How Air NZ made $663m

Air New Zealand has ridden the travel boom to the best full-year earnings in its 76-year history.

Earnings before other significant items and tax was up 70 per cent to $806 million in the 12 months ended June 30 while pre-tax profit of $663m increased 40 per cent.

Shareholders are being rewarded with a one-off special dividend of 25 cents per share on the top of a final dividend of 10 cents per share, taking total ordinary dividends to 20 cents for the year.

Chief executive Christopher Luxon said the airline was paying the government - a 52 per cent owner of the company - close to half a billion dollars in tax and dividends.

About 8500 of 11,300 staff not on incentive plans will next week be paid a company performance bonus of up to $2500.

Luxon described the financial result as ''phenomenal.''

Here's how the airline did it:


Growing capacity and filling those seats at the right price. The long haul international network grew by 16 per cent in the year to June 30.

Although its winter seasonal service to Vietnam didn't quite live up to expectations, new routes including Buenos Aires and Houston have performed strongly.

New Zealanders are travelling in record numbers and inbound tourism is up 11 per cent in the past year. Strategic revenue and code-share alliances have expanded and have worked.

Cost control

Operating expenditure fell by $75 million, a 2.0 per cent improvement on the previous year.

Excluding foreign exchange and divestments, operating expenditure reduced 4.6 per cent on a 12 per cent increase in capacity.

Luxon's approach is to ask whether anything the airline pays for improves the customer experience - if it doesn't it is reviewed.

The airline is working with staff unions to head off labour relations issues and expensive problems before they start impacting the business. Its fleet is now more fuel efficient, locking in long term benefits for the airline.

Lower fuel costs

All airlines have benefited from lower fuel costs (and those with less efficient fleets are getting an even bigger windfall) but excluding the impact of foreign exchange, Air New Zealand's fuel costs improved by $379 million.

The average United States dollar price of jet fuel fell 40 per cent compared to the previous year resulting a $456m benefit offset by $77m due to increased volume used as the airline did 12 per cent more flying.

What could go wrong?

Competition: Other airlines know New Zealand is on a tourism roll and they are piling capacity in.

Given the uncertain impact of competition and based on the current market conditions, the airline expects earnings before taxation for the full year 2017 to drop markedly and be in the range of $400m to $600m.

Friday, 26 August 2016

Grant Bradley

Aviation, tourism and energy writer for the Business Herald