KEY POINTS:
Soaring fuel prices have taken another bite out of Air New Zealand profits, as the airline moves quickly towards embracing bio-fuels for its planes.
It aims to convert some of its domestic fleet to using the greener fuel source within five years, Air NZ deputy chief executive Norm
Thompson told a major tourism conference in Rotorua today.
His speech came as shares in the airline fell 6 cents, or 5 percent, to $1.09, after it told the market it expects full year earnings to be at least 25 percent below last year's level due to higher fuel costs.
The airline said it now expected earnings before tax and unusuals for the 2008 year to be below $200 million.
Last month it said it expected full year earnings to be between $200 million and $220 million, compared with 2007 earnings of $268 million.
Shares in the airline, 80 percent owned by the Government, have slumped from $3.13 just under a year ago.
Thompson told the conference that moves to fly planes on biofuels were going faster than expected, and it will test a new generation of biofuels - from Indian feedstock - before the end of this year.
Thompson, chairman of the Tourism Industry Association, said Air New Zealand create a world first later this year when it tested a second generation biofuel made from jatropha, a bush grown in India that produces seeds with a high oil content.
"Our goal within the organisation is certainly to get into a position where we could run if not all, certainly part of our domestic fleet on biofuels."
Thompson said early work showed biofuels cost about half the price of normal aviation fuel, and produced only 50 per cent of the environmental emissions.
Air NZ aimed to convert at least part of its domestic fleet to using biofuels in five years, but it was hard to know when this would occur, because regulators had to first approve such a fuel for safety.
He said he hoped ultimately for long-haul flights to be powered using biofuels, but this was made more difficult because of the challenges in sourcing the same fuels at overseas destinations.
A major oil company, BP is focusing on developing jatropha and butanol for sustainable biofuel output.
The jatropha-based fuel with which Air NZ is experimenting is a different type to the biofuel used by a Virgin Atlantic plane when it became the first commercial airline to use biofuel in February this year.
The Virgin Atlantic Boeing 747 few from London to Amsterdam using a 20 per cent biofuel mix of coconut and babassu oil in one of its four main fuel tanks, but Virgin boss Sir Richard Branson said fully commercial biofuel flights were likely to use feedstocks such as algae.
Thompson echoed those views: "The fuel that we are looking at at the moment is one of a couple of biofuels...the other one which we think has probably got some potential going forward is from algae."
- NZPA
