After allowing for Unusuals of $2 million and Tax of $42 million, Net Profit After Tax was $102 million, 2.9% lower than the previous period.

Air New Zealand will pay an interim dividend of 2.5 cents per share. Full imputation credits will be attached, which represents a fully imputed dividend of 3.75 cents per share.

On the basis of current performance, and consistent with the declared dividend policy, a full-year dividend of five cents per share (ie a final dividend of 2.5 cents) is expected.

This is consistent with the previously indicated six cents per share, after accounting for the capital dilution post the rights issue.

Air New Zealand Chairman John Palmer described the result as solid given the challenging trading environment

"The financial turnaround of Air New Zealand has been faster than anticipated, especially in an industry that remains threatened by over-capacity and price wars," Mr Palmer said.

"Despite these hurdles, the company's financial position has continued to steadily improve, which is a tribute to the leadership of the senior management team and dedication of staff."

In the past two years, Air New Zealand has delivered consistent Profit before Unusuals and Tax of over $100 million in the first half and more than $200 million for the full year.

Shareholder funds have also increased by $607 million and gearing has met the target range in just over two years.

Managing Director and Chief Executive Ralph Norris said the positive financial trend was expected to continue into the 2005 financial year.

"If the operating environment remains at the present levels, then the company can expect to exceed earlier earnings estimates and come closer to the previous year's profit of around $240 million before unusuals and tax," Mr Norris said.

He said the growth in bookings on the domestic, Tasman and Pacific Island services since the introduction of new product on the routes and everyday low fares had been outstanding.

"We fully expect that our new long haul product will be equally well embraced when it is progressively introduced into service from later this year. We are going to have a product that is not only among the best in world but that also delivers a uniquely New Zealand experience. It's that focus on customers that will set Air New Zealand apart from its peers."

Mr Norris said Air New Zealand's efforts to grow its long haul business would not only be confined to the passenger market.

"In a few months, subject to some regulatory approvals, we will start a new 747-400 freighter service, which will give exporters access to major cities in Australia, China, Germany and the United States. Already 80 percent of the capacity on two sectors has been pre-sold."

Mr Norris said Air New Zealand closed the first half of the 2005 financial year acutely aware of the challenges and opportunities ahead.

"By matching cost we incur to the delivery of value to our customers we have made our business far less complex. And, by maintaining connectivity on our short haul flights we have retained a service that our customers value. The combination of low costs and a strong network presence means that we are moving to a sustainable business model," he said.

"The mood within Air New Zealand has lifted as anticipation and excitement grows about the biggest overhaul of our long haul services for many years. Our regional airline business is also preparing for substantial growth, with the arrival of the Bombardier Q300 aircraft in July.

"We are committed to providing a world class offering to our customers. Soon
Air New Zealand will have the best product to and from New Zealand, as well as within New Zealand. We have intensified our focus on customer service, and a cultural change programme started three years ago has strengthened our status as the only airline that can consistently deliver the 'New Zealand Experience' from when customers step on board."

Airlines Business Performance

The airline business performed strongly, with Earnings before Interest and Taxation up 15.5% to $119 million.

Airline passenger revenue increased 2.6 percent to $1.4 billion. This was driven by capacity growth across the airline business, but partially offset by a negative $35 million impact of a stronger New Zealand dollar against all major revenue currencies.

On the domestic network 8.2 percent more traffic was carried than in the previous period, while on a cumulative basis the airline now carries 40 percent more traffic since the introduction of everyday low fares just over two years ago. In the Pacific Islands market, there has been a 16 percent increase in traffic since the launch of everyday low fares almost a year ago, while the Tasman market has increased by 12 percent since the new Tasman service was introduced 16 months ago.

The combination of the new business model and the very low fares on the Tasman resulted in short haul yields falling by 4.9 percent to 15.7 cents per Revenue Passenger Kilometre (RPK).

To meet current pricing levels and generate adequate returns, ongoing cost reductions are being sought.

Air New Zealand's international operations earn 65 percent of their revenues in foreign currencies. Therefore, the stronger New Zealand dollar had a significant impact on long haul yields because, upon translation, the foreign currencies are less in New Zealand dollar terms. As a result, long haul yields were down 4.5 percent to 8.2 cents per RPK.

Group yield of 11.2 cents per RPK was 3.8 percent lower when compared with the previous period.

To gauge real trends in yield movements, foreign exchange rates need to be adjusted for year-on-year movements. Therefore, Group yield adjusted for currency was down 1.4 percent with short haul yields 3.8 percent lower and long haul yields similar to the previous comparative period.

Cargo and mail revenue increased 0.7 of a percent to $146 million. This business is highly dependent on the growth of the New Zealand export industry, which has been impacted by the strong New Zealand dollar and poor seasonal product exports. Partially offsetting this was the increase in demand for inbound air freight, particularly for goods originating from the United States and Asia. In addition, significant increases in air freight capacity on the Tasman led to reduced yields in this market.

The total revenue contribution from Air New Zealand's airline businesses, which includes passenger, cargo and other revenue increased 2.1 percent to $1.6 billion.

Total operating expenditure for the airline business increased 1.9 percent to $1.3 billion, compared with capacity increases of 6.1 percent.

The most significant increase in operating expenditure was in fuel and oil. Fuel costs rose 25.2 percent to $283 million, as a result of the increase in jet fuel prices per barrel and due to greater consumption resulting from capacity increases.

With capacity up 6.1 percent, fuel consumption increased 3.7 percent to 3.8 million barrels from 3.7 million barrels in the previous period. This increase in volume added $25 million to fuel costs.

The significant jet fuel price rises resulted in a negative $109 million price impact, which was offset in part by jet fuel hedge benefits of $56 million and also by the introduction of the fuel surcharge.

