Air New Zealand's share price dropped by 14 per cent the opening minutes of trade after the national flag carrier slashed its earnings forecasts for the current year to June.

By 10.10 am Air New Zealand shares were trading at $2.80, down 47c from Tuesday's close.

Air NZ said earlier cut its pre-tax earnings guidance to a range of $340 million to $400 million for the June year, citing the financial impact of the problems that it has with some of its Rolls- Royce engines, and slower-than-expected revenue growth.

The previously announced guidance was for underlying earnings before tax of $425m to $525m, which excluded an estimated $30m to $40m impact of schedule changes prompted by the global Rolls — Royce engine issues.

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"The Rolls — Royce engine issues continue to be challenging for the business, both commercially and operationally but are expected to improve as the year progresses," Air NZ said in a market update.

The revised guidance - a fall of 16 per cent at the midpoint of the range - reflects updated revenue forecasts based on recent forward booking trends.

Flights were disrupted last year when Rolls-Royce engine problems emerged on the Dreamliner fleet, causing the airline to cancel or reschedule flights because of checks on engines and range restrictions for the aircraft.

Revenue growth is forecast to remain positive, albeit at a slower rate than previously anticipated, it said.

Markets showing signs of slower growth included leisure travel within domestic New Zealand and softening inbound tourism traffic.

Partially offsetting the impact from slower revenue growth since the previous guidance was an assumed average jet fuel price for the remainder of the financial year.

Chief executive Christopher Luxon said: "We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year.

"Therefore, we commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward."

The full-year guidance will be discussed in more detail at the interim result announcement on February 28, he said.

Air New Zealand remained committed to its distribution policy that looks through short - term earnings volatility to provide a consistent and sustainable ordinary dividend, he said.
said. Accordingly, the board anticipated declaring an interim dividend of 11 cents.