August 23, 2018 / 5:58 AM / a month ago

UPDATE 2-Air New Zealand forecasts profit drop on higher fuel costs, hurting shares

* Earnings before tax rises 2.5 pct to NZ$540 mln

* Forecasts pre-tax profit of NZ$425-525 mln in FY19

* Shares fall 4.2 pct on outlook

* Airbus receives 2 A321neo orders (Recasts, adds CEO, broker comments)

By Jamie Freed and Charlotte Greenfield

SINGAPORE/WELLINGTON Aug 23 (Reuters) - Air New Zealand Ltd said its pretax profit would fall by up to 21 percent in the current financial year due to higher fuel prices, sending shares lower despite reporting its second-best ever full-year earnings on Thursday.

The wide guidance range of a 3 percent to 21 percent fall in earnings before tax is due to uncertainty over the carrier’s revenue performance even though forward bookings for the peak southern hemisphere summer season are positive to date, CEO Christopher Luxon said in a phone interview.

“Of all the routes we’ve got, possibly the Tasman will get a bit sporty for a while,” he said in reference to routes between Australia and New Zealand after a joint venture with Virgin Australia Holdings Ltd ends in October.

Both airlines have announced plans to add significant capacity as they transition from partners to rivals.

Air New Zealand reported a pretax profit, the most closely watched measure of its performance, of NZ$540 million ($358.34 million) for the year to June 30, compared with NZ$527 million a year ago, boosted by strength in the domestic market and robust tourism.

Its shares closed 4.2 percent lower at a two-week low after the results, which were in line with expectations and came on the same day as a record profit from Australia’s Qantas Airways Ltd.

Jeremy Sullivan, an investment adviser at Christchurch-based firm Hamilton Hindin Greene, attributed the decline to the weaker outlook.

“They are forecasting a reduction of over NZ$100 million in profit for the next year,” he said. “Whilst it was a good result, especially on the back of increasing fuel prices, their hedging can’t hold that off forever as fuel prices have gone up markedly.”

Air New Zealand said it would add 7 fuel-efficient Airbus SE A321neos to its domestic fleet from 2020 to 2024, which Luxon said would allow it to lift capacity on popular routes like Auckland-Wellington and Auckland-Christchurch.

All but two of them were already counted in the Airbus order book, an airline spokeswoman said.

Air New Zealand is one of several Boeing Co 787 operators globally affected by maintenance issues on Rolls-Royce Holdings PLC’s Trent 1000 engines and excluding a NZ$30 million to NZ$40 million charge from the Rolls-Royce issues, it forecast fiscal 2019 underlying pretax profit in a range of NZ$425 million to NZ$525 million.

The estimate assumes an average jet fuel price of $85 per barrel compared to the $75 per barrel this year, which was partially offset by the airline’s fuel hedging programme.

The carrier is leasing three Boeing Co 777 jets to help maintain its flying schedule in the face of the Trent 1000 issues.

Air New Zealand declared a final dividend of NZ$0.11 a share, in line with the payout last year. ($1 = 1.5069 New Zealand dollars) (Reporting by Jamie Freed in Singapore and Charlotte Greenfield in Wellington, additional reporting by Ambar Warrick and Devika Syamnath in Bengaluru; Editing by James Dalgleish and Muralikumar Anantharaman)

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