Grant Bradley: Five reasons Air NZ is flying high

Air New Zealand chief executive Christopher Luxon. One of the reasons Air NZ profits are soaring. Photo / Dean Purcell

Air New Zealand today announced a record interim after tax net profit - $140 million, 40 per cent up on the same period last year. The airline also announced it is on track to make earnings of $300 million before taxation for the full year - which would also be a record. Here's some of the reasons for its strong performance.

1 It's getting the network right

The airline is now able to focus on the routes that really matter. Under its Go Beyond five year-plan that means the Pacific Rim and ditching those where it was losing money such as Hong Kong-London. It has been hard-nosed with its rationalisation of domestic routes. It can make good money on regional services but also lose on marginal ones which it reviews every six months.

The airline is not swinging the axe, (staff numbers remained stable at 11,000) rather it is concentrating on growth to achieve savings through economies of scale.

Grant Bradley

It has around 80 per cent of the internal market and domestic dominance is the bedrock of any successful national carrier. On the improving, and potentially lucrative New Zealand-North America route it has a monopoly on direct flying and every day this remains the case is a good day for Air New Zealand. Its partnership with Virgin Australia, in which it has a 24.5 per cent equity stake, gives it access to the big Australian domestic market while at the same time hurting rival Qantas. Virgin and Air New Zealand also have about 60 per cent of the transtasman market where airlines are now making a profit.

2 Economic tailwinds

While international recovery from the global financial crisis continues to be spotty, demand out of the United States is strong. International visitor numbers went up last year and the high New Zealand dollar and growing economic confidence means more Kiwis than ever are taking overseas holidays with Air New Zealand being the biggest carrier out of here. Growing New Zealand economic activity is also fuelling growth in the airline's domestic business. The airline noticed a surge in domestic flying in October last year which fed into its half year results. During the six months to December 31 passenger revenue was up 2.4 per cent to $1.93 billion due to improved load factors compared to prior period.

3 Cutting costs

Operating expenses fell by $92 million, a 4.8 per cent. Fuel - the biggest single cost on most flights - remains stable. The company was able to cut fuels expenditure by almost 10 per cent to $572 million over the half year, helped by the introduction of new, more efficient A320s on domestic routes and the strong kiwi dollar. The airline's getting complexity out of supply chains. During the past 12 months the it has cut the number of its suppliers from 8700 to 5300. Unit costs have fell 3 per cent during the half - year. The airline is not swinging the axe, (staff numbers remained stable at 11,000) rather it is concentrating on growth to achieve savings through economies of scale.

4 Strong management

Chief executive Christopher Luxon spent years at Unilever has brought a tougher commercial focus to the airline and managers have clearer lines of accountability.

5 Recognition on the global stage

Not rocket science but the latest inflight safety video featuring Sports Illustrated swimsuit models was about marketing as well as flight safety and plays well to the airline's important North American market. It can live with any reputational damage here but is reaping rewards in bookings, particularly to the Cook Islands, which can be a difficult market to sell. Christopher Luxon says the day inflight video hit the internet United States booking inquiries went up. Airline awards come in all shapes and sizes and some are worth more than others but the airline continues to pick them up regularly for its product and service.