Air New Zealand Limited (NS) Analysis

Overview

AIR was NZ's State-owned airline until 1989 when a consortium of Brierley Investments and overseas airlines acquired the capital. Stock exchange listing followed the sale by BIL of 84m shares to the public at $2.40, with The Crown retaining specific rights. In 1996 a 50% stake in Ansett Australia was acquired for $540 million. Acquisition of the balance of Ansett Australia (from News Corporation) was completed in 2000.

Restructuring in 2001 resulted in an $885m NZ Government-funded equity rescue package which returned the airline to around 75% state ownership. The recapitalisation involved repayment of a $300m rescue loan by the NZ Government, by the issue of 1.28b convertible preference shares (at 24c each) to The Crown, which converted to shares on 31/1/2005, and a further issue of 2.16b ordinary shares to The Crown at 27c each. The plan included the merger of 'A' and 'B' shares, and was accelerated by the financial collapse of Ansett.

In November 2002, the company agreed to a strategic alliance with Qantas Airways but regulatory authorities rejected this in late 2003.

In August 2004 AIR initiated a 5:1 share consolidation.

In August 2007 it announced it would purchase four Boeing 777-300 extended range aircraft and in September 2007 Air Nelson, a fully-owned subsidiary of AIR, confirmed it would acquire two additional Bombardier Q300 aircraft to boost capacity into and out of Nelson and other regional centres.

In January 2011 the company announced it had acquired a 14.9% substantial shareholding in Australian-based airline Virgin Blue.

AIR has been granted Listing with a 'Non-Standard' ("NS") designation. This designation was granted because of provisions in AIR's constitution relating to the ownership and control of AIR's ordinary shares. For further information, please see a copy of the waiver under Documents on AIR's homepage on nzx.com

Performance

The following information was extracted from Air New Zealand's Full Year results, released on 29 August 2024:

Summary

• Earnings before taxation of $222 million
• Net profit after taxation of $146 million
• Passenger revenue of $5.9 billion
• Liquidity of $1.5 billion
• Unimputed final dividend of 1.5 cents per share declared, resulting in total ordinary dividends of 3.5 cents per share for the year

Air New Zealand today announced earnings before taxation for the 2024 financial year of $222 million compared to $574 million for the same period last year. This was an expected reduction on the prior year, when the airline recorded one of its highest ever results following the reopening of New Zealand’s border. Net profit after taxation was $146 million.

While Air New Zealand reported a solid first half result, the second half of the financial year proved increasingly challenging as the impact of operational and economic headwinds became more pronounced.

The tougher economic backdrop in New Zealand drove a deterioration in domestic demand in the second half, particularly for corporate and government segments. Accelerated maintenance requirements for Pratt & Whitney PW1100 engines worldwide have meant that up to six of the airline’s newest and most efficient Airbus neo aircraft have been out of service at times. Ongoing additional maintenance requirements on the Trent 1000 engines that power the existing Boeing 787 Dreamliner fleet and reduced levels of spares in the market have meant that up to three Dreamliners are also on the ground at times. These issues, alongside elevated competition from US carriers and the cumulative effect of high inflation, have had a significant impact on the airline’s operational and financial performance for the 2024 financial year.

Passenger revenue increased 11 percent to $5.9 billion, driven by a 23 percent ramp-up in capacity, primarily across the international long-haul network. This was partially offset by the weaker demand environment and higher levels of competition. Also included within passenger revenue is $90 million of credit breakage for unused customer credits that were considered highly unlikely to be redeemed.

While average jet fuel prices were slightly lower for the year, total fuel costs increased by around $190 million, driven by capacity growth across the network. Non-fuel operating costs increased faster than revenue, also driven by the increase in capacity, as well as broad based inflation across the cost base.

Non-fuel operating cost inflation of approximately $225 million was a significant drag on the airline’s financial performance. With landing charges, air navigation fees and engineering materials leading the increases, the non-fuel operating cost uplift of six percent for the year brings the cumulative impact of inflation across the past five years to 20 to 25 percent. While growth in the network has provided some scale benefits, productivity remains below the levels achieved pre-Covid as the airline carries extra costs to help manage ongoing disruptions in the supply chain.

Based on the airline’s balance sheet strength and the result announced today, shareholders will receive a final unimputed ordinary dividend of 1.5 cents per share, taking the total ordinary dividends declared for the year to 3.5 cents per share. The dividend will be paid on 26 September, to shareholders on record as at 13 September.