Air New Zealand reaffirms guidance for earnings decline during “transitionary year” of 2016/17

The company told shareholders at its annual general meeting in Christchurch on Friday that guidance was unchanged.

Air New Zealand chief executive Christopher Luxon said he expected a return to “more normal competitive market conditions” in 2016/17, which he described as a “transitionary year”.

“Over the last few years, New Zealand experienced a somewhat benign competitive environment, as the historically higher fuel prices saw international carriers leave New Zealand,” Luxon told shareholders in prepared remarks.

“Now, the lower fuel prices are having the opposite effect.

“Our competitors are adding new capacity into the market over a relatively short period of time, which results in pressure to our revenues during this year.

“We recognise the environment will be a bit choppy this year as the market adjusts to this increased capacity.”

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Over the past two years, Air New Zealand has been in expansion mode, with long-haul services to Buenos Aires, Houston and Singapore launched in recent times and flights to Osaka and Ho Chi Minh City taking off in 2016 as the airline sought to take advantage of the strong growth in visitor numbers to New Zealand.

Other carriers are also keen to tap into the the local tourism market – Emirates recently commenced daily Auckland-Dubai flights, adding another option to Europe, the Middle East and Africa, while American and United (in partnership with Air NZ) started new nonstop flights from Auckland to their respective US west coast hubs in Los Angeles and San Francisco, respectively.

A bit closer to home, there has been a slew of new fifth-freedom operators on the Tasman, with AirAsia X, China Airlines, Philippine Airlines, Emirates and, from September, Singapore Airlines offering an alternative to the Air NZ/Virgin Australia and Qantas/Emirates/Jetstar offerings.

And in its home domestic market, Air NZ is facing a big push from Qantas-owned Jetstar, which has started serving regional routes with a fleet of five 50-seat Dash 8 Q300s.

Although Air New Zealand’s five straight years of earnings before taxation growth will end in 2016/17, Luxon said the NZ$400-600 million forecast, if realised, was “still a solid result and would rank as one of the best in Air New Zealand’s history”.

“Commercially we are on the right pathway and are doing the right things,” Luxon said.

“During the past four years we’ve been hard at work getting the business stronger and we are now in a great place to compete. While we have been making strong profits, we have been investing back into the company and have improved our business immensely.”

The airline’s capacity forecasts for domestic (seven to nine per cent growth), trans-Tasman and South Pacific (three to five per cent growth) and international long-haul (four to six per cent growth) networks were unchanged from what the airline announced at its 2016/17 full year results presentation in August.

Meanwhile, Air New Zealand on Friday announced plans to issue NZ$75 million worth of bonds to New Zealand retail and institutional investors.

Carter said the funds raised would be used for general business purposes, including partial repayment of its NZ$150 million retail bond due to mature in November.

“This offer will provide New Zealand investors with the opportunity to have a different form of investment exposure to Air New Zealand,” Carter said.

The offer was expected to be formally released in the week beginning 10 October 2016, the company said in a statement.

Bank of New Zealand and Deutsche Craigs Limited were the joint lead managers of the offer, while Craigs Investment Partners Limited was the organising participant.