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Air New Zealand warns of earnings fall after 8 pct rise in FY net profit


SYDNEY (XFNews) - Air New Zealand Ltd has warned that current year performance could potentially be around 40 pct below the level booked in the June fiscal year if fuel prices persist at current levels.

The airline, 80.4 pct owned by the New Zealand government, reported an eight pct rise in net profit for the latest June year, but added it faces challenges in meeting current year performance targets.

"There is no doubt that the times ahead will be tough, but we have proven in the past few years that Air New Zealand has the ability to cope with adversity," chairman John Palmer said in a statement.

Chief executive John Norris, who is leaving the company to become chief executive of Commonwealth Bank of Australia, said an active fuel price hedging program will help limit the impact of high jet fuel costs which now represent around 30 pct of total operating costs, up from around 20 pct.

Norris said the hedging program realized gains of 103 mln nzd in the latest year while around 60 pct of fuel requirements for 2006 are hedged with the average hedged price for the remainder of the year at around 53 usd per barrel of crude oil.

For the first half of 2006, the jet fuel position is hedged at 70 pct, but Norris said the airline's operating cost base will increase, impacting on margins, as hedges roll off and are replaced by higher priced hedges.

The board declared a final dividend of 0.025 nzd in line with earlier guidance, taking the total dividend to 0.05 nzd.

In the latest year, profit before one-off items and tax fell to 235 mln nzd from 243 mln a year earlier.

Norris said, after excluding record fuel prices, and the difficult trading environment on Australia/New Zealand routes, the annual result was among the best in the company's history.

He said he was encouraged that even in tough conditions a solid profit was achieved, underpinned by another year of strong domestic performance and improvements in some key international routes.

Norris said the airline's liquidity continued to improve in 2005, with closing cash at 1.1 bln nzd, up five pct on the previous financial year.

Gearing improved five percentage points to 51 pct and remained within the group's medium-to-long term target range of 45-55 pct.

Group operating revenue was up by three pct to 3.616 bln nzd.

For the first time, Air New Zealand carried more than 11 mln customers in one year, up by 781,000 from 2004.

Group capacity grew five pct during the year, with traffic up seven pct, resulting in the passenger load factor increasing by one percentage point to 76 pct.

Airline operating cost per available seat kilometre, excluding fuel, fell seven pct.

The company said its international search for a chief executive to replace Norris is going well.

Meanwhile, chief financial officer, Rob McDonald, will assume the role of acting chief executive.

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