Air New Zealand’s profit dropped by 79% in the first half of 2008

Air New Zealand, the national flag carrier of New Zealand, has announced that its net profit in the half-year2008  plunged by 79% mainly because of higher prices of fuel. The net profit for the six months ended December 31, 2008, was NZ $24 million ($12.2 million), compared with NZ $115 million a year ago.

The company has announced an interim dividend of 3 cents a share, compared with 5 cents a year ago. 

In a statement, John Palmer, chairman of Air New Zealand, said the earnings in the six months to the end of 2008 were down by 84% to NZ $26 million and the net profit after tax was $24 million.

Air New Zealand, based in Auckland, New Zealand, operates flights mainly to Australia, the South Pacific, Europe, North America and Asia. It is 77% owned by the government of New Zealand.

Describing Air New Zealand’s performance as “unsatisfactory in a tough economic climate,” John Palmer said in the statement that the past six months had been one of the toughest periods airlines had faced. 

He blamed the record-high costs of fuel in 2008, coupled with a 13% decline in both passenger and cargo demand, for the carrier’s poor financial performance. However, Palmer said there would be improvement in the second half and that he was “confident that Air New Zealand is in a strong position to weather the current economic climate.” 

Air New Zealand’s operating revenue in the half-year went up by 3.7% – or, by $87 million to $2.4 billion – compared to the same period a year ago. For the half-year, group revenue was up by NZ $87 million to NZ $2.4 billion, of which NZ $75 million was foreign exchange gains, the company said. 

Rob Fyfe, chief executive of Air New Zealand, said in the statement that the company was reviewing all spheres of expenditure and was also planning to cut long-haul capacity by 14% in the last quarter of the financial year. Passenger numbers were down by 4.3% to 6.3 million across the group in the same period. 

The carrier is using smaller aircraft and cutting uneconomic routes in its efforts to reduce costs. In November 2008, Air New Zealand had said it was expecting to earn annual savings of NZ $20 million through eliminating around 200 jobs. 

Air New Zealand also said it plans to trim down long-haul capacity by 14% in the last quarter of the financial year. 

According to aviation analysts, Air New Zealand is facing growing competition in the domestic market – which the carrier dominates – from Australian airlines Qantas Airways and Virgin Blue.  

It may be noted that Air New Zealand is one of the 13 airlines being prosecuted by New Zealand’s competition regulator for alleged price-fixing and cartel activities in the international air cargo market.