Air NZ expects higher profit on 'strong' demand for travel, lower fuel costs

Thursday, 27 April 2023

Air New Zealand is bouncing back from the Covid-19 pandemic on strong demand for travel.

Air New Zealand has lifted its expectation for annual profit as demand for travel remains strong and jet fuel prices fall.

In a statement to the NZX on Thursday, the national airline said it expects profit before tax and one-time items of $510 million to $560m in the year to the end of June, up from its February 23 forecast of $450m to $530m and a turnaround from a pre-tax loss of $725m last year.

“The airline has continued to experience strong levels of demand on both the domestic and international networks,” the company said.

“US dollar jet fuel prices have also declined below those assumed in the earnings guidance provided in February 2023, although the New Zealand dollar has also weakened over this time, reducing the impact of these declines.

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“The improvements in revenue and jet fuel price are expected to be partially offset by softer cargo revenues due to increased competitive capacity, particularly in Asia, impacting yields and load factors.”

The airline is in recovery after being hard hit during the pandemic as international borders closed to travellers and it is expecting to return to profitability this year after three years of losses. In the first half of the year, it reported a net profit of $213m, compared with a $272m loss in the same period a year earlier.

Air New Zealand’s business is benefiting from robust demand for travel and constrained supply coming out of the pandemic, analysts have noted.

Prices for domestic air transport jumped 53.7% in the first three months of this year compared with the same time last year, while prices for international air travel rose 16.7%, according to the latest inflation data from Stats NZ.

But analysts have said the boom times may not last as airline capacity ramps up. Demand for travel may slow after an initial rush and a decline in fuel prices could increase rivalry, they said.

Air New Zealand is still operating at a lower capacity than before the Covid-19 pandemic.

The company said its network capacity expectations for the second half of the financial year remain largely unchanged from its February guidance, with about 95% of domestic and 80% of international pre-Covid capacity levels across the network.

The company warned that fuel price volatility, global recessionary risks and inflationary pressures across the supply chain remain high and have the potential to impact the final result for this year.

The Government owns 51% of the airline and helped keep it afloat during the pandemic. Last year, the airline raised $1.2 billion selling shares at a significant discount to repay debt.

Air New Zealand’s shares rose 0.7% to 77.5 cents in midday trading on the NZX. The stock has gained 4% so far this year.