Air New Zealand to grow domestic operation, offer more cheap flights

Air NZ revenue media  -stuffAir New Zealand announced a record result of 496 million dollars for the 2015 financial year. Customers are set to get a good deal on flights over the next year, Air New Zealand says.

As the airline announced a record annual profit on Tuesday, chief executive Christopher Luxon said lower fuel prices and growing capacity would lead to cheaper flights for Air New Zealand travellers.

The airline would offer over two million domestic fares for less than $100.

Air NZ, which announced cuts to its regional routes last year, also said it expected to grow its domestic operation by 8 per cent this year.

Competition with Jetstar is hotting up, and the regional route expansion by the Qantas offshoot has been tipped eat into Air New Zealand's revenue.

Jetstar was planning to begin regional flights on turboprops from December, and will offer Qantas frequent flyer points on its domestic NZ network, which it does not do in Australia, to help to drive loyalty.

Christopher Luxton

Luxon welcomed Jetstar's plans to add four new domestic New Zealand destinations to its network, and downplayed the impact it could have on competitors.

"We are confident of our ability to stimulate the economy to fill those seats. We don't lose to Australians at home."

New Zealand's international airfares were down 6.3 per cent year-on-year and domestic flight prices were down 3 per cent, Statistics New Zealand data shows.

Membership of Air New Zealand's loyalty programme, Airpoints, was up 17 per cent at 1.9 million, with Australia the biggest overseas group of members, up 20 per cent in th year, Luxon said.

Luxon said Air New Zealand was focused on the Pacific Rim to provide growth. The airline was starting new routes this December to Houston and Buenos Aires.

There was already strong demand for those destinations, and Luxon said were also more opportunities in Australia, Asia and the Americas.

Australia seemed underserved and there was potential to bring more Australian travellers through Auckland to Latin American destinations, he said.

Bullish outlook

The national carrier posted an annual profit of $327 million, up 24 per cent, and said strong demand and capacity growth, cost control and lower fuel prices were behind its record result.

Luxon was confident of the airline being able to shake off the effects of a Chinese economic slowdown and a drop in the New Zealand dollar.

He said the airline's experience of previous market slowdowns, including in Asia, was that big segments of the market were not affected by macroeconomic changes. American travellers had continued to travel to New Zealand through the global financial crisis, he said.

New Zealand's dollar is on a downward track and the profit included a negative currency impact of $31m. Luxon said Air New Zealand was also expecting an $80m currency drag on next year's profit.

But he said the airline had been able to use currency hedging – a type of insurance against fluctuations in the dollar – to lessen the impact of the drop.

Chairman Tony Carter said the airline expected significant earnings growth in the coming year in part thanks to increased capacity and a more efficient operation.

"Our strategic initiatives over the past three years have positioned us well to take advantage of market dynamics which have contributed to these results," Carter said.

"Our investment in new efficient aircraft, the continued development of our alliance partner relationships, world class sales and marketing execution, great customer service and strong focus on cost management have enabled Air New Zealand to achieve revenue growth against a stable cost base.

"We indicated at our interim result that lower fuel prices and current sales momentum have strengthened the company's outlook, and this has seen the delivery of a record annual result that our shareholders and staff can be immensely proud of," he said.

A company bonus scheme will see 8000 staff who are not on other incentive programmes receive payments of up to $1400 thanks to the result, Luxon said.

The final dividend of 9.5 cents per share was up 73 per cent on the previous year, bringing the total dividend to 16c per share, an increase of 60 per cent.


 - Stuff