31 Aug 2012

Air NZ wants long-haul business back in profit by mid-2013

5:38 am on 31 August 2012

Air New Zealand is hoping the bumpy years of the global economic crisis are behind it and aims to get long haul flights back into the black by the middle of next year.

The national carrier has announced a profit of $71 million for the year to June, down 12% from the previous year due to a sharp rise in fuel prices.

Last year, the company was losing $1 million a week on long haul routes.

The airline's departing chief executive Rob Fyfe told Radio New Zealand's Checkpoint programme that's no longer the case as flights are redirected to meet demand and some economies recover.

He says more flights are going to Los Angeles, Vancouver, and San Francisco, as well as Japan as it recovers from the effects of the tsunami.

Flights to Beijing now go to Shanghai, and fewer flights are heading to London.

Mr Fyfe says the airline has focused on filling its planes by offering competitive prices.

Along with more fuel-efficient planes and estimated cost savings of $130 million, Mr Fyfe expects a substantial lift in annual profit in the coming year.

Air New Zealand is forecasting it will more than double its pre-tax normalised profit of $91 million due to its long-haul business returning to profit and cost savings.

Chairman John Palmer says the board was obliged to give such a forecast because of the disparity between company forecasts and the view of the market.

"It is a significant statement, we have not in the past and will not in the future be putting definitive numbers around that, but that is strong guidance as to our view about the current state of the business".

Increased fuel costs

Operating revenue rose 3% to $4.5 billion, driven by higher fares and increased passenger numbers. However the airline's fuel bill rose sharply, increasing costs by $257 million.

The entire airline industry has been under intense pressure, struggling to cope with higher fuel prices, a downturn in global travel and intense competition, particularly on international routes. Last week Qantas reported a loss of $A245 million.

Air New Zealand has fared better than most of its rivals, though it too has cut flights and costs, and closed routes to weather the slowdown.

Mr Fyfe says the airline is well-positioned geographically to take advantage of growth in Asia and other regions.

He says the one emerging economy it does not have easy access to is Africa. However, the company is not suffering to the same degree as many other airlines the impact of what is happening in Europe.

Cargo revenues rise

Mr Fyfe says cargo revenues rose 8.7% during the year, with increases in both volume and yield.

He says the company replaced five Boeing 747s with five 777-300s which have 40% more cargo carrying capacity.

Mr Fyfe says those aircraft are predominantly allocated to the New Zealand - United States and United States - UK routes, and those markets have been relatively strong in terms of cargo.

He says Air New Zealand hasn't been as dependant on the Asian markets as a number of other airlines which have reported a significant downturn in cargo in the Asian markets.

But Mr Fyfe says airport charges are too high.

He says fees have risen $91 million in the past five years while, in the same period, the airline has managed to lower fares 6% in order to keep planes full.

Air New Zealand's share price soared 13% to $1.01 on Thursday, following the announcement.

The company will pay a dividend of 5.5 cents a share.