Air NZ lifts profit forecast a second time, says airfares likely to 'moderate' from current peaks

Thursday, 8 June 2023

Air New Zealand is benefiting from strong demand for travel coming out of the pandemic. (File photo)

Air New Zealand has lifted its annual profit forecast for a second time in just a few months as it benefits from strong demand for travel and weaker jet fuel prices.

In a statement to the NZX on Thursday, the national airline said it expects profit before tax and one-time items of at least $580 million in the year to the end of June - a turnaround from a pre-tax loss of $725m last year.

The latest guidance is ahead of the airline’s April forecast for profit of $510m to $560m, and its initial February forecast of $450m to $530m.

“Since the previous update, the airline has experienced stronger ongoing demand than usually observed at this time of the year, which is typically considered the airline’s off-peak period,” the company said.

“In addition to this, US dollar jet fuel prices have declined even further and have been consistently below those assumed in the earnings guidance provided in April.”

The company’s shares rose 1.3% to 78 cents in midday trading on the NZX. The stock has gained 23% over the past year.

Air New Zealand is in recovery after being hard hit during the pandemic as international borders closed to travellers. 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.

The national airline will be asking more than 10,000 customers travelling on its international network to take part in a passenger weight survey this June.

The airline 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 the airline signalled in its latest update that the big increases in fares may be coming to an end.

“With more capacity entering the market in the coming months, fares are expected to moderate from the current peaks,” the company said.

Air New Zealand said it was facing an uncertain economic environment next financial year.

In its latest report on the global economy released this week, the World Bank predicted slow growth this year and cut its forecast for next year.

The World Bank predicted global gross domestic product would rise 2.3% this year, higher than its January forecast of 1.7% but below last year’s 3.1% pace. It lowered its estimate for growth next year to 2.4% from 2.7%.