the seasonal weakness traditionally experienced over the financial year's final quarter.

That previous forecast was in the appraisal report given to shareholders in November before they voted on the airline's Government-led recapitalisation.

The airline lost $88 million before unusuals and tax from continuing operations in the financial year's first half, to December 31.

The company's announcement probably headed off a query from the Stock Exchange's market surveillance panel after Monday's share price jump, generally attributed to the release of a bullish broking report by UBS Warburg and institutional before a greater weighting of Air NZ shares in sharemarket indices from today.

Analysts contacted by the Business Herald were surprised at the impact of Air NZ's announcement on the share price.

They said improving conditions in the industry had been apparent for some months, and speculation on the benefits of any cost-cutting - highlighted in the UBS Warburg report - was also nothing new.

Direct Broking's Brett Wilkinson said the share price had run ahead of itself.

On its traditional price-earnings ratio of seven or eight, Air NZ would have to make $150 million bottom line to justify the share price, "and that is probably some time away".

Airline managing director Ralph Norris said in March that the airline hoped to climb back into bottom-line profitability within two years.

DF Mainland analyst Bruce McKay expects the airline to report unusual items worth several hundred million dollars at year-end, but says any forecasting before then is fraught with difficulty.

Arcus Investment Management equities head Simon Botherway said the share price would remain volatile so long as 8 per cent or less of the total shares on issue were freely tradeable.

The Government owns 82 per cent, BIL International 5 per cent and Singapore Airlines 5 per cent.

With fund managers struggling to buy shares to keep pace with the airline's heavier sharemarket index weightings, "a lot of cash is struggling to get through a small funnel", said Botherway.

Macquarie Equities analyst Arthur Lim noted Air NZ's share price had shot up by about 5c in a week the two previous times its weightings had increased, at the end of February and the end of March.

The price had then slipped back once the passive index funds doing most of the buying had increased their holdings and avoided losing their tax-free status.

nzherald.co.nz/aviation

nzherald.co.nz/travel