Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

Air NZ shrugs off rising fuels costs

Air NZ shrugs off rising fuels costs, still sees increased earnings

By Paul McBeth

June 14 (BusinessDesk) - Air New Zealand still expects annual earnings to beat last year's result despite the squeeze from rising fuel costs, which it sees as an ongoing headwind into 2019.

The Auckland-based national carrier today reaffirmed guidance for pre-tax earnings of more than $527 million in the year ending June 30, beating what it reported in 2017. The airline told investors at a briefing in Auckland it expects annual fuel costs of $990 million at US$75 per barrel. The average jet fuel price in the 2016 and 2017 years was US$60/barrel.

"Based upon the current market conditions and despite the increased price of jet fuel, the company continues to expect 2018 earnings before taxation to exceed the prior year," according to slides accompanying chief executive Christopher Luxon's presentation. "2018 will be another strong year, despite absorbing over $100 million in higher fuel expense."

The airline has already responded to the higher cost of fuel with increased prices on domestic and international routes. Long-haul routes have a higher sensitivity to more expensive fuel because of the longer travel times.

Air NZ today said those fuel costs will remain a headwind in the 2019 financial year, and it's managing that through several levers such as hedging. Its current hedge position for the September quarter was 76 percent at a ceiling price of US$66/barrel and 75 percent at a ceiling price of US$71/barrel in the December quarter. The airline's maximum hedging policy is around 80 percent. Other responses to more expensive fuel are pricing, capacity, and productivity initiatives, it said.

The airline is in the process of upgrading its domestic fleet and is investigating larger aircraft to support growth on local routes. Air NZ has previously signalled capital spending on aircraft of $2.1 billion through to 2021, primarily for the Airbus A320/321 NEO planes, and today said it will adjust that capex forecast "to reflect our growth priorities", estimating an extra $350 million-to-$450 million invested in new aircraft over the coming three years.

Despite that additional spending, Air NZ affirmed its commitment to "a consistent and sustainable ordinary dividend in the medium term, while maintaining business flexibility through the business cycle", and it's prepared its gearing ratio for that planned expenditure.

Air NZ shares rose 0.8 percent to $3.15 at the market open, in contrast to a 0.1 percent dip on the S&P/NZX 50 index.

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Housing: Foreign Buyer Ban Gets Smoother Edges

Amendments to the government’s foreign buyer ban, if introduced, would give overseas investors more leeway to put money into New Zealand housing developments. More>>

ALSO:

Te Kuha: Govt Declines Application To Mine Conservation Land

An application to mine coal on public conservation land near Te Kuha in the Buller District has been declined, Minister of Conservation Eugenie Sage and Minister of Energy Resources Megan Woods announced today. More>>

ALSO:

Fieldays: Deer Milk Wins Innovation Award

Pāmu’s (formerly Landcorp) focus on innovation in the food business has been recognised at the 50th Fieldays, winning the Innovation Grassroots awards, with its ground-breaking deer milk product. More>>

ALSO:

Milking It: Regulator Concerned At Fonterra's Price Calculations

The Commerce Commission says it is concerned that the 'asset beta' Fonterra Cooperative Group uses to determine the farmgate milk price is too low, meaning it ends up paying its farmers a higher price for their milk than would be warranted under the company's enabling law. More>>

ALSO:

Antarctica: Waves Trigger Ice Shelf Collapse

Ocean waves following sea ice loss trigger Antarctic ice shelf collapse Storm-driven ocean swells have triggered the catastrophic disintegration of Antarctic ice shelves in recent decades, according to new research published in Nature. More>>

ALSO: