AIR New Zealand has finally removed the stain of Ansett from its books, as it looks to embrace another Australian airline to help it become more competitive in the international arena.
Air NZ yesterday announced a net loss of $NZ319 million, ($273 million) after writing off another $NZ389 million to take its total write-off of Ansett to $NZ1.71 billion.
Last year Air NZ posted a loss of $NZ1.43 billion. The Auckland-based airline made a small operating profit of $NZ33 million which was better than expected, given the events of the past 12 months, according to Air NZ chairman John Palmer.
"We have pulled out of a nose-dive but we still have a very long way to go before we can say we are on a stable flight path and satisfactory returns are assured," he said.
"The battle to achieve acceptable commercial results is far from over. (But) the progress of the company has been faster than anticipated."
After adjustments to remove the impact of Ansett from the company's 2001 financial year result, Air NZ's total revenue declined 9.5 per cent to $NZ3.6 billion, compared to the previous year's total revenue of $NZ4.02 billion.
This was mostly because of lower offshore travel demand after the September 11 terrorist attacks in the United States.
On the same basis, the company's operating expenditure also declined 11.3 per cent to $2.95 billion, helped by favourable foreign exchange rates, fuel prices and business re-engineering at Air NZ.
And in the strongest indication yet that Air NZ is moving toward an equity deal with Qantas, Mr Palmer said there was a recognition within the company that its current form was not a long-term option.
"Air NZ is recovering from a major failure of previous strategy, has a weak balance sheet, poor profitability and operates in an industry that is volatile and under intense pressure," he said.
"Under these circumstances, the board is compelled to make changes to strengthen the company and would be foolhardy if it ignored any potentially valuable option.
"That is why we are seriously discussing the potential for a strategic partnership with and equity investment by Qantas. Both airlines see potential benefits from such a partnership in terms of the competitive pressures that are confronting us in international markets."
But rather than the imminent deal some analysts have forecast, Mr Palmer said discussions had not reached the point where Air NZ could make detailed comment or recommendation to shareholders.
"There are still complex issues that must be resolved before the viability and potential contribution of a closer relationship with Qantas can be properly evaluated against other options available to the company. We will announce any outcome just as soon as we can," Mr Palmer said.
But Air NZ's forecast EBIT of $NZ100 million for 2003 has not impressed analysts in New Zealand.
"They have set the hurdle around their ankles," said one.
Mr Palmer defended Air NZ's position, saying the international airline industry was in a fragile state, operating with substantial excess capacity and cutting fares to secure or stimulate demand.
"There are also significant uncertainties around the future trend of fuel prices as international tensions continue in the Middle East, and the potential for major international market disruption from another terrorist attack still stands as a significant risk," he said.
Also uncertain is the impact Qantas will have on Air New Zealand's domestic profitability which will come under intense pressure in the next six months as the Australian airline doubles its capacity on New Zealand domestic routes
