Grim forecast for Air New Zealand: What’s hurting the airline now

Air New Zealand faces a gloomy outlook. Photo / Grant Bradley

Air New Zealand is on course for a pre-tax loss in the current six months and faces a tough 2025 where profit could be down half a billion dollars on a year ago.

Craigs Investment Partners senior analyst Wade Gardiner says the firm has revised down its forecasts following the airline’s weak operating figures for June.

While jet fuel prices during the last three months were lower than assumed in the guidance Air New Zealand issued in April, domestic loads and short-haul revenue were lower than expected.

“Domestic demand [was] in their April guidance, but we think the final outcome was weaker than expected,“ he said.

In April Air NZ said its full year underlying profit before tax (PBT) to June 30 was forecast to be between $190-230 million, including $95m of Covid period credits that are unlikely to be redeemed before the expiry date.

Gardiner said in a research note that his firm treated these credits as abnormal so with Air NZ figures underlying PBT was $95m to $135m, slashed from its second biggest profit of $585m in the 2023 financial year.

Factoring in the weak quarter four demand, offset by lower than expected fuel prices, Craigs Investment Partners has reduced its underlying PBT forecast for the full year from $121m to $116m. The airline will announce its result on August 29.

This includes a loss of $24m in the current second half of the financial year (2H).

The firm assumes “a modest” 0.5 cents per share final dividend, “but would not be surprised to see zero final dividend given the underlying loss in 2H”.

The firm share price target has fallen from 64c to 60c and its neutral rating remains. During the last month Air NZ shares have traded between 53c and 61c.

Long-haul loads have been weak throughout the year, particularly on North American routes.

On average North American loads have been about 8% lower than pre-Covid levels, and 10-15% lower through the summer months after the commencement of services by Delta between Auckland and Los Angeles.

While there was some improvement in quarter four relative to the last financial year, loads remained close to 6% below pre-Covid levels.

The 2025 financial year appears tough, Gardiner said.

While a jet fuel respite would continue, the firm understands that forward bookings are weak, particularly government and corporate travel, with yields remaining under pressure.

“We cannot see domestic demand recovering quickly.“

International demand may benefit from competition and real price declines, but other drivers of NZ resident international demand (GDP and house price inflation) are weak or are negative.

The firm has lowered Air NZ’s full year PBT forecast for 2025 from $141m to $82m.

The airline’s earnings were typically better in the first half of the year but this was likely to be less evident in 2025 given the current near-term headwinds.

There is some light ahead with a better environment and some recovery in the second half of the coming year.

Although down on same period last year, relative to pre-Covid levels Craigs estimates airfares are currently about 50% higher (based on the air transport component of consumer price index data).

Craigs’ three-factor predictor for New Zealand resident international departures is based on 1) GDP, 2) real international airfares, and 3) House Price Inflation rolled forward one year.

“The relationship broke down over the Covid years, but with capacity and demand now almost back to pre-Covid levels we think it may again begin to provide an indication of forward demand. The model currently indicates 5% demand growth from NZ residents over FY25, driven by a decline in real airfares.“

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.