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Air New Zealand profit goes sky high

At the beginning of July, I said Air New Zealand (ASX: AIZ) was one of the few airline stocks worthy of investors’ time and possibly, a spot in portfolios.

Today the company released its full-year results and Chairman John Palmer hit the nail on the head when he said “This result is one that investors, Air New Zealanders, customers and our nation can be proud of”.

The report featured a massive reduction in debt, modest revenue growth, dividend increases and huge profit — what’s not to be proud of? Here’s some of the key financial results:

  • Operating revenue up 3%
  • Profit before taxation up 172%
  • Net profit after tax up 156%
  • Total assets up 3%
  • Net debt down 52%
  • Operating cash flow up 59%
  • Long haul passengers carried up 4.3%
  • Short haul passengers carried down 2.3%
  • Full year dividend of 8 cps, a 45% increase
  • Gearing improved 7% — a record low for the company

The company’s profit is the best it has been in five years but Mr Palmer said, “We are focused on further improving on this result in the 2014 financial year. Based on the airlines forecast of market demand and fuel prices at current levels, early results and forward bookings are encouraging”.

The company is also committing NZ$1.8 billion to the purchase of over 20 new aircraft in the next three years. Australian competitors Qantas (ASX: QAN) and Virgin Australia (ASX: VAH) will be jealous of the results after both said they forecast tough conditions in the near future and the latter is expected to release steep losses in its full-year results. CEO Christopher Luxon said the company will continue to grow as New Zealand becomes a more popular tourist destination and business hub.

aiz
Source: Google Finance

Foolish takeaway

Compared to its two biggest Australian rivals, Air New Zealand pays the best dividend, has the best balance sheets, arguably the most potential for growth and is cheaper at a fundamental stock level. However airlines do carry more than just passengers when they fly. They carry an inherent amount of risk for shareholders in the form of malfunctions, heavy regulations and fuel costs. They’re not for risk-averse investors but if this Fool had three choices, he knows which one he’d pick.

It’s true Air New Zealand shares pay great dividends but it can be illiquid. So if you’re interested in our #1 dividend-paying stock. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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