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FIRST CUT: Higher fuel costs, soft demand hit Air NZ profit

By Pattrick Smellie

Aug. 22 (BusinessDesk) - Air New Zealand saw tax-paid profit fall 31 percent in the year ended June 30 as the impact of sharply higher jet fuel costs, weakening global markets for air travel and the one-off costs associated with the recall of Rolls Royce engines from its Boeing 787-Dreamliners all combined to reduce earnings.

Net profit for the year was $270 million compared with $390 million in the previous year, and free cashflow fell to $986 million from $1 billion in the June 2018 year, despite total revenue rising 5.3 percent to $5.79 billion over the year.

"While we are disappointed that we did not meet the expectations we first set for ourselves at the start of the financial year, the fact is we are operating in a different demand environment than we were 12 months ago," said outgoing chair Tony Carter in the company's filings to the NZX. He described the result as "solid" and foreshadowed a further round of cost-cutting to ensure the airline is "fit for the new, lower-growth environment".

The company will pay a fully imputed 11 cents per share dividend on Sept. 18 to shareholders on the register at Sept. 6.

It anticipates earnings before tax of between $350 million and $450 million in the current financial, compared with ebit of $374 million last year and $540 million in the 2018 financial year, based on an average jet fuel price of US$75 per barrel, and excluding the impacts of new accounting standards for the treatment of aircraft leases.

Jet fuel prices averaged US$82 per barrel in the last financial year, according to presentation slides accompanying the NZX announcement.

Total fuel costs for the year jumped to $1.271 billion, compared with $987 million in the previous year, while maintenance costs came in at $399 million versus $352 million the previous year.

Departing chief executive Christopher Luxon, presiding over his last earnings result in the role, said Air NZ was in a "fundamentally strong position and will target further growth that taps into new pools of demand," citing a new direct service between Auckland and Seoul starting in November, a new seasonal Christchurch-Singapore route, and increased frequencies on recently launched direct services into Chicago and Taipei.

The airline's share price closed last night at $2.73, having fallen 19.9 percent over the last year.



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