WELLINGTON: Air New Zealand said Thursday annual profit slumped 90 percent in the year to June as the global economic crisis and intense competition took their toll.

Annual net profit for the flag carrier fell to 21 million dollars (14 million US) from 218 million dollars the previous year, the company said.

Operating revenue for the 12 months to the end of June fell 58 million dollars to 4.61 billion dollars.

Air New Zealand carried 12.4 million passengers over the year, a decline of six percent from the previous year, but it also reduced capacity by seven percent in the face of the downturn.

Profitability was hit by volatile foreign exchange rates and fuel prices, falling demand for air travel, and increased competition on routes to Australia and North America, Air New Zealand said.

The airline, which is about 77 percent owned by the government, said normalised net profit, excluding the impact of hedging on fuel and foreign exchange, fell 19 percent to 118 million dollars.

"This result positions Air New Zealand as one of the top airline performers globally but it falls short of delivering shareholders an appropriate commercial return," chief executive Rob Fyfe told analysts.

Looking ahead, Fyfe said that while some certainty is provided by hedging of foreign exchange and fuel prices, demand remained difficult to predict.

While demand was stabilising, yields remained under pressure and fuel prices had resumed an upward trend.

"Although there are some early indicators that the slump in travel demand may be showing signs of having bottomed out, it would be naive to think that there won't be bumps on the road to economic recovery," Fyfe said.

The company quoted the International Air Transport Association's (IATA) prediction that global airline losses would total nine billion US dollars this calendar year due to weak demand and over-capacity.

"The Australasian market is not immune from this and until supply is aligned with demand the airline sector will not achieve a satisfactory commercial performance," the company said.

Shares in the airline ended trading on the New Zealand Stock Exchange two cent lower at 1.23 dollars.