TODAY'S BUSINESS

Currency problems start to sting for Qantas, Air NZ AVIATION

By CLAIRE LEOW SYDNEY Monday 9 October 2000 Australian and New Zealand airlines face rising costs as their home currencies touch record lows, making it harder to pay soaring fuel bills and raising the cost of other US dollar-denominated purchases. While airlines everywhere are battling decade-high oil prices, Qantas and Air New Zealand also have to cope with the weakening Australian and NZ dollars. The two are the worst performing major currencies against the US dollar this year, falling by about a fifth.

``Most airlines around the world ... pay for their fuel, their spare parts, the leasing of aircraft and the cost of aircraft in US dollars,'' said Air New Zealand spokesman Alastair Carthew.

``You have a double whammy,'' he said, noting that fuel costs rose 44 per cent in the year ended June.

The squeeze on the two carriers comes as both face increased competition in Australia with the arrival of low-cost airlines on their main routes.

Both are also looking to expand, with Qantas eyeing a purchase of new superjumbo aircraft for as much as $US235 million ($A404.07 million) each, while Air NZ has ordered 11 planes for delivery in 2001 and plans to buy or lease seven more.

The carriers are already paying more for fuel. For Qantas, fuel accounted for 21 per cent of costs in the year to June.

Since the new business year started, the Australian currency has lost 12 per cent to the US dollar while jet fuel has become 21 per cent more expensive.

Air NZ hedged half its fuel needs, which represented one-eighth of costs, Mr Carthew said. The NZ dollar has lost 15 per cent against the US dollar since July 1.

``You've got the fuel price going up and currency going down like this - you've got to be concerned,'' said Damian Kestel, an aviation analyst at Indosuez W. I. Carr in Singapore.

Although both Qantas and Air NZ use hedging contracts to limit fuel price and currency volatility, the coverage is not total, leaving the carriers facing smaller profits this year. Qantas earned a record $518 million last financial year.

In addition to fuel and other costs, such as foreign landing rights, Qantas will also have to pay more in Australian dollar terms for its foreign debt repayments.

The carrier had $926 million of debt to June, 18 per cent more than last year. Air NZ is not faring better. Its operating costs rose 11per cent to $NZ3.56 billion ($A2.67 billion) last financial year as its currency lost 12 per cent to the dollar. Those increased costs, which came even as it saved $NZ41 million from hedging on jet kerosene, are set to rise this year.

Although Ansett has taken hedging contracts to protect it from volatile fuel and currency levels, the lower dollar ``will have an impact'' since ``Ansett is largely a domestic airline with a very small international arm,'' said Rita Buccheri, an Ansett spokeswoman.

BLOOMBERG

http://www.theage.com.au/bus/20001009/A39382-2000Oct8.html

-- Martin Thompson (mthom1927@aol.com), October 08, 2000