The Net Profit After Tax was $165.7 million for the 2003 financial year.

Group earnings before interest and taxation were $233.4 million, up 162 percent on the previous year.

Chief Executive Officer and Managing Director Ralph Norris said the result was underpinned by the success of the airline's domestic business and an improvement in the international business.

"Profits were also assisted by the strengthening of the New Zealand dollar against the United States dollar. As approximately 45 percent of our costs are United States dollar denominated, the rising exchange rate reduces costs in New Zealand dollar terms. Partially offsetting this effect is the reduction in the New Zealand dollar value of fares sold in foreign currencies," he said.

There was strong improvement in Operating Cash Flow, up from $56.2 million last year to $523.1 million this year - a $466.9 million turn around. Gearing continued to fall, closing the year at 65.3 percent, and further reductions remain a financial priority. This combined with continuing strong capital demands from within the business has led the directors to decide not to declare a dividend for the 2003 year.

Revenue remained at a similar level to the previous year.

FY03 (Continuing)
$million
FY02 (Continuing)
$million
Increase/
(decrease)
$million

% Change
Passenger revenue 2,791.3 2,877.3 (86.0) (3.0)
Cargo and mail 296.1 302.1 (6.0) (2.0)
Contract services* 306.7 291.0 15.7 5.4
Other revenue 222.5 171.5 51.0 29.7
3,616.6 3,641.9 (25.3) (0.7)

 

* Contract services revenue includes all external revenues earned by ANZES, Airport Services and pilot training for other airlines.

Mr Norris said the airline's staff played a critical role in ensuring the airline achieved a good result.

"The challenges of the global aviation industry place special demands on our employees. Across the business they have worked extremely hard to lift performance and customer satisfaction levels during extremely challenging times."
Mr Norris said that the 2003 financial year has provided salutary examples of the difficult nature of the airline industry.

"The year began well for Air New Zealand as traffic recovered from the aftermath of the September 2001 terrorist attacks. The launch of Express Class on the domestic network in November last year successfully moved the profitability of our domestic business to a much more sustainable basis. Lower fares resulted in more people flying to more places, more often.

"However, by the beginning of the second half of the financial year, the industry again faced massive problems. With the threat, and subsequent reality, of war in Iraq, and the outbreak of SARS, many passengers again chose to delay or cancel travel plans. Load factors quickly fell below break-even levels on some flights to Asia, and this resulted in losses.

"We do not know where the next shocks to the industry will come from, but we can be sure that they will continue coming. The only effective response to this environment is to understand our markets and customers very well, and to match our network, products and cost structure to them. With customers and markets changing rapidly, we must ensure that our business can keep up."

Air New Zealand Chairman John Palmer said the proposed alliance with Qantas would strengthen Air New Zealand's ability to survive the challenges of the aviation industry.

"Rather than exhausting our limited financial and human resources in a grinding war of attrition with Qantas, we have proposed the creation of a strong regional alliance that will enable us jointly to face the challenges confronting the industry. This is a bold and innovative proposal and I fully endorse the firm view of the Board and management that this alliance is the only realistic way for Air New Zealand to provide for a sustainable and independent future."

Mr Palmer said Air New Zealand could not afford to stand still.

"There are numerous recent examples of airlines that have been profitable one year and bankrupt shortly thereafter. While pleased with our progress, it should be noted that the company is still not achieving its cost of capital. We must address the fundamental problems of over-capacity and cost structure and it is for this reason that we believe that the alliance with Qantas provides the best future for Air New Zealand.

"Despite the difficulties of the industry, we remain optimistic that, with regulatory approval of the alliance with Qantas, Air New Zealand will have the ability to make the changes required to survive and prosper. We are determined to continually transform and simplify our business to remain ahead of industry change."

Mr Palmer said rebuilding Air New Zealand continues to be a demanding and exciting challenge.

"We will not back away from the difficult decisions - we must keep moving forward and confronting the barriers to increase shareholder value."

Operational Review

Domestic
During the year Air New Zealand flew 5.8 million passengers within New Zealand, an increase of 6.2 % on the previous year. As Express Class was launched in November last year, its impact is not yet fully included in the annual statistics. Traffic, as measured by Revenue Passenger Kilometres (RPKs), increased 7.3% to 2.6 billion RPKs, up from 2.4 billion RPKs in the previous year. Domestic capacity, as measured by Available Seat Kilometres (ASKs), decreased 1.5% to 3.6 billion ASKs, when compared with the previous year. The resulting passenger load factor of 72.7% was an increase of 5.9% on the previous year.

International
Air New Zealand's short haul international flying includes all flying to and from New Zealand within a four-hour radius. As this encompasses most of the Australian and Pacific Island destinations, Perth and Tahiti are also included in our short haul international operations.

Short haul international capacity of 6.2 billion ASKs was 3.6% lower when compared to 6.4 billion ASKs in the previous year. Traffic fell 2.8% to 4.7 billion RPKs from 4.8 billion RPKs in the previous year. The resulting passenger load factor of 75.0% was up 0.7% on the previous year.

