KEY POINTS:
Air New Zealand has announced a strong result for the six months to December but the board is still looking for more from the airline.
Chairman John Palmer said today that all the airline's indicators including passenger numbers, revenue, profitability and share price are up.
"I should temper that however by saying that the results are still short of what the board considers is an appropriate return for shareholders," said Palmer.
The company reported a 61 per cent rise in its December half year net profit to $74 million.
Palmer said analysts' expectations for the full year profit of $204m to $232m were realistic.
Air New Zealand also announced an increased interim dividend of 3 cents per share up from 2.5c last year, as well as saying it would pay a special dividend of 10 cents per share.
The special dividend will cost $105m.
The company had cash of over $1 billion despite repaying $140m of debt early.
"Although the operating environment is still very challenging, we feel confident now about the ability to release some of the cash holdings from the balance sheet," Palmer said.
Palmer said the huge increase in fuel costs and intense market competition during the company rebuilding meant the board had adopted a deliberately cautious approach to managing the balance sheet.
However, he said, Air New Zealand was beginning to see the benefits of from the new product investment and a fall in fuel costs.
"We invested with confidence and we are now getting pleasing results," Palmer said.
In 2003 the airline embarked on a substantial $2.6 billion capital investment programme, and followed that by seeking to strengthen its balance sheet through a capital raising to shareholders.
That programme had finished its first stage, with the gearing at a comfortable 46.7 per cent and so the airline was in a position to return funds to shareholders
Jet fuel continued to be the company's most significant cost. The average price of fuel was up 13 per cent over the last year, and 55 per cent over the same period two years ago.
The Government had no plans to sell down its 80 per cent shareholding, he told a briefing.
Palmer said that despite the encouraging performance, the airline's returns were still below their potential.
"The board's view is that we are not yet achieving the levels of performance we consider appropriate to properly reward shareholders for the capital employed and associated investment risk."
Chief executive Rob Fyfe said priorities for the business over the next six months included clarifying the future operating model for Airport Services, growing the domestic business, consolidating its position on the Tasman and stimulating demand for the new Vancouver service, which will launch in November.
Over the six months Air NZ had cut costs by $63m and was on track to achieve targeted cost savings of $130m for the full year.
A four-year cost-saving programme had originally aimed to take $245m of costs out of the business but by the end of the year it now expected to have trimmed $326m in annualised savings.
Operating revenue rose 12 per cent to $2.14 billion with group passenger yields up 10.7 per cent.
Short-haul passenger revenue increased 11 per cent to $1.02b with yields also up 8.9 per cent.
Long-haul passenger revenue increased 13 per cent to $695m, with yields up 12.7 per cent.
Cargo revenue rose 20 per cent due to the increased capacity offered by new Boeing 777 planes and higher cargo yields.
Air New Zealand shares closed yesterday at $2.14 and opened after this morning's results announcement at $2.16. The shares have since risen to $2.20 at 10.20am - the highest the stock has traded since the beginning of the year.
- NZ HERALD STAFF/NZPA
