Why the outlook for Air New Zealand is clouding over

Air New Zealand faces weakening demand in the domestic market and volatile fuel prices are starting to bite.

The airline’s soaring domestic fares have been under the spotlight this year, and it said today it was facing continued softness in domestic demand, especially regarding corporate and Government travel.

Jet fuel prices and the weaker New Zealand dollar have also had an adverse impact on costs for much of the first financial quarter.

It says assuming an average jet fuel price of US$110 ($182) a barrel for the remainder of the first half, it currently expects earnings before taxation for the first half of the 2024 financial year to be in the range of $180 million to $230m.

The company had reported $299m for the same period a year earlier, as it enjoyed a surge in demand when much of the competition hadn’t returned to the market.

“Having increased by 35 per cent from July to September, over the past week the jet fuel price has come down almost 10 per cent, highlighting the ongoing volatility of this critical input cost,” the airline told the NZX.

While Pratt & Whitney engine issues affecting Airbus A321s are expected to have a “noticeable” impact on parts of Air New Zealand’s flying schedule in the second half of the 2024 financial year, the impact on the first half is expected to remain nominal.

The economic environment was uncertain and several factors could impact future performance, the airline said.

“These factors include increased international competition, volatile fuel prices, currency fluctuations and ongoing inflationary pressures.”

Air New Zealand still holds about $200m in Covid-related credits.

The expiry date for those credits has recently been extended by two years until January 31, 2026 for booking travel through to December 31, 2026.

Included in the current guidance range are approximately $45m of Covid-related credits that are highly unlikely to be redeemed by the extended expiry date.

The airline warned against extrapolating first-half earnings guidance to the full year, given the many and ongoing uncertainties in the trading environment.

In August, the company reported revenue of $6.3 billion and underlying earnings of $574m for the 2023 financial year.