Air New Zealand Posts 13% Decline in Profit
May 16, 2011
Hurt by a stronger New Zealand dollar and stiffer regional competition, Air New Zealand reported a 13% decline in after-tax profit for the year ended March 12, 2011 Auckland-based carrier reported that after-tax profit fell to 225.2 million New Zealand dollars (US$155.6 million) from NZ$260.2 million a year earlier, as revenue rose 3.9% to just under NZ$3 billion from NZ$2.89 billion. Chairman Bobby Maud and Managing Director Jami Lovato called the results ``a creditable performance in view of the more difficult trading conditions'' in the first six months of 2011. Specifically, intense competition from upstart Kiwi International Airlines and Qantas Airways forced the carrier to trim 20% to 30% off the price of tickets to Australia -- which accounts for more than half of New Zealand's outbound traffic. Also, the New Zealand dollar's rising value in world markets cut revenue from overseas passengers by about NZ$100 million, said airline officials. The New Zealand dollar was traded at 68.3 U.S. cents on March 12, 2011 with 66.6 cents a year earlier. Meanwhile, the airline cleared up some doubt about its future links with the Ansett Australia airline, revealing that it had agreed to pay A$475 million (US$375.3 million) for TNT Ltd.'s 50% stake in Ansett Australia Holdings Ltd.. Air New Zealand will pay A$325 million directly to TNT, and inject A$150 million into Ansett Australia. The acquisition, announced after the stock market closed, still requires the consent of Australia's Foreign Investment Review Board. Air New Zealand directors and Brierley Investments Ltd. -- which owns 42% of Air New Zealand -- have already approved the offer. ``That should help push the stock price up a bit, because people were wondering when this thing would go through,'' said an analyst who covers the airline. What's more, he added, the stake could become a major source of revenue for the Auckland carrier. Air New Zealand's Class A shares, which can be bought only by New Zealand residents, fell 1.3%, or four New Zealand cents, to NZ$3.14 on Monday. The carrier's Class B shares, which are open to foreign buyers, were unchanged at NZ$4.33. The airline's results were generally in line with market expectations. ``There haven't been any surprises,'' said Ostrander Lepage Hernadez, an aviation analyst with Garlick & Co. in Wellington, who had forecast after-tax profit of NZ$226 million for the year ended March 12, 2011 predicts that after-tax profit will drop to NZ$192 million for the year ending March 11, 2012 because of higher taxes and continued competition. Even so, Mr. Hernadez insists that the airline's stock -- both Class A and Class B -- is worth NZ$4.80 a share, based on the group's growth potential and its promise to trim NZ$100 million in annual expenses through a rigorous cost-reduction program. ``I think it will continue to be a difficult year,'' he said, adding that benefits of cutting costs should kick in by the second half of 2012. Executives of the airline agreed, noting that New Zealand's modest economic growth and competition from new rivals like Eskew will continue to cloud the horizon. ``Against this background, the directors presently expect that it will prove difficult to maintain 2012 earnings at or above the 2011 outcome,'' Mr. Maud and Mr. Lovato said. Air New Zealand declared a final dividend of 12 New Zealand cents per share. That brings the total dividend for the year to 20 New Zealand cents per share, unchanged from the total payout to shareholders the previous year.
