Air NZ expects decline in first-half earnings as it comes off post-Covid travel boom

Thursday, 12 October 2023

Air New Zealand expects its first-half profit to fall as it comes off a period of high demand for travel after borders reopened following the Covid-19 pandemic, when fewer planes were in the air.

The national carrier expects pre-tax earnings of $180 million to $230m in the six months to the end of December, it said in a statement to the NZX on Thursday. That’s down from $299m last year.

Airlines benefited from a surge in travel demand when borders reopened following the pandemic, with Air New Zealand experiencing its busiest period in more than three years. But with more planes now in the air and a softer economic environment denting demand, the outlook for the coming year is more subdued.

The airline said customer demand remained “solid” across most markets, but recent softness in domestic travel, particularly corporate and government travel, had continued.

It said jet fuel prices and a weaker New Zealand dollar have also had an adverse impact on costs for much of the first quarter of the financial year, which covers the three months from July to September.

The jet fuel price had increased by 35% in the quarter, but had come down almost 10% over the past week, which highlighted the ongoing volatility of a critical input cost for the airline, it said.

“The economic environment continues to be uncertain and future performance may be impacted by a number of factors,” the airline said.

“These factors include increased international competition, volatile fuel prices, currency fluctuations and ongoing inflationary pressures.”

Air New Zealand’s earnings forecast assumes an average jet fuel price of US$110 a barrel.

The airline cautioned against extrapolating the first-half earnings guidance to the full year given the many and ongoing uncertainties in the trading environment.

It said Pratt & Whitney engine issues would have a nominal financial impact on the first half, but would impact some of its flying schedule in the second half.

The airline still holds about $200m in Covid-related credits and has extended their expiry date by two years until January 31, 2026, for booking travel through to December 31, 2026.

It noted the guidance includes about $45m of Covid-related credits that it thought were highly unlikely to be redeemed by the extended expiry date.