Air New Zealand reported profitbefore unusuals and tax, up 35 percentto NZ$109 million for the six-monthperiod ending 31 December 2006.

Cargo revenue was up 20 percent,due to the increased capacity offered bythe new 777 and higher cargo yields.

Net profit was $74 million, up 61percent ($28m), and higher yieldscontributed to a 12 percent increasein operating revenue.

Operating revenue rose 12% to$2,135 million with group passengeryields up 10.7 percent.

Chairman John Palmer said therehad been significant external pressureincluding fuel, currency and competition,and returns were still below theirpotential.

CEO Rob Fyfe said that as a niche player Air NZ had to be "nimble, flexible and innovative and would continue to simplify and reduce costs."

Over the past six months it hadachieved additional cost savings of $63million and it was on track to achievetargeted cost savings of $130 millionfor the full year.

Fyfe said: "This is the final year ofour four-year cost saving programme,which originally targeted savings of$245 million per annum once fully implemented.By the end of this programwe will have posted over $326 millionin annualised savings, well up on our original target."

– John Spiers