Air New Zealand is forecasting a boost to its earnings this year on the back of the strong domestic economy and expansion of new routes.

The national carrier reported pre-tax earnings of $527 million for the year to June 30 - down from $663m the prior year but the second highest in its history. Net profit fell to $382m from $463m in 2016.

Chief executive Christopher Luxon said it was a strong profit in a year that the company knew would be challenging because of tough competition.

"This year Air New Zealand faced an unprecedented increase in the level of competition from some of the world's largest airlines and effectively rose to the challenge," Luxon said.


Operating revenue fell 2.3 per cent to $5.1 billion as the airline's passenger revenue was squeezed down 0.5 per cent to $4.4b. Cargo revenue also fell 0.6 per cent to $335m, although Luxon said both improved in the second half of the financial year.

The business had cut costs adding $158m to its bottom line.

Luxon said the domestic market had been the most resilient to extra seats being brought on board.

The airline had a 9 per cent increase in the number of seats on domestic flights in its 2017 financial year and will boost seat numbers by another 60,000 this summer increasing services to Nelson and Napier. Luxon said half of the growth had come from Queenstown.

Outside New Zealand the transtasman market was very challenging although the airline's Pacific Island routes had done well out of strong growth.

The airline had faced a tough ride in Asia, particularly with strong competition out of China with a number of new airlines launching new routes.

Luxon said in-bound tourism from Japan had been hit by the Kaikoura earthquake in November last year but the company had launched a new route to Haneda Airport in Tokyo, which it hoped would boost demand.

"We continue to see strong underlying demand in domestic and Pacific Islands supported by tourism growth."


Luxon said Kiwis' outbound travel had grown by 12 per cent this year, a third of which was to the Pacific Islands.

The airline was also adding frequency to its Honolulu and Bali services as it taps into demand from Kiwis wanting to travel to Hawaii and direct to Bali without having to go through Australia.

Luxon said it continued to see strong demand on its routes to North America, even after seeing 30 per cent capacity growth. This was backed by its competitors dropping out of the non-peak season.

The airline will add more premium seats to its Houston flight as it targets Australians travelling to the states via Auckland.

Luxon said it anticipated 4 to 6 per cent capacity growth in 2018.

"We are optimistic about the overall market dynamic. Based upon current market conditions and assuming an average jet fuel price of US$60 per barrel the airline is aiming to improve upon 2017 earnings."

The full-year dividend rose 1c to 21c. The company will also pay a $1700 bonus to 8500 staff.

Air NZ shares dipped after the result, eventually closing up 1c yesterday at $3.41.