Air New Zealand says air fares are expected to “moderate” from current peaks.
In a profit upgrade announcement, it said air travel prices could ease because of an increase in capacity to this country.
“With more capacity entering the market in the coming months, fares are expected to moderate from the current peaks,” the airline said in a statement to the NZX.
Air New Zealand has enjoyed a surge in yields but has been under fire for high fares, especially during holidays and around weekends. Stats NZ air transport sector data in the year to March shows international airfares increased by 16.7 per cent in the year to March and domestic fares were up 53.7 per cent.
The Air New Zealand upgrade was the second in six weeks and it said since April it had experienced stronger demand than usual at this time of the year, which is typically considered the airline’s off-peak period.
In addition to this, United States dollar jet fuel prices had declined even further and been consistently below those assumed in the earnings guidance provided in April.
On the basis of the updates above, and assuming an average jet fuel price for June of US $89 ($146) a barrel, the airline now expects earnings before other significant items and taxation for the current financial year to be at least $580 million.
This compares with the prior guidance range given in April of $510m to $560m.
Jarden analyst Andrew Steele said the firm retained an overweight rating for Air NZ and increased its 12-month target price from 85c a share to 90c on near-term earnings revisions.
The overweight rating reflected strong forward pricing, a stable and supportive industry structure in key markets which together should support yields and load factors.
As indicated at the interim results in February 2023, over the next five years the airline is investing about $3.5 billion in aircraft and retrofitting alone. Looking ahead to the 2024 financial year, the airline remains mindful of the uncertain economic environment it is facing into.
The commentary regarding demand strength in what is typically a seasonal low was an important indicator of operating momentum at the start of the 2024 financial year.
“Whilst the company noted that it is mindful of the uncertain economic environment and that it expects fares to moderate from current peaks, this operating outlook is likely consistent with market expectations,” Steele said.
More importantly, yields were expected to start normalising from current elevated levels. In the year to date, short-haul revenue from available seat kilometres is 40.8 per cent up on the 2019 financial year and 46.1 per cent up on long-haul.
“This normalisation is taking place against a backdrop of an improved industry structure on a number of key routes versus pre-Covid. Most importantly, Virgin Australia is yet to return to the Tasman or Pacific Island markets, which allows for more rational capacity and yield management on the Tasman and leaves Air (NZ) as the only operator on a number of Pacific Island routes.”
One airline that is boosting capacity is Hong Kong-based Cathay Pacific, which will return to Christchurch for the first time since the pandemic hit with three-times-a-week services during summer.
Cathay Pacific has announced the resumption of its seasonal Christchurch-Hong Kong service starting on December 16, 2023 through to February 29, 2024.
The non-stop service will be operated by the airline’s Airbus A350-900 aircraft, offering customers the choice of Economy, Premium Economy and Business class travel. Flights will depart Christchurch on Mondays, Thursdays and Saturdays, arriving in Hong Kong the same night.
Cathay Pacific acting regional head of Southwest Pacific Sandeep Pillay said the non-stop flights to Christchurch were a significant milestone in the rebuilding of Cathay Pacific’s connectivity.
“We know it’s a popular route and one we really value. In fact, it’s the first seasonal route we’ve reinstated since the pandemic.”
The airline has been flying to New Zealand for 40 years and flew during the pandemic to Auckland which it serves currently with three flights a week. The airline has indicated this frequency may be stepped up.
Pillay said the airline might look to increase capacity on the route by switching the aircraft from the A350-900 to the larger A350-1000, adding an additional 54 seats per flight.
Christchurch Airport chief executive Justin Watson welcomed news of the service and was looking forward to having the world-class carrier back.
“This is another vote of confidence in Christchurch, Canterbury and the wider South Island both as a visitor destination and a producer of quality, high-value goods. It is fantastic news that will have widespread economic benefits.”
Launched in 2017, the South Island service complements Cathay Pacific’s existing Auckland-Hong Kong service, operated as part of a joint venture alliance between the airline and Air New Zealand.
The Cathay Group, comprising passenger airlines Cathay Pacific and HK Express, was particularly hard hit by the pandemic because it didn’t have a domestic market. It has been progressively rebuilding its passenger flight capacity and expects to resume 70 per cent of pre-pandemic passenger capacity levels, covering 80 destinations by the end of this year.
Cathay Pacific carried a total of 1.3 million passengers in March month, an increase of 4217 per cent compared with March 2022.