Air NZ still doing well, says chairman

Air New Zealand bosses say they are doing well to make a profit given the huge losses being sustained among airlines internationally.

The national airline's share price fell to a fresh year low yesterday after chairman John Palmer announced an expected 57 per cent fall in profit and the likelihood of up to 600 redundancies from its engineering division.

Mr Palmer told shareholders at the company's annual meeting in Auckland yesterday that its expected profit before tax and unusuals would likely fall from $235 million in the previous year to $100 million in 2005/06.

But he said the company was in the strongest financial position in its history.

"We have had good success in the past four years posting a cumulative profit before tax and unusuals of $731 million while the industry globally has lost US$36 billion ($52 billion)."

Mr Palmer said fuel prices were a large contributing factor in the reduced profit forecasts.

"At today's fuel prices our estimated 2006 fuel costs, net of hedging, will increase by around $300 million when compared with the previous year," he told the meeting.

"We are hopeful that we may recover close to $200 million of this through surcharges. That said, we need to be mindful of the fact that demand for travel is elastic when putting surcharges in place."

The reduced profit forecast was also a reflection of oversupply of capacity and concerns about the overall health of the airline industry, he said.

Mr Palmer expected the company would save an extra $100 million this year, mainly through reductions in long-haul commissions and the potential combination of Air NZ and Freedom Air fleets.

In addition, the proposal to outsource heavy maintenance and large fan aero maintenance work, which could cost 600 jobs, would save more than $100 million over five years, Air NZ chief executive Rob Fyfe said.

Air NZ shares touched a fresh year low of $1.06 on the news, before closing down 3c at $1.07.

Only once in the airline's history has the stock traded lower. It hit 88c -- in today's terms, adjusting a five-for-one share consolidation -- in September 2001 when it teetered on the brink of bankruptcy following the collapse of its Australian subsidiary, Ansett.

Grant Williamson, a partner at brokerage Hamilton Hindin Greene, said the profit downgrade wasn't a big surprise.

"History shows that the airline industry is very volatile and it is very difficult to make attractive returns over a period of time. Investors are starting to realise that," Mr Williamson said.

"There is always something against the airlines, and at the moment it is the very high fuel prices."

Mr Palmer said the Air NZ board was disappointed at its share price, which he said was trading around 30 per cent below its net tangible assets per share before yesterday's activity.

But his words didn't satisfy shareholder John Struthers.

"You say you're disappointed at the price but I'm gutted because I stand to lose $20,000," he told the meeting yesterday. "I don't think some of you on the board have been doing your jobs."

Mr Palmer said the company's policy of distributing 25 to 35 per cent of its profit after tax in dividends was unchanged, though the board would look at "some flexibility" in the policy to ensure consistency of distribution.

Mr Palmer also took a swipe at airports, who he said were overcharging.

He said it cost Air New Zealand $5000 to land a Boeing 747 in Auckland, compared with $2655 in Los Angeles and $3889 in London.

"As unconstrained monopolies, some New Zealand airports impose charges at a level much higher than is appropriate to achieve an adequate return on their investment."

He said margins for publicly-listed New Zealand airports were more than 75 per cent, well above the 35 per cent which they were in Europe, where there was competition.

"The time is long overdue for an appropriate regulatory framework to ensure airport charging practices reflect economic reality."

- NZPA