MARKET TALK: Air NZ battle ready but competition will dent growth

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American Airlines’ plan to service Auckland will likely dent Air New Zealand’s [NZX: AIR] growth trajectory but the local carrier is battle ready and in good shape to compete.

That’s the view of Craigs Investment Partners’ analyst Mark Lister, who says there are enough good things happening to Air New Zealand right now to offset the threat of competition.

American Airlines has teamed up with Qantas to launch a new daily service between Los Angeles and Auckland starting next year.

The deal means Air New Zealand will lose its virtual monopoly on direct services between Auckland and the US – its most profitable international route – and comes as Jetstar prepares to start flying four regional routes here next month.

The news sent Air New Zealand’s share price [NZX:AIR] down this week, although it recovered some ground yesterday to close up 2% at $2.70.

“Obviously competition is a negative for Air New Zealand,” Mr Lister told NBR Radio’s Andrew Patterson.

“But you wouldn’t have this competition coming to town if they weren’t profitable routes. So it’s just a reflection of the good environment for the industry at the moment.

“I think there’s still quite a few things that are in Air New Zealand’s favour in terms of where fuel prices are going, in terms of the currency, in terms of the tourism sector and visitor numbers. While it’s still a small negative I think the list of tail winds they have got is still a little bit longer than the list of challenges.”

Mr Lister says Air New Zealand is in as good a shape financially and with better prospects than we’ve seen for a long time. At its AGM in October the company said passenger demand should drive an 85% jump in first half earnings to $400 million.

That guidance compares with the $216 million achieved in the first half of last year and excludes any equity-accounted contribution from its stake in Virgin Australia.

“So you have to take the good with the bad don’t you,” Mr Lister says.

Meanwhile, Mr Lister and NBR’s Duncan Bridgeman discuss other market news of the week, including Wynyard Group’s [NZX: WYN] $30 million share placement plan, Airwork’s [NZX: AWK] strong profit guidance, Mainfreight’s [NZX: MFT] disappointment and Vector’s [NZX: VCT] sale of its gas assets. And we look ahead to today's Sky City [NZX: SKC] annual meeting.

Click on the Special Audio Feature to hear the full interview.

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