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Air NZ soars to record profit – how do they do it?

February 28, 2014 Financial, Headline News 1 Comment Email Email

egtmedia59The contrast couldn’t be starker: on one side of the Tasman, an airline in crisis desperately slashes thousands of jobs; while on the other side, a national carrier soars towards a handsome, record profit with rosy prospects ahead.

Air New Zealand – which was last month named Airline of the Year by international product and safety review website – has unveiled a record interim financial result for the first half of the 2014 financial year.

The airline says its net profit after tax was NZD 140 million, a 40% jump over the result for the corresponding period a year ago.

The Air NZ Board has declared a fully imputed interim dividend of 4.5 cents per share, an increase of 50% over the previous corresponding period.

In contrast, it has been a long time since Qantas shareholders got any dividend.

What’s more, Air NZ chairman Tony Carter says that with stable fuel prices and a traditional seasonal earnings pattern of a stronger first half, Air New Zealand expects to deliver a full year result of normalised earnings before taxation in excess of NZD 300 million, which is about AUD 280 million.Events

“Air New Zealand’s Go Beyond strategy is clear,” Carter said. “We have a relentless focus on global sales and marketing excellence, combined with a keen eye on continuously improving our cost base while delivering a world class customer experience.”

Chief executive Christopher Luxon said the hard work of Air New Zealand’s 11,000 staff had placed the airline in a position where it is able to adapt to a changing macro-economic and competitive environment.

“As we continue through a period of strong earnings growth, we are demonstrating that we can deliver increasing returns to shareholders. Our improved commercial results are also enabling us to invest in the customer experience, explore new markets and invest in our people and culture,” Luxon said.

“The journey ahead is shaping up as incredibly exciting, particularly given the positive economic outlook in many of our key revenue markets. We are well placed to take advantage of this, with significant fleet additions soon to arrive. We expect to deliver capacity growth of around 8% in the 2015 financial year as new Boeing 787-9s and 777-300s enter our fleet from the middle of this calendar year. Additionally, new Airbus A320 and ATR72-600 aircraft will be growing capacity in our Domestic network over the next year.”

Luxon says the combination of a competitive cost base and economies of scale achieved through growth will be a material benefit for Air New Zealand in the coming years.

“We have worked hard on improving our cost base in an environment where we have not grown. In fact, we have reduced our capacity flown overall as we realigned our long-haul network. With new fleet additions and capacity growth, our scale grows. Our new aircraft will be significantly more efficient than those they replace and having fewer aircraft types drives unnecessary complexity out of our operations.”

Luxon says that a reducing cost base also allows Air New Zealand to continue to price fares competitively.

“We are keenly focused on ensuring that air travel is more affordable for more Kiwis than ever before whether they are flying from the main centres or regional airports. Equally, we want to seize on the growing demand for New Zealand as a destination and ensure both our pricing and our sales and marketing draw traffic away from competing destinations.”

Luxon says a highlight of the first six months of the 2014 financial year was the continuing strength of Air New Zealand’s alliances.

“Through our alliance partnerships we are able to offer more connections, frequencies and destinations than ever before. Alongside our 27 Star Alliance partner airlines we also have deep individual alliance relationships with Virgin Australia and Cathay Pacific and look forward to working on our new relationship with Singapore Airlines.”

Air New Zealand and Singapore Airlines recently unveiled a proposed new alliance which, subject to regulatory approval, would see the return of Air New Zealand onto the Singapore route and enable customers to access codeshare travel on Singapore Airlines’ extensive global network.

“Forming the right alliances with the right partners allows us to deliver on our strategy of profitable growth as a Pacific Rim airline.”

Luxon says Air New Zealand continues to be optimistic about the future of Virgin Australia.

“Virgin Australia has a sound strategy and I look forward to helping the airline to realise its potential when I join its Board. We are confident that over the coming years Virgin Australia can deliver consistent earnings performance.”

 Results highlights announced by Air New Zealand yesterday:

  • Normalised earnings before taxation of NZD 180 million, up 29%
  • Statutory earnings before taxation of NZD 197 million, or NXD 140 million after taxation, up 40%
  • Revenue of NZD 2.3 billion
  • Unit cost improved by 3%
  • Operating cash flow of NZD 300 million
  • Net cash position of NZD 1.13 billion
  • Gearing of 43.9%
  • Fully imputed interim dividend of 4.5 cents per share, an increase of 50%
  • Baa3 investment grade credit rating – outlook stable (Moody’s) 

Written by : Peter Needham

Currently there is "1 comment" on this Article:

  1. AgentGerko says:

    Funny how the boss of NZ refers to ‘stable fuel prices’ whereas the boss of QF refers to ‘skyrocketing fuel prices’. The difference is NZ bought the 777 instead of the A380 and has a CEO who actually knows what he’s doing.

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