Air New Zealand today announced a Net Profit Before Unusuals and Tax of $149 million for the six month period ended December 31, 2003. This was up 7.4% ($10 million) on the previous period.
After taking into account taxation and unusual items, Net Profit for the period is $105 million, up 12 percent from last year.
Other features of the result included:
- Revenue $1.7 billion
- Cash held $894 million
- Gearing reduced to 59.3%
Air New Zealand Chairman John Palmer described the result as pleasing and said it represented further progress for the airline.
"Following a series of profound changes in the airline industry, we made a bold promise to our shareholders to continually transform and simplify our business to remain ahead of industry change. In keeping our promise, a new, vibrant airline is taking shape. The new Air New Zealand is closer to our customers, more agile and better prepared to manage change.
"The philosophy that delivered Express class continues to be extended to our entire network, with further changes to our services being announced progressively over the coming months - beginning with Pacific Express in March.
"Simplicity is the essence of affordable travel. The more complex the offering, the higher the costs. To remove complexity, every cost must be matched to the delivery of value to our customers. We have examined our entire business in detail ensuring that our processes and strategies are aligned with this principle. The recommendations from this review are now well underway and will deliver significant value over the coming years," said Mr Palmer.
Chief Executive Officer and Managing Director Ralph Norris said that although performance was $10 million ahead of the previous year, the intensifying competitive environment would lead to a more difficult second half.
"The outlook for the coming six months remains, as so often it is in this industry, uncertain. We cannot predict what uncontrollable events the future will bring. What we can predict is that competition and change in the industry will continue to accelerate. To be prepared to meet these challenges we need a strong balance sheet, strong liquidity, good leadership and engaged, enthusiastic people.
"Our promise to our shareholders and customers to continually transform and simplify the business to remain ahead of the wave of change stands.
"This was typified by the introduction of Tasman Express during the period under review, which saw the principles of the successful domestic Express service extended onto the Tasman. A simplified fare structure with every day reductions in fares of up to 45 percent, combined with improved online booking functionality, have been well received by our customers, with traffic stimulation of 11 percent since the launch of Tasman Express.
"Also during the period, Air New Zealand took delivery of the first four of 15 new Airbus A320 aircraft that deliver operating cost savings of 15 percent. While the A320's are good for the company's bottom line, they have also received very positive feedback from our customers.
"Attention is now being focused on our long haul services and product. The recent announcement of direct flights between Auckland and San Francisco heralds a period of rejuvenation for our long haul services with some exciting developments, including investment in new in-flight entertainment systems (IFE) and lie flat beds, to be announced later this year.
"While the core airline business has undergone considerable transformation, Air New Zealand Engineering Services (ANZES) continues to compete strongly in the Asia Pacific market and late last year was awarded the Airline MRO (maintenance, repair and overhaul) of the Year for the Asia Pacific region, a fitting tribute to efforts and expertise of those that work in this business," said Mr Norris.
Operating Revenue of $1.7 billion was reduced as a result of the significant rise of the New Zealand dollar against all major currencies. As almost half of the value of Air New Zealand's tickets are sold offshore, and therefore in foreign currencies, revenue was adversely impacted upon translation. The higher currency also reduced the value of revenues earned in foreign currencies from the company's Cargo and Engineering businesses.
The reduction in Operating Revenue was offset by a seven percent reduction in total costs. A description of the most significant movements in cost follows:
Labour costs increased by $21.6 million, largely as a result of increased activity in the Group's airline, airports and engineering businesses. The increased activity in the airline business is attributed to an increase in capacity. The introduction of the new A320 aircraft to the fleet contributed to increased training costs, which under accounting policy applicable in previous years would have been capitalised. The growth in demand for ground handling services required a substantial increase in productive hours for this business. In the engineering business, the introduction of a second heavy maintenance line in the Auckland and Christchurch hangars resulted in increased man-hours.
Air New Zealand's fuel and oil costs, net of hedging, decreased by $38.3 million to $225.9 million for the period. Of this, approximately $54.5 million is attributable to favourable foreign exchange rates. Fuel prices experienced another period of sustained highs with the price of the company's marker product, Singapore Jet, rising 8.4 percent when compared with the previous period. This had a $16 million negative price impact. After taking into account fuel hedging benefits, the impact is reduced to $13.8 million. Increased activity resulted in a further $2.4 million increase in fuel costs.
Aircraft maintenance is cyclical by nature with maintenance requirements falling unevenly across periods. In the current period, increased internal maintenance requirements were offset by currency gains, which reduced the cost of engineering materials denominated in USD. Therefore, if currency gains are not included, then maintenance costs were up by around $26 million on the previous comparable period.
The strength of the NZD has had a positive influence on aircraft operations and passenger services costs. Sales and marketing expenses of $185.3 million were 8.2 percent lower than the previous comparative period. The decrease was primarily driven by reductions in distribution costs as a result of adjustments to standard commission rates, increased online bookings and foreign exchange benefits on USD denominated sales expenses.
Adjustments made to the estimated residual values and useful lives of Air New Zealand's aircraft were the primary drivers behind a $21.4 million increase in depreciation costs.
Favourable renegotiations of aircraft lease rates combined with the higher NZD has reduced the value of USD denominated aircraft lease payments, saving $31 million in the current period.
Group capacity, as measured by Available Seat Kilometres (ASKs), increased 3.5 percent to 15.4 billion ASKs when compared with the previous period. Traffic, as measured by Revenue Passenger Kilometres (RPKs), was comparable with the previous corresponding period at 11.4 billion RPKs. The resulting passenger load factor of 73.6 percent was 2.6 percentage points lower than the previous comparative period.
Capacity on the New Zealand trunk and regional routes grew 11 percent to two billion ASKs, when compared with the previous financial year. The growth in capacity followed the introduction of Express Class to Air New Zealand's domestic network. In December 2003 the domestic jet fleet grew to 13 aircraft, with a forecast domestic jet capacity growth of around 21 percent in the second half of this financial year. The combination of lower fares and increased frequency resulted in a 17 percent stimulation in domestic traffic to 1.5 billion RPKs. Passenger load factor of 75.4 percent was up 3.9 percentage points.
International capacity grew 2.5 percent over the corresponding half year period to 13.5 billion ASKs. This capacity growth was largely as a result of increased frequency to Los Angeles and across the Tasman. The impact of SARS on demand for travel, in particular from Asia, resulted in traffic falling by 2.1 percent to 9.9 billion RPKs this period. The resulting load factor of 73.3 percent was 3.5 percentage points lower than the previous comparative period.
At the 64th Annual Shareholders' Meeting, the company disclosed its expectation for full year Profit Before Unusuals and Tax of around $220 million. The company has achieved 68 percent of this in the first half of the 2004 financial year. The cyclical nature of this industry means that more than half of Air New Zealand's full year profit is usually made in the first half of this financial year. Therefore the Board is maintaining its guidance at a Profit Before Unusuals and Tax of $220 million, in line with current company estimates.
Looking ahead, the company is looking at a number of options in transforming its long haul business. Although the final form is not yet resolved, all options will require continued access to debt and capital. Therefore, the directors have decided that given continued capital demands, plus unresolved alliance issues, no interim dividend will be declared for the 2004 financial year. The Board will review this position at the full year results announcement on the 26th August 2004.
For further information please contact Public Affairs on 64-9-336 2761.
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.