Air New Zealand has reported normalised profit before taxation of $137 million for the 2009/10 financial year.

Passenger demand was down 4.7% and yield tumbled 7.1 per cent, however, the airlines passenger load factor was up 2.8 percentage points to 81.8%.

"Despite another tough year we are in great shape with $1.1 billion cash, operating cash flow up 33% and gearing, including capitalised operating leases, at 47.3%," Air New Zealand Chairman John Palmer said this morning.

The airline also announced that shareholders will be paid a fully imputed dividend of 4 cents per share taking the total dividend for the year to 7 cents per share, up 8 percent on last year.

"The Board has strong confidence in the airline's ability to adapt to change and return stronger profitability in the medium term, while also recognising the need for preserving financial flexibility through this extended period of uncertainty," Mr Palmer said.

Chief executive Rob Fyfe revealed plans to increase the airlines capacity throughout the year as the market continues to recover.

"Our proposed trans-Tasman alliance with Virgin Blue will create a far better and more sustainable service," Mr Fyfe said.

Approval for the proposed alliance is currently being sought from authorities in both countries.

"We have significant growth plans for our domestic jet operation with capacity increasing by 8 per cent progressively from September, the equivalent of one additional Boeing 737 aircraft.