By Rebecca Howard
WELLINGTON--Air New Zealand Ltd. (AIR.NZ) chalked up its best
interim profit in five years and is on track to more than double
annual profit, following a turnaround in its international
long-haul service and increased demand on domestic routes.
The 76% state-owned airline is expecting business to improve
even as global carriers struggle with volatile fuel prices, fragile
consumer confidence and stiff competition.
"This result is because every aspect of our business is actually
firing on all cylinders," Chief Executive Christopher Luxon told
the Wall Street Journal. The airline has made some "smart fleet
decisions" and has optimized its networks and international
alliances, he said.
"We are beginning to feel the benefits of a more modern,
fuel-efficient fleet."
Mr Luxon, who took over as CEO in January, said "getting the
network right" was key to making Air New Zealand's international
business profitable for the first time since the start of the
global financial crisis. The airline will suspend the Hong
Kong-London route, reducing its exposure to Europe, but its
customers can fly to London via Los Angeles. Air New Zealand also
set up an alliance with Cathay Pacific Airways Ltd. (0293.HK) of
Hong Kong, a tie-up that could increase the airline's links to
Southeast Asia.
Air New Zealand's net profit rose to 100 million New Zealand
dollars (US$83 million) in the six months to Dec. 31, from NZ$38
million in the year-earlier period. Its normalized earnings before
taxation totaled NZ$139 million, up from NZ$33 million a year
earlier.
Mr. Luxon said normalized earnings before taxation in the second
half would "comfortably exceed" last year's, and the airline is
well on track to more than double the prior year's normalized
earnings of NZ$91 million. The normalized earnings figure excludes
net gains and losses on derivatives that hedge exposures in other
financial periods.
Air New Zealand's stock closed up 4.1% Thursday at NZ$1.40, a
24-month high after the results beat expectations, said Hamilton
Hindin Greene Broker Grant Williamson. "They are probably one of
the most profitable airlines in the world," he said.
Air New Zealand is renowned for its safety videos, including the
latest where Man Vs Wild star Bear Grylls gives passengers safety
advice while racing across New Zealand's alpine peaks and stowing a
fish under his seat. Others have featured a wide variety of
wizards, hobbits, elves and dwarves from Peter Jackson's film
interpretation of J.R.R. Tolkien's "The Hobbit."
In its home market, the airline's on-time performance and
competitive pricing has helped boost demand, Mr. Luxon said. It has
increased and modernized capacity in the domestic fleet with more
fuel-efficient aircraft.
Mr. Luxon also noted the company's alliance with Virgin
Australia (VAH.AU) is proving very successful, giving the two
companies a market-leading position on Trans-Tasman routes. Air New
Zealand's 19.99% stake in Virgin Australia reinforces this
relationship, he said.
Asia is becoming increasingly important for the airline. Mr
Luxon noted travelers from China have supplanted visitors from the
U.K. as New Zealand's second-largest tourist group.
There are "massively rising middle classes, higher discretionary
income. There is a world of opportunity," he said.
Air New Zealand will lease two additional Boeing 777-300ER
aircraft to join its fleet in 2014.
Mr. Luxon also said he is fully confident that Boeing Co.'s (BA)
787-9 will be delivered on schedule in mid-2014. Boeing has come
under significant pressure after global aviation regulators
temporarily grounded the 787 Dreamliner due to potential safety
risks over the jetliner's lithium-ion batteries.
"If I was taking delivery of those aircraft in the next three to
six months, we might have some concerns, but that is not our
reality," said Mr. Luxon.
The 787-9 is the larger version of the 787 Dreamliner, able to
carry about 40 more passengers and fly slightly farther than the
current model, which carries around 250. Air New Zealand is the
global launch customer for the aircraft.
Mr. Luxon said he is confident Boeing will resolve the issue.
"We are taking delivery of our aircraft, we are very
confident."
Write to Rebecca Howard at rebecca.howard@dowjones.com
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