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Air NZ forecasts 85% jump in first-half pretax earnings

Air NZ forecasts 85% jump in first-half pretax earnings to $400M

By Fiona Rotherham

Oct. 7 (BusinessDesk) - Air New Zealand, the country’s national carrier, said increased passenger demand will drive an 85 percent jump in first-half earnings before tax to $400 million.

The forecast profit is up from $216 million achieved in the first half of last year and excludes any equity-accounted contribution from its stake in Virgin Australia.

Chairman Tony Carter told shareholders at the airline’s annual meeting in Auckland that significant earnings growth had been achieved in the first quarter of this financial year on the back of buoyant tourism in New Zealand, lower fuel costs, and savings from fleet efficiencies.

Chief executive Christopher Luxon said there had been a big boost in international demand through various tourism initiatives and the “little company from New Zealand” was well-placed to take advantage of that following its investment in new fleet. The company is spending $2.6 billion in the next four years on new aircraft and has ordered another seven Boeing Dreamliners.

Luxon said the average occupancy rate across the fleet was at 85 percent and the airline was building demand before ordering new aircraft. Overall fleet capacity will increase 11 percent this year following a 12 percent last year, which Luxon said was the fastest in the airline’s 75-year history.

Commenting on competition from Qantas Airways offshoot Jetstar on regional routes in New Zealand, Luxon said the airline was ready and able to compete and that passengers should expect more competitive fares across the board this year. It had 1.8 million fares under $100 last year and is targeting more than 2 million under $100 this financial year, Luxon said. New aircraft servicing regional areas, with larger capacity, meant fares could drop. He cited routes to Tauranga and Whangarei, where there had been 15 percent price reductions this year with a change in aircraft.

Despite a largely upbeat meeting following the company’s record results and dividend in 2015, one shareholder castigated the chairman for “playing tiddlywinks” on his phone while he and other Air New Zealand passengers had to spend a night sleeping on chairs at Hong Kong Airport when Flight NZ80 was delayed due to engine problems earlier this week.

The shareholder said it was an opportunity for Carter to do a good PR job for the airline with the 311 stranded passengers but instead he “did nothing”.

Carter said he took exception to the criticism. He and his wife were treated the same as other passengers and that he was entitled to do a few emails given they were at the airport for 17 hours. He said Air New Zealand staff dealt with the disruption as well as they could, given there was a typhoon which meant other airlines had grounded their flights and hotel rooms were hard to come by, given it was a national holiday.

Passengers initially remained onboard for two hours before disembarking and queuing for accommodation, with 80 missing out on a place to sleep for the night. Some were unhappy with the level of communication about what was happening from Air New Zealand.

Luxon said the airline had reviewed its processes for handling disruptions, which were a fact of life for any airline given weather problems and safety concerns, after last year’s delayed flight in Hawaii where 227 Air New Zealand passengers were stranded for up to 56 hours. Some of the crew subsequently went out drinking, making them unfit for duty in the event the plane had been made airworthy.

“We identified 10 key things we could do better and by and large in the past year and a half we’ve had major disruptions on flights to the US and Australia which the team have managed well,” Luxon said.

He said two key things being reviewed again for flight disruptions following the Hong Kong incident is the disembarking process and support at the gate so passengers have a better idea of what is going on.

Carter and director Rod Jager were re-elected to the board today while long-serving director Roger France, who acted as CEO in the wake of the Ansett collapse and was chair of the audit committee, is standing down after 14 years. Former chairman John Palmer said France had served as deputy chairman the whole time he was chairman.

“It’s hard for shareholders to judge the work and worth of individual shareholders but I’ve worked on boards at the top level in New Zealand and Australia and Roger stands at the highest level of people I have worked with.”

Carter said the board was seeking a replacement for France. Shareholders also approved an increase in the directors’ fee pool by $105,000 to $1.1 million though all seven directors have indicated they won’t take a pay rise this financial year, despite urging from various shareholders that they should do so. It’s the first increase in the directors’ fee pool since 2007 and follows recommendations from an independent review by PricewaterhouseCoopers.

Carter received $267,000 in director’s fees last year, while deputy Jan Dawson was paid $103,500 and most other directors received $90,000.

The airline’s share price is trading up 3.4 percent to $2.58 today.


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