Air NZ can't pick up speed

John Palmer (left) and Rob Fyfe. Picture / Brett Phibbs

Air New Zealand is running fast but still sliding backwards, says chairman John Palmer.

Profits for the latest half year have fallen 45 per cent, with a 36 per cent jump in the airline's fuel bill wiping out any benefits from better revenues and yields. The latest round of job cuts - this time hitting managers in the airline's corporate division - will save $45 million a year, at a total cost of around $15 million.

Palmer said it was likely that high fuel costs would continue, so the airline would have to cut costs further. "The board won't shy away from approving further tough decisions to ensure this continues."

He said: "It is not a satisfactory financial performance and we acknowledge that. This has been a busy six months - we have been able to maintain the dividend on the strength of our balance sheet and the confidence of our business going forward."

The airline's fuel bill increased $174 million in the past six months of 2005. An increase in the actual amount of fuel used accounted for $36 million of the total, while the rest was taken up by price rises.

On the operations front, things were not too bad last year, with passenger numbers up 6 per cent. Capacity was also up and was well matched with the number of people flying, meaning load factors were stable at 76 per cent.

Palmer said the balance sheet was in good shape with more than $1.1 billion cash in the bank and cashflow from operations up 41 per cent. Despite this, chief executive Rob Fyfe is likely to be keeping staff on their toes.

The quest for streamlining and simplification would dominate his personal agenda. "I am determined that Air NZ will become the right size and shape to earn the right to grow."

Palmer, despite a restrained view of the past six months, was still confident about the future, saying the new longhaul product would be seen on all routes by the end of this year.

Projections for the full-year profit are unchanged, with Air NZ expecting to book a 12-month profit before unusuals and tax of $140 million, down from last year's result of $235 million.