Cheaper fuel gives Air NZ $40m bonus

Air New Zealand has upgraded its profit forecast by $40 million, saying falling jet fuel prices mean cheaper costs this year.

The airline issued an earnings warning last month, telling shareholders that its pre-tax profit for the 2006 year would be $100 million, down from $235 million the year before.

This was due mostly to a $100 million jump in fuel costs. Now that extra $100 million cost looks likely to be $60 million.

"Consequently, profit before unusuals and tax would improve by $40 million," the airline told the NZX yesterday.

How to recover the high cost of fuel from customers has also been on the mind of District Court Judge Stan Thorburn, who yesterday agreed with the Commerce Commission that Air NZ had misled customers in its newspaper advertising.

Thorburn ruled against the airline on 14 of 20 sample charges, saying that fuel costs were an operating expense and "ought not to be separated out from a headline price".

Air NZ lawyer Nathan Gedye argued such a rule would be inappropriate and unworkable.

He said it would be unjust and unrealistic for complex travel advertisements to be treated in the same way as advertising for simpler consumer commodities.

Andrew Stone, chief executive of Saatchi & Saatchi New Zealand, said he did not think the ruling had implications for other advertisers.

He said the advertising practices being argued in the case were peculiar to the airline industry and, even then, were not used by all airlines.

Air NZ's shares closed unchanged yesterday at $1.20 each.