Air NZ predicts bigger profit

Chairman John Palmer (top left) shares the stage with a Chinese Dragon at Air NZ's annual meeting yesterday. Picture / Greg Bowker

Air New Zealand says it is on track to beat last year's $96 million profit but analysts are sceptical about the airline's forecast.

If the lower fuel prices and current operating conditions persisted, profit would increase, Air New Zealand chairman John Palmer told its annual general meeting in Auckland yesterday.

"I do not want to comment any further than that," he said.

But Goldman Sachs JBWere analyst Peter Sigley said it was "too early to say" whether the airline would become more profitable because fuel prices were still very high.

"Our view is that oil prices rebound over time," said Sigley.

Air New Zealand had to be very careful about how it hedged against any rise in fuel prices, he said.

Palmer conceded the growth plans were "ambitious" and "not without risk" considering the volatility of fuel prices. But the company's balance sheet was in a solid state and in a good position to grow.

Air New Zealand's profits almost halved to $96 million this year but dividends were stable. The board expected dividends to stay the same next year.

"Dividend levels were maintained despite the fall in profitability, reflecting the board's confidence in the financial position of the company," said Palmer.

The airline's revenue grew by 5 per cent to $3.8 billion in the last financial year and its global online revenue increased 43 per cent to $839 million.

Palmer said he expected global online revenue to increase to $1 billion in 2007

The company also announced yesterday that it was proposing a code-share arrangement with Air Pacific.

Under the deal, Air New Zealand and Air Pacific would operate a daily schedule between Fiji and Los Angeles, with connections to London.

Palmer said the airline had engaged in the "highly public, often painful, but necessary task" of making sure it was in a state to grow, reducing engineering and corporate staff. But at the same time it had grown the business, he said.

Air New Zealand's second daily service to Britain via Hong Kong is to begin on Saturday and early next month it will launch its non-stop service to Shanghai, with connections to elsewhere in China and in Europe.

The airline had also bought four new 50-seater Q300s, had 17 Q300s on order and had refitted its Boeing 747 fleet.

Palmer said the airline expected to be more involved in New Zealand's tourism strategy.

"There are a number of gaps in the tourism strategy at the moment. We are a major operator, and we expect to be more involved in that because we think there are gains to be made."

Chief executive Rob Fyfe said an increase in yields set a strong foundation for further growth and figures from the Star Alliance showed customer satisfaction levels were high.

But the airline was still managing the dispute with staff in its airport services division which was "in crisis".

Fyfe said 45 per cent of the revenue for airport services came from third-party airlines and its competitors had more flexible employment deals and had undercut costs by 20 per cent.

"If we don't rapidly address our lack of competitiveness, we will not only lose our third-party airline customers but we will place Air New Zealand at a disadvantage."

The airline also yesterday disclosed its fuel hedging programme.