Airlines Reel in Fuel Price Turbulence

By VAN DEN BERGH, Roeland

RECORD jet fuel prices have hit home, with Air New Zealand downgrading its profit forecast a second time and Qantas announcing fleet and route changes.

Air New Zealand says it will now make less than $200 million profit before unusuals and tax for the year to June 30 as fuel surged to US$173 a barrel.

The airline’s shares fell 3 cents to close at $1.11.

Last month Air New Zealand cut profit expectations by about 23 per cent to between $200 million and $220 million from previous guidance of bettering its $268 million profit in 2007.

In a market update, the airline says in the last month the price of oil has risen from US$119 a barrel to peak at over US$135 a barrel last week.

The refining margin between oil and jet fuel had almost doubled from US$24 a barrel to US$40 a barrel. The increase in the refining margin is not covered by the airline’s oil hedges.

“Our expectation of 2008 normalised earnings before taxation and unusual items is now below $200 million.”

Air New Zealand burns about 9 million barrels of fuel a year.

The airline had already announced that it would replace its Boeing 747-400s with smaller, more fuel efficient Boeing 777-200ERs on its Auckland to London services via Los Angeles from September to save about $100 million in fuel.

The airline has also increased fares across the board.

Air New Zealand chief executive Rob Fyfe this week warned of “carnage” in the coming months, with few airlines able to operate profitably at current fuel prices.

Analysts said Air New Zealand was able to capitalise on its young, fuel-efficient fleet, new cabins and dominant network position to ride out the storm.

Across the Tasman, Qantas has announced it will ground aircraft, reduce Australian domestic services and axe staff in a bid to stave off the effects of a A$2 billion (NZ$2.43 billion) increase in its fuel bill for the year.

The airline would ground or retire four aircraft and cancel delivery of a new Airbus A321 for its budget subsidiary Jetstar.

None of the changes appear to affect Qantas’ or Jetstar’s New Zealand services.

But Mr Dixon said the airline would announce a restructure of its international network within a week, including capacity reductions and exiting some markets.

Meanwhile, Air New Zealand was expected to make an announcement soon about the biofuel it would use in a test flight later this year or early next year in a joint venture with aircraft maker Boeing and engine maker Rolls- Royce.

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