Air New Zealand reports drop in first half profit after fuel prices rise

Air New Zealand says it is on track to post an improved financial result for the full 2017/18 year despite suffering a near 10 per cent decline in first half net profit amid higher fuel prices.
The company posted net profit after taxation of NZ$232 million (A$218 million) for the six months to December 31 2017, down 9.4 per cent from NZ$256 million in the prior corresponding period.
Revenue rose 5.3 per cent to NZ$2.74 billion, Air New Zealand said in a regulatory filing to the New Zealand and Australian stock exchanges on Thursday. (The company is listed on both sides of the Tasman.)
Air New Zealand chairman Tony Carter said it was a “high quality interim performance” as robust passenger demand and revenue growth helped offset an 18 per cent increase in fuel prices during the half.
“Looking to the remainder of the year, we are optimistic about the overall market dynamics,” Carter said in a statement.
“Based upon current market conditions and despite the increased price of jet fuel, the company is still expecting 2018 earnings before taxation to exceed the prior year.”
Air New Zealand reported net profit of NZ$382 million for the full 2016/17 year. It was the second-highest result in the airline’s history.
Over the past three years, Air New Zealand has been in expansion mode, with long-haul services to Buenos Aires, Houston and Singapore, among other destinations in the Pacific Rim, launched as the airline sought to take advantage of strong growth in visitor numbers to New Zealand.

Other carriers have also been keen to tap into the local tourism market – Emirates and Qatar commenced non-stop flights from Auckland to their Gulf hubs, while the airport fire trucks were kept busy welcoming Chinese carriers adding new flights to New Zealand from both major and secondary Chinese cities. Qantas-owned Jetstar also commenced regional flights in New Zealand with Q300 turboprops.
However, in recent times there are signs some carriers are pulling back from the New Zealand market – Emirates is in the process of ending all of its Airbus A380 flights from Australia to Auckland, and American and United have switched their year-round nonstop flights to Auckland from Los Angeles and San Francisco, respectively, to seasonal services.
Air New Zealand chief executive Christopher Luxon said the domestic market was strong during the first half on the back of an improving New Zealand economy and inbound tourism growth.
Meanwhile, its Pacific Island and trans-Tasman network had responded well to the additional widebody services and extra frequencies on certain routes.
And Luxon said its international long-haul network had benefitted from a range of alliance partners that have enabled the airline to “effectively compete against much larger airlines”.
“We are thrilled with the performance of our network in the period,” Luxon said in a statement.
Earnings before taxation, which the company regarded as the best indication of financial performance, fell 7.4 per cent to NZ$323 million, compared with NZ$349 million a year ago.
Air New Zealand said it expected to grow capacity on trans-Tasman routes seven per cent in the second half of 2017/18, as it upgauged some routes to larger aircraft and increased fleet utilisation. The capacity increase was also driven by “competitive capacity changes”.
Long-haul capacity was tipped to rise five per cent, mainly due to new flights to Tokyo Haneda that commenced in July 2017.
Air New Zealand’s domestic network was expected to grow capacity by six per cent, led by additional flights to Christchurch, Dunedin and Queenstown.
In addition to the fuel price increases, Air New Zealand also faced two event disruptions in the first half. The first occurred when a fuel pipeline was damaged at Auckland Airport, leading to fuel shortages at the airline’s biggest hub and some flights being cancelled.
The second was in December, when issues with Air New Zealand’s Rolls-Royce engines on its Boeing 787-9 aircraft forced the airline to withdraw up to three Dreamliners and wet lease an Airbus A330 and A340 as cover.
The issue with the turbine blades is not isolated to Air New Zealand, with other 787 operators with Rolls-Royce engines also forced to temporarily replace some scheduled 787-9 flights with other aircraft or cancel services to have the necessary checks carried out.
In terms of the fleet, Air New Zealand said it was targeting the replacement of its Boeing 777-200ER fleet from 2022.
The airline said in a slide presentation accompanying its 2017/18 first half financial results that the aircraft selection process was currently underway.
Currently, Air New Zealand has eight 777-200ERs, which are mainly used to the Americas and on selected trans-Tasman and Pacific Island services.
Luxon has spoken previously about having an aircraft capable of operating nonstop between Auckland and New York.

Also, Air New Zealand said it was in the final stages of confirming a new operating lease agreement for one additional Boeing 787-9, which would bring the total number of the type in the fleet to 14 by the end of 2019/20.
The airline currently has 11 787-9s. It has one more Dreamliner on firm order and another to arrive via operating lease.
Separately, Air New Zealand plans to commence nonstop flights between Auckland and Taipei from November 1 2018 with Boeing 787-9 equipment. The new nonstop service, which would operate up to five times a week, will be the only nonstop link between Auckland and Taipei.
Air New Zealand declared an interim dividend of 11 NZ cents per share.