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Air NZ blames fuel, engine issues as profit falls 31%

Air New Zealand has cited higher fuel costs, the Rolls-Royce Trent 1000 engine issues, and a lower demand environment in the second half as drivers of a 31% fall in its underlying earnings to NZ$374 million ($239 million) for the year ended 30 June.

While the underlying result was consistent with its last guidance of exceeding NZ$350 million issued in March, it was down significantly from the NZ$425 million to NZ$525 million figure that was issued at the end of June 2018.

“While we are disappointed that we did not meet the expectations we first set for ourselves at the start of the financial year, the fact is we are operating in a different demand environment than we were 12 months ago. To have achieved a solid result despite these headwinds speaks volumes about the extraordinary dedication and commitment of our people," says chairman Tony Carter.

Despite softening demand during the second half, operating revenue for the full year rose 5.3% to NZ$5.8 billion as RASK was up 1.6% on capacity growth of 4%.

ASKs for the year rose 4%, while RPKs were up 5.2%, resulting in load factor strengthening one point to 83.8%.

Net profit after tax was NZ$270 million, down 31% on the previous year's result.

In its outlook, the carrier noted that the engine issues, which have affected the availability of its Boeing 787-9 fleet and forced it to lease additional aircraft in, will largely be removed in the next fiscal year, while it is also targeting NZ$60 million in cost reduction initiatives over the next two years.

Overall capacity growth is expected to be around 4-5% for the year, most of which will come from the launch of services to Seoul in November, and additional frequencies to Chicago, Taipei and Singapore.

"This growth is tapping into pockets of new demand, but then you will see that the rest of the network is flat," commented chief executive Christopher Luxon.

The carrier issued a broadly flat guidance for the 2020 fiscal year, with earnings before tax to come in between NZ$350 million and NZ$450 million, based on an average jet fuel price of $75 per barrel.

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