KEY POINTS:
Air New Zealand's resurrection remains a work in progress, says Air New Zealand chief executive Rob Fyfe, who yesterday delivered a much-improved half-year result and announced a special dividend.
But the words of caution could not hide an upbeat mood at the national carrier's new Westhaven head office as Fyfe delivered the earnings update, lifting its shares to a post-Ansett high.
Despite the continued rise of fuel prices - adding $44 million in costs - the airline's profit of $74 million was 61 per cent up on the same period a year earlier. The interim dividend was raised by 0.5c to 3c a share and a special dividend of 10c a share was announced.
"This is a turnaround," Fyfe said. "But the overall performance still has some way to go. If you take the dividend yield for shareholders over the past five years, including the special dividend, that runs at about 3 per cent."
That was still not acceptable for investors in a relatively high-risk sector such as airlines, he said. But there were some big positives.
Operating revenue was up 12 per cent, driven by growth in the volume of passengers and yield per passenger. Meanwhile, cost-cutting had saved the airline $60 million.
Overall operating expenses were still up because of the fuel increase and costs associated with new long-haul routes. So the challenge was to get more passengers on the new routes and to complete the cost savings programme, he said.
Air New Zealand's share price has almost doubled in the past eight months and Fyfe said it was benefiting from renewed global investor interest in the sector.
Investors were betting that fuel prices would come down. But Fyfe was wary of making predictions.
"Oil prices have forced airlines to take a hard look at themselves and how they run the business. They are far more efficient than they were three or four years ago and if the oil price starts to come down they'll see the benefits of that."
Forsyth Barr aviation analyst Rob Mercer said the airline was now in good shape and well-positioned to declare more special dividends.
There had been a strong turnaround for the sector generally, but Air New Zealand had the edge over rivals because it had completed its fleet upgrade.
"Because it has completed its capital expenditure programme it is not having to plough back the higher revenue into new planes and can instead distribute it back to shareholders," Mercer said.
The timing of the fleet replacement had been "just about perfect", chairman John Palmer said. "We ordered at the bottom of the international cycle."
In a deal with Boeing in 2004, worth more than $1 billion, Air New Zealand bought eight new Boeing 777-200ER and four Boeing 787 aircraft. It has since ordered another four 787s.
Fyfe described the purchases as among the best deals the airline had done.
Even if fuel prices remained high Rob Mercer and Forsyth Barr are picking the airline will start to deliver on its cost of capital. That would give the shares a value of $2.70. They closed up 9c at $2.23 yesterday.
