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Air New Zealand posts solid interim profits

Media Release
29 February 2008

Air New Zealand posts solid interim profits

Air New Zealand today announced normalised earnings* before taxation and unusual items of $159 million for the six-month period ended 31 December 2007, an increase of 62 percent on the same period last year. Net profit after tax was $115 million, up 58 percent.

Operating revenue was $2,332 million for the first half of the year, up $205 million or 9.6 percent on the same period last year. The increase was due to additional capacity added both to the domestic and long haul airlines and higher load factors, up 5.3 percentage points to 79.4 percent.

The Board has declared a fully imputed interim dividend of 5.0 cents per share, up 67% on last year’s interim dividend. In respect of ordinary dividends or other distributions, the Board reviews the financial position, trading environment and imputation credit availability each reporting period. It will again do so at the financial year end. The dividend record date is 14 March 2008.

Air New Zealand Deputy Chairman Roger France** said the results announced today represent a solid operating and financial performance despite high fuel prices and increased competition.

“The Company’s financial position has continued to strengthen, and our highly successful business transformation programme over the past five years has created a solid foundation for the continued growth of the airline,” Mr France said.

“Despite high fuel prices, tight labour markets and a currency that is making New Zealand less competitive as an international tourist destination in some markets, we have produced a solid result and have proven our ability to do well against competition. As the twin challenges of higher input costs and increased competition continue to put pressure on the business and across the industry, we are prepared to make the bold decisions necessary to maintain our customer service leadership and maximise long-term profitability,” he said.

Fuel prices continue to provide Air New Zealand with a significant challenge.

“Fuel is our largest operational expense and although we have a hedging programme in place designed to protect the business from short-term volatility in the market, continued high fuel costs remain a concern. With no easing of oil prices predicted in the near future, our investment in more fuel-efficient aircraft and the decisions we make on where to fly them are increasingly important.”

Chief Executive Officer Rob Fyfe said that while the year ahead would be challenging, Air New Zealand was firmly focused on seizing opportunities and continuing to grow the business.

“A strong financial position, continued innovation in both our short haul and long haul businesses, network flexibility and a relentless focus on delivering world class customer service will ensure that Air New Zealand is well placed to strengthen our competitive position over the coming period.”

Mr Fyfe said priorities over the next six months included improving the travel experience for domestic customers, marketing in China ahead of the intended July launch of the direct Auckland to Beijing service and revamping the travel experience on the Tasman.

“The $50 million investment in in-flight entertainment on the A320s and Boeing 767 fleets (announced last year) combined with increased economy class seat pitch in the front of the economy cabin will enable us to continue to strengthen our competitive position in the key Tasman market.”

He said recent highlights included Air New Zealand’s business class service being rated the top of the Star Alliance for the first time, and winning the passenger service accolade in this year’s Air Transport World industry awards.

“I am very proud of what Air New Zealanders have achieved and am confident in the ability of our Company and our people to continue to compete against a broad range of rivals – from regional budget airlines to global mega carriers,” he said.

Deputy Chairman Roger France said jet fuel prices remain high and as favourable hedges roll off, a significant additional cost burden will be placed on the business.

“The arrival of a new competitor in the domestic market, the impact of the well publicised ‘international credit crunch’ on the wider economy and a continued tight labour market will test the Company’s resilience and ability to adapt over the coming year.”

Air New Zealand still expects to better 2007 normalised earnings before taxation and unusual items in 2008, however oil price volatility has reduced the certainty with which the Company can forecast its year-end financial performance, he said.

Key highlights:

 Operating revenue rose 9.6 percent to $2,332 million
 Domestic passenger revenues increased by 4.5 percent
 Long haul capacity increased by 9.1 percent with load factors increasing by 5.7 percentage points
 Gearing as at 31 December 2007 improved to 48.6 percent from 53.1 percent at June 2007
 Closing net cash was $1,222 million, which is $165 million higher than the position at 30 June 2007

International Financial reporting Standards (NZ IFRS)

The 2008 interim financial statements are Air New Zealand’s first set of accounts compiled under New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). To comply with NZ IFRS, some accounting policies and classifications have been changed, affecting both earnings and total equity.

All comparatives have been restated on a NZ IFRS compliant basis. The changes that have the most material impact on the financial results are the way the Company accounts for fixed assets, including aircraft maintenance, our loyalty programme and financial instruments such as fuel and foreign exchange hedging.

ENDS

*Normalised earnings before taxation and unusual items after excluding net gains/losses on non-hedge accounted and ineffective derivatives that hedge exposures in other financial periods.

**Chairman John Palmer was unavailable for today’s announcement due to a family bereavement.

Issued by Air New Zealand Public Affairs.

Attachment: Deputy_Chairman__CEO_Address__Interim_Results_2008.pdf

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