Key Points:

Air New Zealand looks likely to follow the trend set by other airlines around the Pacific region by reporting a healthy jump in net profit for the June year, thanks mainly to increased passenger demand.

This month the company's nearest major rival, Qantas Airways, reported a 50 per cent jump in annual earnings to A$720 million (NZ$826.76m).

Hong Kong's Cathay Pacific Airways has tipped a strong second half, while Singapore Airlines has also been upbeat about travel demand.

Goldman Sachs JBWere strategist Bernard Doyle expected Air NZ to report a net profit of about $185m for the June year, up from $96m a year earlier.

"What we've seen is that all airlines in our region are doing well at the moment and everyone faces higher fuel prices," said Doyle. "So I think it's just indicative of underlying economic conditions and demand for travel, overlaid with the fact that Air NZ has got a pretty good fleet at the moment."

Air NZ has already said July trading was strong, the company enjoying 6.7 per cent growth in passenger numbers compared with the same month last year. The airline's passenger load was 82.2 per cent in July, up 6.2 percentage points when compared with the same month last year.

Going on the latest set of numbers from the company, the result could exceed market expectations, Doyle said.

"There is a very good chance that it gets into the $200s [million] based on good yield and pretty solid demand," he said.

The arrival of Pacific Blue has taken some of the gloss off Air NZ but the presence of the cut-price Virgin Blue offshoot has not come as a big surprise.

Air NZ's share price did, nevertheless, weaken sharply on the Virgin Blue news, based on fears about the newcomer's impact on Air NZ's profitability.

The company's shares closed on Friday at $2.05, down from $2.30 a week earlier.

Doyle said a keen eye would be kept on comments from Air NZ about the likely impact of Virgin Blue when the result was announced on Tuesday.

Air NZ has seen off several cut-price competitors on the domestic routes over the years, possibly reflecting the impression that the market looks more attractive than it really is.

Doyle said the reaction in the Air NZ share price showed the market had prematurely decided this was a "worst-case scenario".

Air NZ is majority-owned by the Government, which bailed it out with a $885m rescue package in 2002.

If Air NZ's annual profit does prove as strong as market expectations, it raises the question of how long the Government will retain ownership.

The Government has not given an inclination of its willingness to sell.