Air NZ profit turnaround

AUCKLAND - Air New Zealand has posted a net profit after tax of NZD94 million for the first half of the 2002-2003 financial year. The result was in contrast to the corresponding period in 2001 when Air NZ recorded a NZD319 million ($297 million) loss. The airline said the turnaround could be attributed, in part, to its scrapping of domestic commissions for travel agents. Air NZ's total revenue was up two percent to NZD1.84 billion, while costs fell eight percent to NZD1.43 billion, thanks in part to a 16.4 per cent fall in sales and marketing costs. Air NZ chairman John Palmer said, "We have benefited in this result from lower fuel costs and a higher New Zealand dollar. "These factors are not controllable by management over the longer-term and so we must be careful in taking credit for them. However, we have also had strong passenger growth when compared with the prior period, and we can take credit for that. "What has also been particularly pleasing has been the reduction of controllable costs such as cost of sales." Palmer said Air NZ operated in an industry that had low barriers to entry and high barriers to exit. "Consequently the industry has a chronic over-capacity problem. This over-capacity, combined with a high and relatively inflexible cost-base has in turn led to the competing away of shareholder value to the point of collapse for many airlines. "You do not have to look far for examples of this dynamic. The currently dominant airline industry model does not produce sustainable businesses," Palmer added.

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