Air NZ half year net profit climbs 12 per cent

11.45am

Air New Zealand today reported a December half year net profit of $105.35 million compared with $93.92 million a year earlier.

No interim dividend was declared but managing director Ralph Norris said the dividend issue would be reviewed later in the year

The airline was sticking with its $220 million full year profit forecast despite achieving 68 per cent of this in the first half.

The airline usually made more than half of its profit in the first half due to the industry's cyclical nature, Mr Norris said in a statement to the NZX.

After tax and unusual items, net profit at $105 million was up 12 per cent on the same period last year.

The airline's revenue over the period was $1.7 billion and it held $894 million in cash reserves. Gearing was reduced to 59.3 per cent from 69.6 per cent at December 31, 2002.

Air NZ chairman John Palmer said the result was pleasing and it represented further progress for the airline.

But Mr Norris said although the airline's performance so far this year was $10 million ahead of the same time last year, the intensifying competitive environment would lead to a more difficult second half.

"The outlook for the coming six months remains, as so often it is in this industry, uncertain. We cannot predict what uncontrollable events the future will bring.

"What we can predict is that competition and change in the industry will continue to accelerate."

Meanwhile, Mr Palmer told reporters at a briefing in Auckland the airline had decided not to go to the market to raise a further $200 million as had earlier been hinted at.

Mr Palmer said the recommendations from last year's operational review were now "well underway and will deliver significant value over the coming years".

Mr Norris said changes made by the airline were typified by the introduction of its Tasman Express during the period under review.

"A simplified fare structure with everyday reductions in fares of up to 45 per cent, combined with improved online booking functionality, have been well received by our customers, with traffic stimulation of 11 per cent since the launch of Tasman Express."

He said the delivery of four of the airline's 15 new Airbus A320 aircraft had resulted in operating cost savings of 15 per cent and received "very positive feedback from customers".

Mr Norris said the company was now turning its focus toward its long haul services.

"The recent announcement of direct flights between Auckland and San Francisco heralds a period of rejuvenation for our long haul services with some exciting developments, including investment in new in-flight entertainment systems and lie flat beds, to be announced later this year."

Mr Norris said group capacity increased by 3.5 per cent compared to the previous corresponding period but passenger load factor at 73.6 per cent was 2.6 per cent lower.

International capacity grew 2.5 per cent over the half year largely as a result of increased frequency to Los Angeles and across the Tasman. But the impact of Sars on demand for travel, in particular from Asia, resulted in international traffic falling by 2.1 per cent and load factor falling 3.5 per cent to 73.3 per cent.

Capacity on domestic routes grew by 11 per cent following the introduction of Express Class resulting in a 17 per cent increase in domestic traffic and a load factor 75.4 per cent -- up 3.9 per cent.

Mr Norris said the significant rise of the New Zealand dollar had reduced the company's revenue as almost half of its ticket sales are offshore. The higher currency also reduced the value of revenues earned in foreign currencies from the company's Cargo and Engineering businesses.

But the reduction in operating revenue was offset by a 7 per cent reduction in total costs.

Contributing to this were a $38.3 million fall in the airline's fuel costs.

Increased internal maintenance costs were offset by currency gains, which reduced the cost of engineering materials denominated in US dollars

The strength of the New Zealand dollar had a positive influence on aircraft operations and passenger services costs. Sales and marketing expenses of $185.3 million were 8.2 per cent lower than the previous corresponding period.

Favourable renegotiations of aircraft lease rates combined with the higher New Zealand dollar had reduced the value of US dollar denominated aircraft lease payments, saving $31 million.

Significant cost increases were seen in depreciation -- up by $21.4 million and labour costs -- up by $21.6 million.

Air NZ shares were up a cent at 42c by late morning today.

- NZPA