Business Description:
Air New Zealand Limited (AIZ) is an international and domestic airline group which provides air passenger and cargo transport services within New Zealand, as well as to and from Australia, the South West Pacific, Asia, North America and the United Kingdom. Air New Zealand also encompasses business units providing engineering and ground handling services. Subsidiaries extend to booking systems, travel wholesaling and retailing services.

Strategy Analysis:
AIR is closely monitoring market conditions and will selectively increase capacity in certain routes where it sees good opportunities to stimulate growth. During the global financial crisis the firm cut back on some long haul routes which were adversely impacted by the slowdown. We suspect some of these routes will be reintroduced. In the wake of Pacific Blue´s exit from the domestic market, AIR plans to fill this gap by lifting capacity in those sectors where Pacific Blue had a significant presence. AIR is also seeking to partner with other airlines to allow it to compete with other major carriers around the world. The AIR Virgin alliance was rejected by the Australian competition authority recently. AIR is contesting this verdict and the outcome of this should be known by the end of 2010. AIR feels the Trans-Tasman alliance with Virgin will greatly enhance competition instead of reducing it and provide a counter-balance to Qantas/Jetstar´s hegemony. Trans-Tasman is an important market accounting for around 20% of the firm´s income. AIR delivered good results under challenging circumstances. The company posted normalized PBT of NZ$137m for the full year compared to NZ$145m in the prior period. Revenue was down 8% y-o-y excluding foreign exchange gains and cessation of freighter service. Passenger demand decreased by 4.7% and yields dropped 7.1% for the year. The company did a good job of cutting capacity and reducing cost to counter revenue headwinds. AIR enjoyed massive fuel cost savings particularly in the first-half. Full year dividends were lifted to NZ8cps, an increase of 8% on last year, reflecting the improved outlook.Management said that the airline industry is showing signs of a recovery with both demand and yields continuing to improve. AIR would be looking to add capacity on the domestic and trans-Tasman routes this year. AIR expects operating earnings to improve through the 2011 financial year We are leaving our FY11 NPAT forecast of NZ$140m unchanged. Our forecast assumes a modest growth in passenger traffic and a reasonable uplift in yields for FY11 predicated on an economic recovery. We are rolling out our FY12 NPAT forecast of NZ$180m.Air New Zealand reported NPAT of NZ$82m for the year ended 30 June 2010. For the 2010 financial year the company achieved normalised earnings of $137m before tax, a decrease of 6% on the prior year. This financial performance reflects the continued innovation and performance improvement that has seen the company recognised with several major global awards including ATW magazine's 2010 Airline of the Year. Revenue from ordinary activities were NZ$4.09Bn, down 13% from last year. Basic and Diluted EPS were 7.6 NZ cents compared to 2.0 NZ cents last year. Net operating cash flow was NZ$334m compared to NZ$486m last year. The final dividend declared was 4 NZ cents, taking the full year dividend to 7 NZ cents compared with 6.5 NZ cents last year.