The year started off with a strong rebound in demand for travel on long haul routes as the market recovered from the devastating effect of 11 September 2001. The impact of SARS and, to a lesser extent the war in Iraq, led to a decline in traffic in the second half of this year. Even with the weaker second half, traffic for the year grew 5.7% to 14.3 billion RPKs from 13.6 billion RPKs in the previous year. Passenger load factor increased 2.2% points to 74.9%.

The drop-off in demand following the terrorist attacks in 2001 resulted in world-wide capacity reductions. As demand recovered during the year, long haul capacity was increased to 19.2 billion ASKs from 18.7 billion, an increase of 2.7%.

Air New Zealand Engineering Services
Air New Zealand Engineering Services (ANZES) delivers substantial value through the provision of maintenance services to our airline operations and through the growth of its external business.

ANZES provides maintenance, repair, overhaul (MRO) and painting capability from hangar and workshop facilities in Auckland, Christchurch and Australia. Related engineering businesses include, in Blenheim, Safe Air and in Australia, Tasman Aviation Enterprises (TAE).

ANZES is a global operation with customers located all over the world. With over 2,300 highly skilled employees, ANZES is a substantial New Zealand-based operation. ANZES' high standard of operational performance was confirmed during the year by an independent review conducted by Boeing at the Company's request.

ANZES' revenues vary according to the mix of engine and airframe MRO undertaken.

This year's revenue, including internal revenue, was $532.9 million (2002: $532.1 million) with Earnings Before Interest and Tax up 3.4% to $48.4 million. Performance was underpinned by another strong operational year with over 2.5 million productive man-hours.

The strengthening of the New Zealand dollar has had an adverse impact on margins as revenue and costs are predominately denominated in United States dollars. To offset the adverse foreign exchange movement, ANZES achieved productivity gains to maintain the previous year's level of profitability. ANZES' external margins will continue to be pressured should the New Zealand dollar sustain high cross-rates against its customers' currencies.

ANZES expects increased internal airframe and engine activity next year as a result of scheduled checks on Air New Zealand aircraft.

To meet the expected growth in demand, ANZES has begun the expansion of the airframe business through recruitment of highly skilled employees. This will provide the business with sufficient capacity for additional heavy maintenance lines at the Auckland and Christchurch sites.

Air New Zealand Cargo Services
With revenue of over $296.1 million, Air New Zealand Cargo Services (Cargo Services) made a significant contribution to the Air New Zealand Group (Group).

Cargo Services works in partnership with exporters, importers and freight forwarders to get New Zealand products into global markets and import products from many countries into New Zealand and Australia.

Cargo capacity, as measured by Available Tonne Kilometres (ATKs), increased 7.6 % to 1.3 billion ATKs from 1.2 billion ATKs in the previous year. Cargo traffic, as measured by Revenue Tonne Kilometres (RTKs), of 824 million RTKs was up 8.3% on 761 million RTKs in the previous year.

Air New Zealand Airport Services
Air New Zealand Airport Services (Airport Services) is a significant operation within the Group, offering high quality and efficient ground handling services at Auckland, Wellington and Christchurch airports with more than 1,300 employees. In the provincial centres, airport operations are managed by our regional airlines.

Airport Services encompass all aspects of customer services including the checking in of passengers, loading and unloading of cargo and baggage, cleaning of the aircraft, provision of Koru Club (membership around 40,000) and premium lounges, and line maintenance services.

Services are provided to Air New Zealand and other airlines operating to and from New Zealand. Over the past decade the number of aircraft turnarounds handled by Airport Services has increased by over 90%. Over the same period, the amount of other airline activity has almost tripled and external work contributed over 40% of the total activity during the year.

NOTE: The content of all Air New Zealand media releases are accurate at the time of issue, as stated at the top of each release. For updates on any changes, please contact Air New Zealand.

Air New Zealand is proud to be a member of Star Alliance. The Star Alliance network was established in 1997 as the first truly global airline alliance to offer worldwide reach, recognition and seamless service to the international traveller. Its acceptance by the market has been recognised by numerous awards, including the Air Transport World Market Leadership Award, Best Airline Alliance by both Business Traveller Magazine and Skytrax. The member airlines are: Adria Airways, Air Canada, Air China, Air New Zealand, ANA, Asiana Airlines, Austrian, Blue1, bmi, Continental Airlines, Croatia Airlines, EGYPTAIR, LOT Polish Airlines, Lufthansa, Scandinavian Airlines, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, SWISS, TAP Portugal, Turkish Airlines, THAI, United and US Airways. Aegean Airlines, Air India, Brussels Airlines and TAM have been announced as future members. Overall, the Star Alliance network offers 19,500 daily flights to 1,071 airports in 171 countries.

For more information about Air New Zealand visit www.airnewzealand.com and for more information about Star Alliance visit www.staralliance.com.