UPDATE: Air NZ posts 7.4% decline in 1H pretax profit as fuel prices bite
(Updates to add detail throughout, includes broker comment in paragraph 8, updates shares)
By Rebecca Howard
Feb. 22 (BusinessDesk) - Air New Zealand posted a 7.4 percent fall in first-half pretax profit as rising fuel prices offset record high passenger revenue and after the prior period benefited from a one-off gain.
Pretax earnings fell to $323 million in the six months ended Dec. 31 from $349 million in the same period a year earlier, the Auckland-based company said in a statement. The prior period included a $22 million gain related to the divestment of Virgin Australia, it said.
Net profit in the first half fell 9.4 percent to $232 million, or 20.7 cents per share, versus $256 million, or 22.8 cents, in the prior period. Operating revenue rose 5.6 percent to $2.7 billion, with robust demand across all markets and particularly strong growth in the short-haul network. Passenger revenue reached an all-time record for an interim result, at $2.3 billion, Air New Zealand said.
Operating expenditure increased by $142 million on the prior period, or 7.5 percent, to $2 billion, largely due to the additional fuel costs. The average price of fuel was 18 percent higher than the prior period, resulting in a $72 million adverse impact, Air New Zealand said.
Chair Tony Carter said the result demonstrated "the airline’s resilience despite an 18 percent increase in fuel price."
“This high-quality interim performance was driven by robust passenger demand and revenue growth, reflecting the airline’s strong position in New Zealand and throughout our Pacific Rim network," he said.
The board declared a fully imputed interim dividend of 11 cents per share, a 10 percent increase from the prior period and the highest ordinary interim dividend in the airline’s history. The interim dividend will be paid on March 16 to investors on record as of the close of business on March 9.
Brad Gordon, an investment adviser for Hobson Wealth Partners, said the result was likely to be well received by the market. "It is line with expectations and obviously the increased dividend is good for confidence," he said.
The airline also announced the launch of a new direct service to Taipei, beginning in November 2018. Taipei will become the airline’s seventh destination in Asia.
Fleet investment continues to be key and the company said it is in the final stages of confirming a new lease agreement for an additional Boeing 787-9 aircraft, which will join the fleet in the 2020 financial year.
The airline forecasts aircraft capital expenditures through to 2021 of approximately $1.1 billion. A key component of that investment will be the Airbus A320/321 NEO aircraft, which it will start receiving in the 2019 financial year.
Gearing was 52.4 percent versus 51.8 percent at the end of the 2017 financial year, reflecting the investment in new aircraft. Cash flow from operations grew $103 million, or 27 percent, to $479 million, driven by growth in cash operating earnings and strong working capital cash flows. Cash on hand was $1.3 billion.
Carter was upbeat about the full year result. “Looking to the remainder of the year, we are optimistic about the overall market dynamics. Based upon the current market conditions and despite the increased price of jet fuel, the company is still expecting 2018 earnings before taxation to exceed the prior year," he said.
The forecast is based on an average jet fuel price of US$75 per barrel for the second half of the 2018 financial year and the New Zealand dollar at 72 US cents.
Gordon said the company would likely meet its guidance. "Oil prices look to have stabilised and it's hard to see oil prices going much higher than this and if oil prices have stabilised then they are in a relatively stable operating environment."
The stock rose 2.9 percent to $3.05 and has gained 38 percent over the past year.