Wellington  - Air New Zealand announced Thursday a 79-per- cent slump in after-tax profits for the six months ending December 31, after what chairman John Palmer said was one of the toughest periods airlines had ever faced.

The airline, which is 76 per cent owned by the government, reported net profits of 24 million New Zealand dollars (12.24 million US dollars) for the half-year.

Palmer cited the unprecedented price of fuel, which rose 36 per cent on the same period in 2007, adding 211 million New Zealand dollars to costs of running the airline.

"This combined with the deterioration in both passenger and cargo demand, as the global credit crisis intensified, has seen the airline deliver an unsatisfactory financial result, despite the management team's best efforts," he said.

The half-yearly report showed operating revenue increased by 3.7 per cent, or 87 million New Zealand dollars, on the same period in 2007 to 2.4 billion New Zealand dollars, but foreign exchange fluctuations accounted for 75 million New Zealand dollars of the rise.

The number of passengers on domestic and international routes was down 4.3 per cent to 6.3 million after the airline cut capacity by 3.6 per cent.

The board declared a fully imputed interim dividend of 3 New Zealand cents a share, which "reflects confidence in the ability of the company to generate returns to shareholders despite tough conditions," a statement said.

Palmer said Air New Zealand, which was bailed out by the government after the collapse of its Australian subsidiary put it on the brink of bankruptcy in 2001, remained in a strong financial position.

"Even though the New Zealand dollar has weakened, our foreign exchange hedging programme has shielded us from the full effects, allowing us time to adapt our business," he said.

"We continue to enjoy a modest gearing level, strong liquidity levels and low capital commitments for the next two years.

"We have been able to continue investing in the business in areas such as domestic airports, engineering and innovative distribution to make us even more competitive."

Chief executive Rob Fyfe said, "I am confident that Air New Zealand is in one of the strongest positions to weather the current economic climate.

"In these challenging times, it is not the largest airlines that will outperform, but the ones most responsive to change."

Fyfe said long haul capacity would be cut by 14 per cent this year. Up to 100 long haul cabin crew positions are being made redundant and other cost-cutting measures included pilots taking leave without pay, contract staff working fewer hours and a freeze on executive salaries. (dpa)