Air New Zealand faces tougher year as demand drops; airfares fall

Airfares continue to fall as softer demand for travel is starting to bite further into Air New Zealand’s financial outlook.

Consumer Price Index data shows airfares fell 1.6 per cent in November from the previous month and are around 30 per cent below their late-2022 peaks, according to ASB.

Most of the falls have been driven by lower international airfares.

“We expect further cooling in pricing pressures from this sector,” ASB economists say.

Air New Zealand, in a trading update, says that following a further two months of operating performance since guidance was given, it now expects first half earnings for the current financial year to be around the bottom end of its $180 million to $230m range initially provided in October.

“Early signs of softness in domestic travel, particularly corporate and government travel, which were noted in the 12 October update have continued, with late booking activity remaining weaker compared to the prior year.”

Flights booked late are typically more expensive and result in higher yields for airlines.

In the update the airline says there’s softer leisure demand in both the domestic and transtasman markets.

While demand for travel to North America continues to be solid, it faces additional pricing pressure due to increased competition from US carriers.

Demand for Asia and the Pacific Islands remains unchanged.

“Air New Zealand will continue to monitor booking patterns closely.”

About $45m of Covid-related credits highly unlikely to be redeemed by the extended expiry date are included within the above guidance range.

The airline also faces the ongoing impacts of the global Pratt & Whitney engine issues which will result in up to five Airbus A321 planes being grounded at any one time.

Economic and inflation risks remain and as a result, Air New Zealand is not providing full-year guidance at this time. The airline expects the second half of the financial year to be increasingly challenging.

Air New Zealand in August reported a full-year underlying profit of $585m on operating revenue of $6.3 billion, up 9 per cent on pre-Covid levels. The result was a stunning turnaround on pre-tax losses of $725m last year.

Shares have fallen 3 per cent in the past five days and were trading today at 64c.

Wamos is coming back to operate Auckland-Perth flights for Air NZ.

Hola (again) to Wamos

The airline is building flexibility into its fleet with another wet lease agreement with Wamos Air.

The Spanish carrier will operate daily Auckland to Perth and Perth to Auckland services on behalf of Air New Zealand between February 9 and April 30 next year.

Air New Zealand used Wamos earlier this year. With wet leases charter operators provide the aircraft and crew.

Enlisting the help of Wamos Air will ensure there’s extra flexibility in the operation due to the extra maintenance requirements, and for any unexpected challenges or other disruptions beyond the airline’s control, said general manager short haul, Jeremy O’Brien.

It would help build more resilience into the network over the busy summer and Easter holiday period.

Air New Zealand has been contacting all customers travelling to or from Perth to provide all the information they need and what to expect ahead of their flights.

The Airbus A330-200 doesn’t have Premium Economy or Skycouch options. Customers who booked in Premium Economy will be re-accommodated in Economy and refunded the fare difference before their travel.

“They are a proven and trusted provider and we are confident that they will continue to deliver to our expectations of customer care on-board.”

Passengers get Air New Zealand meals.

The airline has also taken the long-term lease of an ex-Cathay Pacific Boeing 777-300.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.