Labour costs for the airline business increased by 3.0 percent to $240 million. The growth in capacity over the past six months, the new fleet induction programme, the introduction of the Holidays Act, and renegotiations of collective wage contracts were the main reasons behind the increase.

Air New Zealand is limited in its ability to offset rises in the cost of labour with increased yields, as overcapacity and industry wide cost efficiencies continue to drive yields lower. The very tight New Zealand labour market and the ensuing labour cost pressures combined with the introduction of the new Holiday's Act, which has had a negative influence on productivity, means that keeping labour at sustainable levels is a significant challenge. To remain internationally competitive Air New Zealand must continuously improve productivity.

Airline maintenance and overhaul costs benefited from the strong New Zealand dollar as high value engineering materials are priced in United States dollars.

Aircraft operations costs include air navigation charges, landing fees, ground handling, crew trip expenses and capacity hire. These costs increased in-line with the rise in activity.

A decrease in sales and marketing costs was driven mainly by the lower cost of sales resulting from a substantial increase in on-line bookings and changes made to the travel agent commission model in the short haul market.

The most significant movement in other expenses was foreign exchange gains of $7 million, which were up $13 million on the previous period's loss of $6 million.

Airline unit costs, excluding fuel and adjusted for foreign exchange gains, improved by five percent when compared with the previous period.

Non Airline Businesses Performance

Air New Zealand Engineering Services (ANZES) has been operating in a highly competitive and rapidly changing environment, with the emergence of low cost facilities in Asia and an increase in engineering capacity in Australia.

This increase in competitive activity combined with the squeeze on ANZES' margins by the stronger New Zealand dollar has impacted on its performance. ANZES' Earnings Before Interest and Taxation reduced by $15 million to $11 million when compared with the previous period.

ANZES has embarked on a Business Transformation Programme similar to that which is ongoing within the airline business.

Air New Zealand Airport Services is the other large non-airline business within the
Air New Zealand Group. This business includes ground and passenger handling services for Air New Zealand and 18 external customers. A rise of four percent in
Air New Zealand's weighted landings and increased activity by international airlines resulted in increased labour costs for this business.

Group Financial Position

Total assets as at 31 December 2004 amounted to $4.1 billion, up $235 million from 30 June 2004.

Air New Zealand's on balance sheet net debt position was a cash position of $262 million, as total cash held of $1.1 billion continues to exceed debt of $810 million.

If off balance sheet operating lease costs are capitalised, then net debt increases to $1.2 billion and the debt to equity ratio is 44 percent. This is an improvement of nine percentage points when compared with the position as at 30 June 2004.

Shareholders' funds increased to $1.5 billion from $1.2 billion as at 30 June 2004. This is primarily attributable to the $183 million proceeds from the issue of new shares and Net Profit after Taxation of $102 million.

Net tangible asset per share increased from $1.35 as at 30 June 2004 to $1.43 as at 31 December 2004.

Group Cashflow

Total cash held as at 31 December 2004 was $1.1 billion, an increase of $52 million from the position at 30 June 2004.

Operating cash flow of $165 million was $89 million less when compared with the previous period.

There were two main drivers behind the reduction in operating cash flow:

  • The launch of the new Tasman service in October 2003 resulted in a significant shift in the Tasman booking profile as travellers took advantage of the lower fares on offer. This had a positive impact on operating cash flow in the six months to December 2003. This was a one time improvement in Tasman cash flow and therefore was not repeated this year.

    Additionally, airlines have increased capacity on the Tasman by 17 percent since the launch of Air New Zealand's new service. This excess capacity means that travellers can now afford to book closer to the travel date, which has had a negative impact on Tasman booking profiles.
  • The launch of the new loyalty scheme resulted in a rise in redemption activity as previous restrictions around bookings were removed. While the increase in redemption activity is in line with original estimates, as the scheme matures the level of redemptions will more closely match the number of
    Airpoints Dollars earned. The new loyalty scheme also resulted in a temporary change in the payment profiles of some suppliers, which had a negative impact on working capital. This is expected to reverse in the second half of this financial year.

Cash outflow for investing activities of $329 million was up $234 million, primarily due to progress payments on the new fleet purchase and the placement of $70 million on secured deposit.

Cash from financing activities rose by $247 million to $216 million. This increase was a result of debt draw downs on new aircraft purchases and $183 million raised from the rights issue.


Looking ahead, high jet fuel prices remain a concern, although the company is 77 percent hedged for the remainder of this year. If the operating environment remains at the present level, then the company can expect to exceed earlier earnings estimates and come closer to the previous year's profit of around $240 million before Unusuals and Tax.

Interim Dividend and Dividend Reinvestment Plan

The Board of Directors is pleased to declare an interim dividend of 2.5 cents per share.

Full imputation credits will be attached.

The dividend record date is 15 April 2005 and payment date is 29 April 2005.

Eligible shareholders, with registered addresses in New Zealand and Australia, will be offered a Dividend Reinvestment Plan. Holders of shares registered outside New Zealand and Australia are excluded from participating in the plan in order to avoid breaching overseas laws.

Shareholders who participate in the Dividend Reinvestment Plan will receive new Ordinary Shares equivalent to their dividend entitlement. The shares will be issued at 97.5 percent of the volume weighted average sale price on the NZSX and ASX over the first five trading days on which the shares trade ex-entitlement.

An Offer Document and Participation Notice will be mailed to shareholders with the Half Year report.

For participation to be effective in respect of the dividend due to be paid on 29 April 2005, the Participation Form needs to be returned in time to be received by the Share Registrar no later than the Record Date of 15 April 2005.


Issued by Air New Zealand Public Affairs ph +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 and for more information about Star Alliance visit