Prime Minister John Key says he has spoken to Air New Zealand about its expensive regional airfares after the government-controlled carrier's profits rose for a third year in a row.

Mr Key applauded the national carrier's huge growth over the last year, but said he had also directly raised the issue of expensive regional flights with chief executive Christopher Luxon.

"I've made it clear that I think Air New Zealand needs to continue the work it's doing while making sure that it reduces prices to the regions if it can.

"Because in the end we always know they're likely to have a more monopoly-type position in those areas. And they've got to make sure that they continue to deliver fair pricing to the regions."


People in the regions had raised the issue of high fares during his travels on the campaign trail. He was assured by Mr Luxon that Air New Zealand was focused on the issue.

Mr Key added: "It's [up] to them to run their company. I was simply making the point that they're our national carrier and we expect them to deliver fair prices across New Zealand."
Mr Key was responding to news that the airline's annual profits had soared by 45 per cent because of higher passenger numbers and greater capacity.

He stood by Government's decision to sell off shares in the airline last year. Government still had majority control over the company and the airline's growth reflected good leadership "over a long period of time".

"They've done for the airline what we'd like to do for the country, they've got themselves profitable and they want to stay that way."

In a statement today Air NZ points out that average regional airfares have actually decreased by around 1 per cent over the past five years despite escalating fuel prices and significant increases in other costs such airport landing fees and Airways charges.

There had been a significant increase in the number of seats offered to and from the regions for below $100 each, the company said.

AIr NZ profit up again

Air New Zealand shares rose to a two-month high after the government-controlled national carrier boosted annual profit 45 percent on increased passenger numbers and capacity, and said it will double shareholder returns with a special dividend.

The shares rose as high as $2.20, and were recently up 1.4 percent at $2.18, having climbed 31 percent this year, outpacing a 6.4 percent gain in the NZX All Index over the same period. The stock is rated an average 'buy' based on six analyst recommendations compiled by Reuters, with a median target price of $2.30.


Net profit rose to $262 million, or 23.6 cents per share, in the 12 months ended June 30, from $181 million, or 16.4 cents, a year earlier, the Auckland-based company said in a statement. That was in line with brokerage First NZ Capital's forecast. Normalised pretax earnings climbed 30 percent to $332 million, as revenue edged up 1 percent to $4.71 billion.

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The board declared a final dividend of 5.5 cents per share, taking the annual payout to 10 cents, and also declared a special dividend of 10 cents, following a review of the company's capital structure and consideration of the current and expected medium term liquidity and gearing.

"The result itself very much met market expectations - the special dividend was the cream on the top," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "That got the share price a little firmer today."

Air NZ has been upgrading its fleet of plans and increasing ties with other airlines, including a code-share agreement inked with Singapore Airlines and increasing its stake in Virgin Australia.

Air New Zealand chief executive Christopher Luxon.

Hamilton Hindin Greene's Williamson said while the special dividend was welcome, Air NZ needs to maintain the strength of its balance sheet in the face of its capital expenditure needs.

"They don't want to stretch the balance sheet too much - it doesn't take much for some worldwide event to affect international air travel," he said.

The airline expects more earnings growth in 2015 based on forecast market demand and fuel prices, excluding earnings from its stake in Virgin Australia.

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Chief executive Christopher Luxon told an analysts' briefing the airline expects group capacity to grow about 6 percent in the 2015 financial year as new aircraft come on stream, supporting the forecast lift in earnings.

Air NZ increased its investment in Australia-based Virgin to 25.99 percent in June, having first sought an alliance with the airline in 2010 after a potential tie-up with Qantas Airways was knocked back in prior years. The New Zealand carrier has also entered into an code share alliance with Singapore Airlines, a fellow investor in Virgin.

The airline increased passenger numbers 2.34 percent to 13.72 million, with a 1.2 percent lift in revenue passenger kilometres to 14.85 million. Short-haul yields improved 0.3 percent to 17.1 cents per revenue passenger kilometre and long-haul yields increased 0.9 percent to 10.7 cents/RPK.

Operating cash flow shrank to $730 million from $750 million a year earlier. Air NZ had cash and equivalents of $1.23 billion as at June 30, and net debt of $384 million.

Read an analyst presentation on today's Air NZ financial result here:

Click here to read the airline's full annual financial report.