KEY POINTS:
Forecast high oil prices will continue to hit Air New Zealand which has, however, reported a 58 per cent increase in its December half-year net profit to $115 million.
The airline's favourable fuel hedges - 82 per cent at US$80 a barrel - start to expire in the
fourth quarter this year, and the picture is even worse next year when just 20 per cent of fuel is hedged, at US$89 a barrel.
Air New Zealand chief executive Rob Fyfe says increases in unhedged fuel costs and more flights adds up to an $81 million fuel-bill rise for the six month result period.
The unhedged price of fuel increased by 13 per cent from US$82 ($101.64) per barrel to US$93, and volume increases contributed an additional $32 million in cost.
Fuel accounts for around half the cost of a flight.
The airline lifted its interim dividend from 3c per share for the corresponding period to 5c.
Despite the improved result and higher dividend, Air New Zealand shares fell 9c cents to $1.67 yesterday. They have fallen from $3.13 on June 7.
Deputy chairman Roger France said the airline still expected to better 2007 normalised earnings before taxation and unusual items in 2008.
"However, oil-price volatility has reduced the certainty with which the company can forecast its year-end financial performance."
Forsyth Barr head of research Rob Mercer said that in spite of high fuel costs and lower inbound tourist growth, "they have delivered a pretty good result in a tough environment".
Air New Zealand was free of debt and had good cashflows, but it was hard not to get hit by the current climate.
The fortunes of airlines could change markedly on relatively small fuel, currency and yield changes, and the strongest airlines would remain strong.
Fyfe said first-half results were pleasing, but current external conditions continued to place fresh challenges in front of the business.
"A continuation of high fuel prices, increased domestic competition, tight labour markets and other cost pressures will test the business in the second half."
Normalised earnings before tax and unusual items rose by 62 per cent per cent to $159 million.
Fyfe said the standout feature of the period's performance was the $186 million revenue growth from increased traffic.
"This additional traffic, combined with increases in local currency yields of $71 million, results in an increase in passenger revenue of $257 million."
Other revenue increased by $38 million on higher cargo volumes and an increase in third-party engineering contracts.
Operating revenues rose 9.6 per cent, while loading increased by 5.3 per cent to 79.4 per cent.
Across the airline, capacity grew 4.4 per cent while load factors were up 5.3 per cent, resulting in a 64 per cent increase in the number of passengers carried.
The international airline was growing at a faster rate than any stage in its history with revamped routes. Flights to Beijing will begin just before the Olympics.
Domestic revenues had increased by 4.5 per cent. Cash generated from operating activities, before the impact of the rollover of short-dated foreign exchange contracts, was $320 million, an increase of $93 million over the previous corresponding period.
The company lifted its net cash position by $177 million to $1.22 billion.
It had largely completed its aircraft re-investment programme.