Air NZ will need to clip its wings as $400m loss looms
Wednesday, 3 June 2026
It has already cut regional domestic flights and moved passengers around to limit empty seats, but Air New Zealand needs to find more cuts as it flies directly into a $400 million loss for the financial year.
Industry experts, for their part, say there is low hanging fruit across the business that could be targeted. They say fat remains in operating costs, procurement, workforce and Koru Clubs — and there could be still more cuts to the national carrier’s regional network.
Aviation economist Benji Patterson said “marginal flights” — those that are already negligibly profitable — will be in the firing line.
Air New Zealand has two options: “One is the frequency of flights. If you make them less frequent, it is less convenient for the customer, but you're more likely to get a higher yield from those flights, because they'll be more full.
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“The other thing they can do is re-evaluate which airports they fly to. And that one is particularly interesting. Flying to and from a certain airport comes with a fixed cost of establishing an additional operational presence in that area, and I think that's something they haven't done yet, but I certainly expect more movement in that space, especially on the domestic flight network.”
Air New Zealand’s domestic network consists of 20 destinations, some of which are serviced on a legacy basis and are not commercially viable, including the likes of Timaru. Others that could be on the cut list are Blenheim, given its proximity to Nelson Airport, but is probably the least likely due to the financial difficulties already faced by small competing airlines.
In the North Island, Taupo is operational but has Rotorua and Hamilton within an hour’s drive or so, and in the Far North, Kerikeri in the Bay of Islands has Whangārei relatively nearby.
People are increasingly driving to larger airports to take advantage of more flight options.
“The Government needs to distinguish itself between an investor and being the Government … as an investor it should be expecting these things to be looked at. But as the Government, if it believes it is a social issue of maintaining this additional connectivity, that's a different challenge for it to grapple with,” Patterson says.
Mo Singh is portfolio manager at Craigs Investment Partners. He says Air New Zealand had some room to move, with $1.3 billion of liquidity on its balance sheet against the forecast up to $400m loss for the year to June 30.
“That’s not catastrophic,” he told The Post.
The airline had options, such as delaying some of the more than $3b capital expenditure on its fleet over the next few years while maintaining service levels. Air New Zealand has 10 longhaul Boeing 787s on order along with two shorthaul Airbus A320s and another two ATR 72s for the regional network.
Delaying a few hundred million dollars of spending for a year could provide an opportunity make some changes without decimating the workforce, or trying to cut large amounts of costs out of providing services, Singh said.
“Service is super important, because these are the periods where you can lose customers if your service levels drop and you don't want your competitors picking those up.”
Singh said the trick was was being lean and ensuring the best possible outcome for investor capital in the volatile near term, but making sure the company did not go so hard on cuts that it was not in a good position for a situation that could recover in six months’ time.
He added that Air New Zealand was restricted in where it could cut costs in its operating expenditure. “You can move labour, fuel, maintenance, aircraft operations, passenger services, sales and marketing — and that’s it”.
The two biggest costs were labour, at $1.7b and the $1.4b fuel bill — the latter of which has become much more expensive due to the United States war in Iran, while aircraft maintenance is a non-negotiable and cannot be deferred, Singh says.
But marketing at $328m was an area where management could look to cut costs in the short term without impacting overall service.
Aviation industry expert Irene King worked on Air New Zealand airline’s centralised procurement strategy when the airline introduced the Airbus A320 fleet at the start of the century.
She recommended the airline review all procurement practices and rationalise them such that decisions are made on the basis of of the actual price in the market.
Purchasing is tightly held within management, but that can also lead to inefficiencies when quick decision need to be made by staff at the coalface for the benefit of passengers. An example is staff not being able to go to a local supermarket to buy bottles of water for passengers when an aircraft is delayed.
“It would probably cost them about $200 from the local supermarket, but they have to fly them down from Auckland, and it costs $600. That is the problem with centralised procurement strategies,” King says.
“There are some things that make sense to have centralised, then there are other things where it’s better to just let your managers run on the basis of a cost centre and make those sorts of decisions.”
Another area would be a review of the size of the workforce, relative to the size of the route network, and if there is an opportunity to outsource some work to contractors.
Similarly management levels could also do with some pruning to become more in line with the size of the network. Air New Zealand was about the same size as it was 20 years ago, but the number of managers appears to have grown substantially relative to the network, she said.
Air New Zealand has kept its top executive management team stable at nine members, identical to its core size 20 years ago. However, the airline's broader senior leadership team has expanded to roughly 80 managers according to its accounts, a much larger, multi-layered corporate architecture compared with 2006, but one reflecting portfolios such as digital infrastructure, data analytics, and dedicated sustainability and corporate affairs teams that are a more modern development.