What’s driving Air New Zealand’s surge in profits?

Air New Zealand started flying non-stop to New York in September. Photo / Supplied

Air New Zealand’s strong bounce back into the black continues with upgraded guidance showing half-year profits could be nearly 50 per cent better than forecasts two months ago.

That mirrors the remarkable recovery of the airline sector around the world with latest International Air Transport Association (IATA) figures showing it expects a return to profitability for the global industry in 2023.

The association says airlines are expected to post a small net profit of $US4.7 billion ($7.40b), the first profit since 2019 when there was a $US26.4b surplus and a dramatic turnaround on the $137.7b losses that threatened to wipe out many carriers when the pandemic struck in 2020.

Air New Zealand, in a market update, said continued strong travel demand across the domestic and international networks, as well as a recent decline in jet fuel prices has accelerated the airline’s financial recovery.

The airline now expects earnings before other significant items and taxation for the first half of the financial year to be in the range of $295m to $325m for the first half of the current year.

This compares to the previous guidance range released on September 21 of $200m to $275m for the half year.

It also comes after the $591 full-year loss the airline reported to June 30.

The updated range is based on current forward sales expectations and assumes an average jet fuel price of around US $127/bbl for the six months to December 31.

It also assumes we will fly approximately 75 percent of pre-Covid capacity levels across the entire network in December, with domestic running at just under 100 percent, Australia and Pacific Islands at about 85 per cent and longer international flights at around 70 per cent.

Ticket sales over the past two months have remained strong as New Zealanders continue to book travel overseas and at home, and as the majority of our remaining international destinations reopen for passenger travel.

Fuel prices have also moderated in recent weeks, with current jet fuel prices of approximately US$102/bbl. While fuel prices are around 20 percent higher than pre-Covid levels at present, the six-month average has declined since the airline’s last market update in September, adding almost $20 million upside to the guidance range.

While fuel is a contributor to this earnings update, it is not the only factor. Capacity remains constrained ‘‘which will continue to impact pricing”.

This translates to the airline enjoying stronger yields as demand exceeds supply on many flights.

In the NZX release, it says it is focussed on ensuring operational reliability (which suffered during winter storms and illness) while also adding capacity to alleviate this pressure.

Since February 2022 the airline has hired over 2200 staff and taken delivery of two new Airbus A321 neo aircraft into the domestic fleet.

It warns there are many factors that have the potential to slow the airline’s recovery and significantly impact earnings.’'

These include ongoing fuel price volatility, global recessionary risks, continued inflationary pressures and increased costs.

“Consequently, the airline is not providing full-year guidance at this time.”

The airline has previously said its operations have not so far been affected by rationing of fuel through its main hub at Auckland Airport after the disruption to supply from Marsden Point.

Across the Tasman, Qantas late last month upgraded its underlying profit forecast by $A150m, ($158m) to between $135b and $145b.