Airline's profit forecast clipped

By DANIEL RIORDAN

Higher fuel costs, a low Kiwi dollar and the continued struggles of soon-to-be 100 per cent subsidiary Ansett Australia have prompted another downgrade of Air New Zealand's profitability.

Leading broking house UBS Warburg has trimmed its forecast of the airline's earnings by 8 per cent for the year to June 31 and 3 per cent for the following year.

Warburg now expects Air New Zealand to report a net profit for this year of $197 million compared with its earlier forecast of $213 million.

The airline made a profit of $214 million in the year to last June.

Warburg has dropped its 12-month target on what Air New Zealand's A shares could reach to 225c and its B share target to 260c.

The A shares (which can be owned only by New Zealand nationals) closed yesterday at 180c, near their 12-month low of 178c and well shy of their 12-month high of 310c.

The B shares closed at 216c, compared with their 12-month high of 407c and their low of 190c.

Warburg analyst Fiona Green said although the airline's operational outlook remained sound, she had concerns about ownership issues and how smoothly the Ansett Australia and Air NZ managements would merge.

Those concerns are known to be shared by other analysts.

Air New Zealand is expected to conclude next week its purchase of the outstanding half of Ansett Australia, for which it is paying Rupert Murdoch's News Corp about $890 million.

Warburg expects Air New Zealand to pay 40 per cent more for its fuel than it did last year.

Lower domestic load factors are also hurting the airline.

Warburg has downgraded its forecasts of load factors to 65 per cent for the full year, off the 70 per cent-plus highs reported in the first half of the financial year due to spillover from Ansett New Zealand's pilot strike.

Warburg has also downgraded its forecast of Ansett Australia's contribution to Air New Zealand's bottom line, after what it called a "massive turnaround" in Ansett's fuel and currency positions.

Ansett is now expected to contribute net earnings of $60 million compared with $104 million in the 1999 financial year.

The good news for Air New Zealand is its strong underlying performance, with 20 per cent growth expected in pre-tax income.

Other positives include strong growth for inbound tourism and Air New Zealand continuing to grab a bigger piece of the growing Australian market.

The latest estimate of market share was up from 9.5 per cent to 10 per cent, and Warburg expects that trend to continue.

Meanwhile, the Qantas board holds its June board meeting this Wednesday. Directors are expected to sign off on their airline's involvement with Ansett New Zealand, now owned by a consortium of investors headed by Auckland merchant banker David Belcher.

The rebranded and renamed airline is tipped to be launched soon.

Visit Herald Online Travel