Air New Zealand’s Accounts

Press, Volume CX, Issue 32384, 25 August 1970, Page 16

Air New Zealand’s Accounts

Air New Zealand celebrated its thirtieth year of operations with records in most of its “ vital “ statistics ” —mileage flown, passengers carried, cargo tonnage, revenue, expenditure, and profit. In the last five years the expanded fleet of the airline has more than doubled the number of passenger miles flown, almost doubled the number of passengers carried, and increased its air cargo business more than fivefold. Its passengers last year occupied .56 per cent of the available seats on each flight compared with 55 per cent in 1965-66 and only 47 i per cent in 1968-69.

This last figure, the “revenue passenger load “factor”, is perhaps the most significant indicator of an airline’s progress: a low load factor suggests that the airline has failed to attract the number of passengers needed for profitable operation, while too high a load factor indicates a need for more aircraft or more frequent services. Air New Zealand’s load factor of 50 to 56 per cent over the last five years is a little low for comfort; even last year’s record $2.5 million profit represents only 6J per cent of revenue, or 161 per cent of average shareholders’ funds. With this unused capacity, the question may be asked: why is Air New Zealand already ordering jumbo jets? The answer, in a nutshell, is competition. If Air New Zealand continues to fly DCBs and Electras when its competitors are flying' jumbo jets over the same routes it will lose passengers. International air passengers are an impatient lot, and if they can save an hour in the air by travelling in a jumbo jet they will do so—even if, as is likely, they lose the hour saved in the air through congestion on the ground at undersized and understaffed air terminals. The new aircraft ordered for Air New Zealand are the smallest of the jumbo jets—“ super jets ” might be a better term—but even so, the airline can expect a sharp drop in its load factor when the new aircraft are put into service in 1973.

On several of its routes Air New Zealand will be competing with jumbo jets next year, so it will be two years behind its competitors in using this class of aircraft. Provided no recession intervenes, the normal growth in international air travel will cushion the effects of this competition. Approaching obsolescence but still safe and efficient, the DCBs and Electras will by then have been written down to nominal values in the company’s books. The airline should be able to earn handsome profits over the next three years and enter the “ jumbo age ” in good financial shape.

It will need to, for the early years of operation of the super jets may well prove costly. New Zealand’s three super jets on order, with spares and replacements, will cost about $lOO million. To earn 16 per cent, the present rate of return on shareholders’ funds, on that sum would require an increase of more than 50 per cent in the 1969-70 revenue of the airline. That increase will be achieved in due course, probably in two or three years. In the meantime, Air New Zealand’s load factor and profits will be sharply reduced. The next three will need to be fat years; they will more than likely be followed by three lean years.