Air NZ profit tipped to be up to $113m

Air New Zealand is set to emerge from a grim year in aviation well in the black but facing intense pressure on yields going into next year.

The airline will announce its results this week, with analysts forecasting a net profit ranging from $65 million to $113 million.

Although a sharp reversal of last year's $218 million figure, in the context of one of the worst slumps in aviation, Air New Zealand will be among a select group of carriers still in profit.

There are some signs emerging of a slowdown in the freefall in passenger demand and revenue for airlines worldwide but the body representing them calculates losses of more than $13 billion this year.

The industry has been battered by swine flu and faces further environmental challenges, with the European Union yesterday releasing more details of its push on tighter emission standards for airlines flying to Europe.

Head of research at Forsyth Barr Rob Mercer is forecasting a net profit of $113 million and said the airline had been able to protect earnings by acting quickly.

Air New Zealand has been helped by currency and fuel hedging and has adjusted its capacity where passenger demand has fallen precipitously such as on long-haul routes.

Capacity has been cut by just under 15 per cent, just ahead of the decline in passenger numbers.

"The feeling going into 2010 will be more subdued in respect to yield pressure but we still think they've got the potential to take some further costs and grow the earnings again. That will be dependent on whether the hedges will work for them again in 2010."

Fuel and currency hedging would be worth about $500 million to the company over the 2009 and current year, he said.

In June, the last month of the reporting period, there was a near 5 per cent fall in group yields - the average revenue per kilometre per passenger - after strong yield recovery early this year.

Worse was revealed on Friday for July with group-wide yields down 15 per cent on the same month last year.

This could continue, Mercer said. "We're going to see yields start to show underlying pressure."

Goldman Sachs JBWere's head of research Marcus Curley said the extent to which the airline had been able to cut costs would be important in the result. He is forecasting a net profit of $100 million on earnings before interest and taxation of $180 million.

"They've obviously taken a lot of capacity out of the market so it will be interesting to see if it has produced reasonable reduction in costs."

The airline is affected early by global economic trends and could take some comfort from figures showing the fall in international travel is happening at a slower rate.

"It does appear we have passed a trough in terms of international travel, so people will be looking to see if that trend is reflected in forward bookings and whether that is resulting in the stabilisation of prices."

Qantas, announcing an 87 per cent fall in profit, said last week there were signs of improvement in passenger volumes and yields had stabilised.

"If Air New Zealand repeats those kinds of things then that will be taken fairly well," Curley said.

At present the airline was 60 per cent covered by fuel hedging.

"You are getting a fairly free hit on the recovery of passenger volumes now that fuel costs are fixed for the rest of the year."

He said he would be surprised if the arrival of Jetstar would damage Air New Zealand's high profitability on domestic routes.

Morningstar researchers have forecast a $65 million profit, increasing to $80 million in the next financial year.

RESULT TOUCHDOWN

What: Air NZ's annual result.
When: Thursday morning.
Last year's net profit: $218m.
This year's forecast range: $65m to $113m.