As MAS looks to contract its way out of trouble and Ryanair hopes to gain a foothold in the Eastern Mediterranean, all eyes today turned to Air New Zealand (ANZ) which has posted a huge 45% increase in net profit for the year and also forecast continued strong growth in the current financial year amid rising demand and reducing fuel prices.
ANZ net profit for the 12 months to June 30 was NZ$262m ($218 million), up from NZ$181m the year before. All this on the back of operating revenue rising just 1% to NZ$4.7bn, earnings before tax were up 30% at NZ$332m.
All this good news allowed the airline to declared a dividend of 5.5 cents a share, and a special dividend of 10 cents a share on top of that. So what is the secret at ANZ? Well for a start ANZ has always had a concentration on being one of the very best, if not the best, premium economy carrier in the world and these cabins are rarely left with empty seats. Moreover one of the key factors in the success of ANZ over the past 12 months has been the switch to LA as a stop-over hub on the way into Europe. This extracted ANZ from the bitter fight between flag carriers and Middle East majors for Europe-APAC transits. Geography played a part but decisive thinking on the part of management sealed the success. Operating revenue was more or less static for the year so many will be looking for an increase here to give the airline a substantial lift for this current fiscal year. All in all ANZ shares look undervalued at this time.
Meanwhile Air China has said that foreign-exchange losses pushed its profit down 58% during the first half of the year despite a 7% rise in revenue to 49.12bn yuan on the back of a 7.2% increase in passenger numbers for the period.
The depreciation of the yuan against the US dollar by some 2.5% during the period increased the cost of payments on its dollar-denominated debt and lead to an FX loss of 721m yuan ($118m), which in turn pushed profits down to 474m yuan from 1.12bn yuan for the same period last year. You cannot escape the fact that all Chinese majors carry a great deal of debt in dollars, like many Chinese companies. Air China had a huge 111.6bn yuan in interest-bearing debt at the end of 2013 of which more than 70% was denominated in dollars.
All of this is expected and we await the confirmation that China Southern is hardest hit, estimated at about a 1bn yuan loss for the period by most. Both China Southern and China Eastern are scheduled to release their first-half results on Friday. The Chinese majors will continue to see their margins hit so long as the Chinese government continues to push the yuan lower against the US dollar to assist exports. The clawback for the Chinese majors is of course government cash injections and these are likely to continue for now. So in all of this it is not so much what the US dollar does but more about what the Chinese government is doing and when it will decide that enough is enough.