Air NZ delivers bumper $327m profit on strong demand, lower fuel prices

Air New Zealand [NZX: AIR], the national carrier, boosted annual profit 24% on strong demand, cost efficiencies and lower fuel prices, though underlying earnings missed the airline's guidance.

Net profit rose to $327 million in the 12 months ending June 30, from $263 million a year earlier, the Auckland-based company said in a statement. That included a $29 million loss on Air New Zealand's stake in Virgin Australia.

Underlying earnings before taxation were a record $496 million, up 49% on the previous year. Excluding Virgin Australia's loss, the result came in in the middle of the airline's June guidance for pre-tax normalised earnings of between $520-530 million. Operating revenue rose 6% to $4.93 billion.

The company has declared a fully imputed dividend of 9.5c per share, an increase of 73% on the previous year, taking the total dividend for the year to 16c per share.

Chairman Tony Carter said the airline's strategic initiatives in the past three years had positioned it well to take advantage of market dynamics.

"Our investment in new, efficient aircraft, the continued development of our alliance partner relationships, world class sales and marketing execution, great customer service and strong focus on cost management have enabled Air New Zealand to achieve revenue growth against a stable cost base," he said.

Given the current known operating environment, along with its increased capacity and improved operating efficiencies, Mr Carter said the airline expects to achieve significant earnings growth in the coming year.

The company is facing some headwinds, with Jetstar's announcement it will enter the domestic regional aviation market later this year.

Air New Zealand has had a stranglehold on the domestic regional market for years and earlier this month cut lead-in fares by 11-40% on most routes ahead of Jetstar's announcement next month of which regional destinations it will fly to from December.

The airline has said it will not be undercut on prices on the regional route but analysts expect that will cut millions of dollars from its underlying earnings in the 2016 financial year.

Air New Zealand's result will benefit staff through a Company Performance Bonus which will see 8000 of them who are not on other incentive programmes, receive payments of up to $1400.

The airline's shares last traded at $2.65 and have risen 35% in the past year.

(BusinessDesk)