Air NZ says currency a factor in flat $166m profit

10.20am - UPDATE

Air New Zealand today turned in a flat $166 million net profit after tax (npat) for the June year, citing the strong New Zealand dollar as a factor.

Earnings per share were 5.1 cents, the same as last year, when the airline posted an npat of $165.7m.

Air NZ's board did not declare a dividend, but signalled in a statement to the sharemarket that it would be in a position to do so in the 2004/05 year.

The result came on total operating revenue of $3.5 billion, down 3 per cent on the 2003 June year's revenue of $3.6b.

The fall in revenue was due primarily to the impact of foreign exchange movements, chief executive and managing director Ralph Norris said.

In the year to June 30, the New Zealand dollar appreciated a net 6.9 per cent to US63.57c, peaking at US70.96c in mid February.

Air NZ's operating surplus before tax was $239.3m, up 7 per cent on $224m in the previous June year.

There were no unusual items after tax included in the financials.

Mr Norris said the flagship airline had finished the 2003/04 year in an improved financial position.

It had benefited in the June year from the rise of the New Zealand dollar, which was offset in part by a 15 per cent hike in jet fuel prices.

Operating cashflow was down $56m at $467m, mainly because of increased tax payments.

"Liquidity continued to improve, with closing cash over $1 billion dollars," Mr Norris said in the statement.

"Gearing, which has benefited from the favourable exchange rates, has fallen from 62.0 per cent to 52.6 per cent.

"This is the first time in over five years that gearing has entered the Group's long-term target range of 45 per cent to 55 per cent."

Air NZ had improved its "efficiency and effectiveness" and sharpened its focus on customers, he said.

"We will continue our programme of innovation that has already seen Air New Zealand redefine operating and competitive opportunities within the airline industry."

Chairman John Palmer said competition in Air NZ's region of operations was intense, creating over capacity and driving down yields.

"Trans-Tasman is a good example of this with capacity growth of 50 per cent over a two-year period," he said in the statement.

"This is much greater than our estimates at that time."

The swift change of market dynamics on the trans-Tasman route had bolstered the argument for an Air NZ-Qantas alliance, he said.

"If approved, the alliance will ensure each airline retains its unique identity, independence and autonomy, but at the same time it will allow us to work together to provide a strong platform for growth, boost tourism to both countries, and facilitate joint high-level strategy."

Meanwhile, during the 2003/04 year, Air NZ flew more than 10 million passenger miles for the first time.

Group passenger numbers were up 10.4 per cent at 10.7 million.

Available seat kilometres increased 4.3 per cent to 32 billion, while revenue passenger kilometres increased 2.6 per cent to 23.4 billion.

The resulting load factor was 1.2 percentage points lower at 73.1 per cent. Group yield declined 7.6 per cent to 11.3c.

On Air NZ's short haul flights, which included domestic, trans-Tasman and Pacific routes, passenger numbers were up 12.6 per cent at 9.1 million.

"The increased traffic can be primarily attributed to increased frequency and demand stimulation, with fares lowered by 20 per cent on average across the short haul network," the statement said.

Air NZ's long haul routes were affected by the high value of the kiwi and lower demand for travel from Asia as that market recovered from severe acute respiratory syndrome (Sars) concerns.

Long haul passenger numbers remained stable at 1.6 million.

"The decline in demand for travel as a result of Sars necessitated capacity cut-backs which carried through to the end of the first quarter of this financial year."

Air NZ's contract services experienced a decline in revenue, which it mainly drew from its engineering and airport services units, because of the higher currency.

The cargo unit was also affected by the strong kiwi, with revenue 10 per cent down on the previous June year.

"Reduced carriage of perishable items from New Zealand and the Pacific Islands, impacted by poor New Zealand weather, the strong New Zealand dollar and reduced seafood catches, contributed to this decline."

Looking ahead, Mr Norris said the 2004/05 year would also be challenging.

The airline was expecting, on an annual basis, the target dividend payout to represent between 25 per cent and 35 per cent of net profit after tax.

A dividend reinvestment would also be launched in conjunction with their reinstatement, Air NZ said.

Shares in Air NZ closed at $1.92 yesterday. The shares were consolidated -- five shares became one -- on Monday.

- NZPA