Shares tumble: Cost cutting looms for Air NZ

Air NZ chief executive Christopher Luxon. Photo/NZ Herald.

Cost cutting looks likely for Air New Zealand after the company took a big knife to its earnings forecasts for this year.

The national flag carrier said it had cut its pre-tax earnings guidance to a range of $340 million to $400 million for the June year due to slower-than-expected revenue growth.

The previously announced guidance was for underlying earnings before tax of $425m to $525m, which excluded an estimated $30m to $40m impact of schedule changes prompted by the global Rolls-Royce engine issues.

The news sent Air NZ's share price down by 47c or 14.4 per cent, to $2.80, in the opening minutes of trade.

In an internal email to staff, chief executive Christopher Luxon said the revised guidance reflects updated revenue forecasts based on recent forward booking trends but that "difficult decisions" lay ahead. Luxon did not specifically mention job cuts.

"To be clear, our revenue growth forecast is still positive but the rate of growth is likely to be slower than previously thought. Markets showing signs of slower growth include domestic leisure travel and softening inbound tourism traffic.

"Clearly, it is concerning not to meet our original profit guidance statement to the market and as an executive [team], we are commencing a review to get the business back on a stronger financial footing for the remainder of FY19 and into FY20," Luxon said.

"We have already made adjustments to our schedule which will reduce the rate of capacity growth to approximately 4 per cent for the full financial year.

"This is at the low end of our original capacity guidance of 4 per cent to 6 per cent, but still ahead of the rate of national economic growth."

Luxon said he would lead a small team that would review the network, fleet and cost base. More would be revealed at the company's interim result announcement on February 28.

"It is clear that some tough decisions are required over the coming months and I am committed to openly sharing with all Air New Zealanders the steps that we will take to restore the total trust of investors in our airline," Luxon said.

Luxon said the business was fundamentally "strong and thriving" and remained the envy of airlines globally.

"Today we fly 17 million customers annually. We have delivered profits in excess of $2 billion over the past decade, we have paid more than $1.7 billion in dividends (including approximately $1 billion to the Government) and more than $750 million in NZ government taxes," he said.

Luxon finished his email with: "Rest assured we will continue to grow, just not at the same rate we have over the past few years."

Air NZ is just over about 52 per cent owned by the Government.

This comes only a few months after Air New Zealand celebrated its second highest ever profit by giving staff bonuses of $1800.

In August last year, Air New Zealand reported a net profit of $390 million, up 2 per cent from the previous year.

About 8500 staff were paid the bonus at the time.