Wellington, Feb 26 NZPA - Air New Zealand's half year normalised earnings after tax doubled to $64 million, as the airline cut costs in the face of falling passenger demand.

Operating revenue for the six months to December fell 15 percent from a year earlier to $2.1 billion, while normalised earnings before tax lifted $70m to $96m, the airline said today.

Passenger demand was down 4.6 percent, while the passenger load factor rose 3 percentage points to 81.6 percent. Non-fuel operating costs were down 11 percent, with all operating costs reduced.

Normalised earnings exclude the impact of derivatives that hedge exposures in other financial periods. The company's bottom line result was a 133 percent rise in net profit to $56m.

Air NZ chairman John Palmer said the fallout from the global financial crisis continued to make operating conditions extremely difficult.

That had been reflected in lower passenger numbers, cargo volumes and yields. At the same time, fuel prices had returned to more stable levels following unprecedented volatility in the 2009 financial year, Mr Palmer said.

Chief executive Rob Fyfe said the next 12 months would be one of the most defining in Air New Zealand's history.

"There is no question the next year will set the direction and identity of our airline for the next decade."

The airline said the trading environment had stabilised and recovered, but demand and average fares still remained significantly lower than previously. The challenge remained to improve passenger numbers and yields.

While in recent periods the volatility of fuel prices and foreign exchange rates had overshadowed the natural seasonality of Air New Zealand's business, a more normal seasonal balance was expected this year with the second half weaker than the first, the company said.

Also, if current exchange rates continued, there would be a foreign exchange hedging loss of around $20m in the second half compared to a gain of $24m in the first half.

"We expect the business to remain profitable in the second half," the airline said.

An interim dividend of 3c per share is to be paid.