Air NZ profit devastated by fuel prices, other costs

Rob Fyfe delivers the Air New Zealand result today. Sandra Mu / Getty Images

Air New Zealand today announced a profit of $150m before unusuals and tax for the year ended June 30, 36 per cent down on the previous year.

Net profit after tax was $96m, 47 per cent down on the previous period due to fuel price increases. The company predicted another tough year ahead with surging fuel prices eating 30 per cent of cost.

"We clearly acknowledge this is not the result we would have liked to have achieved at the end of the financial year," board chairman John Palmer said today.

"But given the extraordinarily challenging business environment the airline is operating in, this is a respectable result."

The board declared a fully imputed final dividend of 2.5 cents per share, and said it expected to maintain present dividend flows.

Operating revenue for the year was $3.8 billion, an increase of $189m or 5 per cent over last year, Air NZ said.

As a result of a 6 per cent yield improvement, passenger revenue increased $179m or 6 per cent to $3.1b. Included in the passenger revenue increase was a $24m negative foreign exchange impact.

Other external revenue increased $10m or 1 per cent to $746 m. A $62m increase in freight revenue was partially offset by reductions in external engineering revenue, due to higher internal engineering (747 refit) and maintenance requirements.

Higher fuel prices led to total expenses, excluding borrowing costs, increasing by $253m or 7 per cent to $3.7b.

Chief executive officer Rob Fyfe said that in any other business environment measures taken by Air New Zealand should have seen an increase in its profit.

But an unprecedented 44 per cent rise in the price of jet fuel has forced the company's profitability down.

"However we cannot solely hide behind fuel price increases as the excuse for our decrease in profitability," Mr Fyfe said.

"There are still more tough strategic, workforce and workplace decisions to be taken to ensure Air New Zealand meets its potential.

"We are absolutely determined to ensure Air New Zealand grows and expands to be highly successful."

The company had identified 400 head office white collar jobs in accounting, finance, HR and IT that needed to go, and some redundancies had already been made.

A range of further cost reductions were being considered during the current financial year which would yield $100m of savings.

This would not necessarily involve further job cuts, although while the company was planning to grow it wanted to keep head counts stable, Mr Fyfe said.

"It will be a challenging year at current fuel prices."

He declined to give any profit guidance because of the volatility of world markets.

He said he expected regulators to made a draft determination on the planned code share with Qantas on trans-Tasman routes within six to eight weeks.

The regulators had given no indication of which way they were thinking.

Mr Fyfe said Air NZ was making significant losses on the route across the Tasman and failure to win an agreement would result in cost and capacity reductions.

Looking ahead, an unstable international situation, volatile oil prices and the softening New Zealand economy means that challenging times remain, the company said.

Air New Zealand was mitigating the ongoing impact of fuel on the business, with 60 per cent of oil usage hedged at US$71 ($113) per barrel and ongoing changes to the network.

A weakening NZ dollar is positive for long-haul revenue, but that would be offset by higher US dollar costs for leases, fuel and maintenance.

The company had 91 per cent of its net US dollar foreign exchange position hedged at 68 cents (US$835m).

But the Airline would not escape the impact of high fuel prices, which would heavily influence the level of Air New Zealand's profitability in the 2007 financial year.

Air New Zealand shares were unchanged at $1.13 in early trading today.

- NZPA