Second-best Air NZ result, despite 21% reduction in earnings

Christopher Luxon

Air New Zealand's full-year earnings before tax took a 21% hit, but it still posted its second-best profit, of $382 million.

A third consecutive staff bonus was announced, a $1700 payment this year to about 8500 staff, which followed last year's $2500 bonus.

Operating revenue for Air New Zealand declined 2.3% to $5.1billion, earnings before tax declined 21% to $527 million and after-tax profit dipped 17% to $382 million.

However, the year before it had benefited by $112 million in foreign exchange hedging gains and a less intensive competitive environment, while current year hedging booked a modest loss of $6 million, chief executive Christopher Luxon said.

''This year Air New Zealand faced an unprecedented increase in the level of competition from some of the world's largest airlines and effectively rose to the challenge,'' Mr Luxon said

He predicted in 2018 the company would continue to grow its domestic network and would see opportunities from inbound tourism, plus strong domestic tourism, he said.

As airlines jostled for customers, Air New Zealand's passenger revenue decreased by $105 million to $4.4billion, a 2.3% decline, BusinessDesk reported. Excluding the impact of foreign exchange, passenger revenue decreased by 0.5%.

Air New Zealand's final 21c per share dividend was up 5%. Air New Zealand's shares declined 0.5% to $3.38 following the announcement.

Craigs Investment Partners broker Chris Timms said the $527 million earnings before taxation was ''largely in line'' with recently upgraded guidance, of more than $525 million.

''Much of the upgrade in guidance was related to an improvement in the revenue environment, especially domestic,'' Mr Timms said.

The demand environment remained strong and load factors had remained elevated during 2017, although they were now declining.

Mr Timms said with oil prices remaining low, Air New Zealand had taken the opportunity to hedge a higher than usual amount of full year 2018 fuel exposure.

Forsyth Barr broker Suzanne Kinnaird said the underlying profit was up 16% to $247 million, driven by increased passenger numbers but also a lower effective interest rate

''Auckland Airport's sustained period of double-digit earnings growth will come to an end in full year 2018, reflective of a slowdown in passenger growth rates and the regulatory price reset,'' she said.

Given its $2billion infrastructure programme, the company's focus for the next five years would be capital expenditure, its balance sheet and optimising commercial assets, Mrs Kinnaird said.

Air New Zealand said it was assuming an average jet fuel price of $US60 per barrel for 2018, meaning its fuel cost would be about $880 million.

Currency changes to fuel cost would have minimal effect on overall earnings, as the New Zealand to US dollar movements would be offset by foreign exchange hedging, the company said.

Mr Timms said operating cost control was ''impressively strong'', particularly in maintenance and overhaul.

Over the next four years, it plans to invest $1.5billion in new aircraft, most of it by the end of 2019.

In the current financial year, it will focus on opportunities to further strengthen and build scale in its markets across the Pacific Rim network. This includes expanding recently introduced routes such as Buenos Aires and Houston.

''You will also see some additional frequencies on our Hawaii, Bali, and Vancouver routes,'' Mr Luxon said.

While he gave no specifics, he said the company was considering new destinations in the Pacific Rim.

Air New Zealand flies to 21 airports across New Zealand and in 2018, an important part of its growth would be further expansion in the regions.

''Over the coming summer months, we will be adding more than 60,000 extra seats to our regional schedule, compared to last year,'' Mr Luxon said.

- Additional reporting by BusinessDesk