Cargo business growth for Air New Zealand

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Momentum in Air New Zealand's cargo business continued in the company's opening half-year, with revenue increasing 21% and increased market share on the long-haul network from New Zealand.

This is driven primarily by strong demand from North America, Australia and Asia.

Robust revenue growth in cargo is being driven by strong volumes and improved yields. Capacity increases and new routes allowed for increased volume.

The growth is particularly strong on Pacific long-haul and into Singapore.

Cargo volume is up 9% for the half, revenue 21% and yield 1.6%. This has led to a foreign exchange lift from cargo of 10%.

The investment being made in modern, fuel efficient aircraft is adding to the capacity available for exporters.

In the first half of the 2016 year, Air New Zealand has taken delivery of three B787-9's and two domestic A320s. There are 13 A321/320 NEOs on order for Tasman and Pacific Island routes and the airline has ordered 15 ATR 72-600s (11 replacements and 4 growth aircraft). It took delivery of the first one December 2015.

The airline's performance in the latest half year was exceptional, with a $457m pre-tax profit up 132% and net profit $338m, an increase of 154%.

The interim result was driven by exceptionally strong passenger revenue growth underpinned by over 16% capacity growth across the network.

The Tasman and Pacific Island markets continue to perform strongly for the airline.

"New Zealand continues to be not only a destination that is in big demand for Australians but is it also a gateway for North America, South America and the Pacific Islands for travellers from Australia" said  chief executive Chris Luxon.

"This traffic is adding to the strength of Air New Zealand's services to these markets. In recognition of the opportunity, we will continue to build our presence in Australia," he said.

"On the international long-haul network AIR successfully launched the Houston and Buenos Aires routes in December, and the new partner, Air China, started services to Beijing at the same time. We are thrilled with the demand and performance of these routes. Starting in June 2016, AIR will be flying seasonal services to Vietnam.

Analysts at First NZ Capital note that Air New Zealand's competitive environment is about to change with carriers including Emirates, United Airlines, American Airlines, AirAsia, Jetstar and Singapore Airlines recently announcing new capacity that will directly compete with AIR services.

"It is our expectation that AIR will need to reduce yields if it plans to hold load factors around current levels."

However, the arrival of more wide-bodied medium to long-range aircraft is positive for he export sector overall.

"On the cost side, Air New Zealand is clearly benefiting from substantially lower jet fuel prices, as well as leveraging strong economies of scale and efficiencies from its fleet simplification programme," noted The Headliner investment newspaper this week.

Operating cash flow of $541m was up 43%.

First NZ capital noted that fuel costs aside, AIR delivered encouraging economies of scale in 1H16.

"Operating costs declined 2.6% on a per ASK basis after excluding the impact of FX and fuel. Key drivers of earnings growth included a 12.3% decline in fuel costs and the combination of relatively benign competitive environment  and buoyant tourism activity."

The airline's interest in Virgin Australia, together with its share of Christchurch Engine Centre's earnings, contributed $15 million and $10 million respectively, for the first half year.  


Reference: Shipping Gazette