Air New Zealand flags long-haul aircraft order as competition abates

SINGAPORE (Reuters) – Air New Zealand Ltd is planning a new order for long-haul Airbus SE or Boeing Co aircraft to enable it to fly directly from its Auckland hub to the east coasts of North and South America, its chief executive said.

The plans come as the airline cautiously flagged improving earnings and lifted its dividend after a 21 percent drop in core annual profit, noting that fierce competition has begun to abate as rivals reduce capacity to New Zealand.

The new A350 or 777X aircraft would at a minimum replace eight 777-200s but could include additional planes to allow Air New Zealand to add direct flights to destinations like New York and Brazil – offerings that rival Qantas Airways Ltd also currently lacks.

Around 40 percent of passengers on Air New Zealand’s Buenos Aires flights are Australian. It has a small home market so it has turned to Australian traffic for growth.

The airline reported its secondhighest profit of NZ$527 million ($383 million) in the year ended June 30 in line with expectations.

Revenue per available seat kilometre, a measure combining ticket prices and seats filled, fell by 9 percent in the first half but rose by 2 percent in the final quarter and by 4.3 percent in July.

“We are very comfortable with the revenue environment.” Chief Executive Christopher Luxon said in a telephone interview with Reuters on Wednesday.

The airline said it planned to spend about NZ$1.5 billion on aircraft and associated assets over the next four years, including A320neo family narrowbodies, 787-9s and ATR72 turboprops, although that does not include a potential new order for long-haul aircraft to be delivered from 2021.

“There is a set of options from both Airbus and Boeing that we would be interested in,” Luxon said in reference to the A350 and 777X aircraft families.

Air New Zealand expects Airbus and Boeing to respond to a request for information by the end of this year before the airline issues a formal request for a proposal next year, Luxon said.

The airline announced an NZ$0.11 fully imputed dividend, contrasting with the NZ$0.10 cent ordinary dividends paid in recent periods, a measure that Forsyth Barr Head of Research Andy Bowley said “clearly highlights the board's confidence on the medium-term earnings outlook.”

“We see scope for small increases to market consensus forecasts, albeit these are already factored into the share price at current levels,” Bowley added in a note to clients.

Air New Zealand shares were down 1 percent in afternoon trade, below a 0.2 percent rise in the broader market, after earlier falling as much as 3 percent.

The stock has recorded strong gains this year, reaching a nearly 16year high last month underpinned by growth in passenger numbers.