Air New Zealand lowers FY year earnings guidance as fuel costs rise


Sydney (Thomson Financial) - New Zealand flag carrier Air New Zealand Ltd. said on Wednesday it has lowered its earnings guidance for the year to June because of rising fuel costs. The nation's largest airline said its full year profit before tax and one-off items could fall as much as 23 percent, revising previous guidance on Feb. 29 that it expected to better 2007 normalised earnings before tax and one-off items of NZ$259 million.

It now expects to report a pre-tax profit before one-offs of NZ$200 million to NZ$220 million for the current June year. The airline, 77 percent owned by the New Zealand government and listed on the New Zealand and Australian stock exchanges, said the price differential between crude oil and jet fuel, or the "crack spread", has widened significantly.

The average spread over the last two years has been approximately $15 per barrel while, in recent weeks, the spread has risen to in excess of $25 per barrel. While Air New Zealand has crude oil hedges in place, it said the hedges did not insulate against crack spread volatility.

Air New Zealand has recently increased ticket prices in response to the rapid rise in crude oil prices and refining margins. But the company said the input cost increases if sustained would have a significant impact, requiring a continued review of its pricing, network and cost-base.

While costs continue to rise, Air New Zealand said it remained in a strong financial position and was well placed to respond to the current challenging economic environment. In March it said passengers carried across the group were 4.5 percent higher than the same month last year.

For the fiscal year-to-date, short haul passenger numbers increased by 4.4 percent and long haul by 15.2 percent on the comparable period in 2007. On the Australian stock exchange on Wednesday, Air New Zealand closed down 6.4 percent at A$1.03.

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