Air NZ brings its biggest planes back from a deep sleep after several years in the Mojave desert.
Video / Air New Zealand
Jarden has upgraded its rating of Air New Zealand from sell to neutral on a better outlook for the company which will report a heavy full-year loss on August 25.
The airline is on track to deliver an underlying loss before tax of $707m for the 2022 financial year butcould turn this around to make a profit in the current year, Jarden analysts say.
This year's forecast loss compares with guidance in June of a loss of less than $750m and the even worse $800m when the airline reported its interim result in February.
While the heaviest full year-loss of the pandemic, it is still dwarfed by the after-tax loss of $1.4 billion in 2001 when its Australian investment, Ansett, collapsed along with global aviation for a time following the 9/11 terror attacks.
Jarden analysts Andrew Steele and Nick Yeo said they saw limited scope for a major earnings surprise come Thursday.
Underpinning this large pre-tax loss was forecast revenue of $2587m (up 3 per cent on last year although 55 per cent down on the 2019 financial year - before the pandemic.
''This weak FY22 result reflects a period that was heavily impacted by Covid-19 restrictions and border closures,'' the analysts said.
Short haul available seat kilometres (ASKs) were down 63.4 per cent on 2019 and long-haul ASKs down 87.9 per cent.
Air New Zealand is on track for its heaviest loss of the pandemic. Photo / Dean Purcell
The outlook remains uncertain for the current financial year.
''Whilst border restrictions have been removed, a number of operational elements remain highly uncertain - in particular, staff disruptions from Covid-19, the highly volatile and elevated cost of jet fuel and a much shorter forward booking curve,'' said Steele and Yeo in a note.
There was a low chance that the company will provide a specific earnings guidance range. Instead, and guidance on specific cost elements and capacity expectations was expected.
The analysts said they would be focused on any commentary regarding the management of the ramp-up in capacity versus operational constraints and the resulting costing increases.
''Despite this operational uncertainty, we believe Air New Zealand will see a material step change in earnings from the lows of FY22, reflecting the reopening of New Zealand's borders.''
They expect that in the current year the airline's short-haul ASKs will recover to 88 per cent of 2019 capacity and long haul to recover to 68 per cent.
Reflecting this improvement in capacity, the Jarden analysts forecast the airline will return to profitability in the 2023 financial year with profit before tax of $79m.
Underlying net after tax loss/profit was forecast to be -$502m, +$64m and +$164m during the next three years.
The upgrade to Neutral (from Sell) comes with a 12m target share price increased to 72 (from 65c) on near-term earnings upgrades.
This rating upgrade reflects:
• Modest upside to target price • Greater confidence in passenger recovery following the full reopening of New Zealand's borders • Current strong demand for travel.
However, these positives are tempered by:
• Ongoing risk of Covid disruption • High cost inflation • A softening macroeconomic backdrop
High demand and high yields have helped other airlines, including American Airlines, United and Singapore Airlines swing back into operating this year.
