Air New Zealand is heading for another heavy loss for the second year in a row when it reports its annual result tomorrow but most focus will be on how the airline will weather this current year and the big calls it is facing.
Following its first loss since 2002 last year when it slumped to $454 in the red, analysts forecast a loss for the 2021 financial year of between slightly less after the company has earlier said losses would not exceed $450m.
Forsyth Barr analysts say the airline continues to suffer from border closures and forecast a pre-tax loss of around $429m while Jarden says the airline is facing a deficit of $446m.
The research was issued before the New Zealand Delta outbreak, and both firms say the outlook for the current financial year could be worse.
Since the weekend Air New Zealand's robust domestic business has been reduced to a handful of flights a day.
"The recent closure of the transtasman bubble, risks posed by the Covid-19
Delta variant, and slow vaccine progress in New Zealand may increase losses in FY22 (2022 financial year)," says Forsyth Barr.
Jarden is forecasting a loss of $484m in the 2022 year with guidance of a pre-tax loss not exceeding $530m.
Shane Solly, a portfolio manager and research analyst at Harbour Asset Management, says the airline has some big decisions to make over its capital restructuring - an equity raise has been further delayed - and the shape of its fleet.
Air New Zealand has deferred aircraft orders since the pandemic struck and may look at this again given that international travel corridors are narrowing.
Although the accelerated vaccination programme had given some more certainty, the Delta outbreak would force a rethink on where the airline could fly and when, Solly said.
The airline may look at dedicated freight aircraft as cargo would continue to be an important part of the airline's business in the coming years.
In the meantime the lockdown here had effectively grounded its domestic business and the closure of the transtasman bubble came at a time when it was showing signs of aiding a solid recovery for the airline. Solly said this meant cash burn was back including interest costs which keep piling up on debt estimated at $1.3 billion to $1.4b.
"There are things that the Government and taxpayers can do but airline interest costs accrue every day. When you're not flying you're not getting income."
The performance of freight and the airline's loyalty scheme - popular during the Covid splurge on buying consumer goods - were likely to be bright spots in the results to be released early tomorrow.
Solly accurately forecast the delay to the capital raise announced earlier this month and he said when it is done early next year it would have to cover debt costs.
The airline has announced it has PAYE obligations of $310m to be repaid early in 2022 and analysts say it has $500m in aircraft payments due next calendar year also.
Jarden analyst Andrew Steele said there was no comfort in balance sheet or earnings recovery profile; and the firm was reiterating its "Sell" advice and $0.90 target price. The airline was trading at $1.48 today.
"We retain our Sell rating, reflecting our view that given AIR's [Air NZ's] requirement for what we expect will likely be a highly dilutive capital raise, material ongoing
near-term losses and lack of comfort on the timing and trajectory of any earnings recovery and significant valuation downside, the shares present a negatively skewed risk- reward profile."
The capital raise was delayed again at the behest of the Government which owns 52 per cent of the airline which in its last pre-Covid year made a pre-tax profit of $374m.
Steele said given the closure of the transtasman bubble, the ongoing spread of the Delta variant and general operating uncertainty the deferral was unsurprising.
By the start of 2022 the vaccine roll-out in New Zealand and Australia should be well advanced and reflecting Government announcements, this country may be approaching the point where borders reopen.
"Together we believe these elements will likely provide a much more supportive backdrop to undertake the planned capital raise and provide greater certainty as to the size of the required equity component. We continue to estimate AIR will need to raise [around] $1.2b of new equity."
Choppy international outlook
Schedule analyst OAG says the ups and downs of aviation's recovery around the world continued this week with capacity increasing back up to 78.9 million seats a week, a modest increase of 0.7 per cent and over half a million seats added. For the same week in 2019 there were 115 million seats available.
At the beginning of July airlines were planning to operate some 93.3 million seats so reduced operational capacity by some 15 per cent in the space of seven weeks before travel as they matched capacity to available demand.
Key markets such as the US, Europe and China to virtually anywhere remain locked with no sign of anyone wishing to reopen their borders.
"As we head into September and the summer season slowly sets, airlines will be wondering where the good news really is and what their fortunes will be for this winter; even the US domestic market seems to be stalling as the Delta variant continues to spread across the country."
This week's latest schedule changes through to the end of October saw another 18 million seats removed by airlines around the world from their networks. Every day around 252,000 seats are being removed, OAG says.
Capacity cuts continue in this region.
In Australia seats were cut by another 22 per cent week on week. In 2019 there were some 1.5 million weekly seats in the Australian domestic market, this week there will be around 480,000.
International capacity is at less than 15 per cent of its normal levels.
New Zealand is equally as grim with just 12 per cent of normal pre Covid-19 international capacity.
"And of course, in both markets, airlines are operating with selling capacity way below the aircraft's commercial capacity."