Air New Zealand Updates Profit Outlook As Demand Softens

A few weeks ago at a CAPA Conference in Brisbane, Air New Zealand CEO Greg Foran was asked if the 2023 result was “as good as it gets?” He deftly batted that one away but pointed out there were plenty of headwinds facing the airline that may well have a measurable impact in the financial year ending June 30, 2024 (FY24).

Profits are under pressure

Today, Air New Zealand filed a Market Announcement with the New Zealand Stock Exchange (NZX) that provided initial earnings guidance for the first half of FY24. In August, Air New Zealand presented its 2023 Annual Result, which reported statutory earnings before taxation of NZ$574 million ($344m), of which NZ$299 million ($179m) were earned in the July to December 2022 period (1H FY23).

Photo: Airbus

However, on a cautionary note, the airline said that while customer demand remained strong for the first half of the 2024 financial year, it was mindful of the uncertain economic environment and several factors that may impact future demand and profitability. Today, it said that customer demand remains solid across most markets, but “recent softness in domestic travel, particularly government and corporate travel, has continued.”

Times are getting tougher

Reviewing the first three months of FY24 (July-September 2023), the airline said jet fuel prices and the weaker NZ dollar have had an adverse impact. In the first quarter fuel cost increased by 35%, but over the past week it has dropped by 10%, highlighting the volatility of this critical expense.

Photo: Tom Boon | Simple Flying

Air New Zealand also said that the previously disclosed Pratt & Whitney engine issues are expected to have a noticeable impact on parts of its flying schedule in the second half of FY24, but the financial impact in 1H FY24 is expected to remain nominal. The uncertain economic environment means increased international competition, volatile fuel prices, currency fluctuations and ongoing inflationary pressures may impact future performance.

“In the context of the above factors, and assuming an average jet fuel price of US$110/bbl for the remainder of the first half, the airline currently expects earnings before taxation for the first half of the 2024 financial year to be in the range of NZ$180 million to NZ$230 million ($108-$138m).”

The obvious comparison is between this forecast of NZ$180 to NZ$230 million and the NZ$299 million the airline earned in the first half of last year, which was 52% of the FY23 full-year profit. Even if Air New Zealand earns a first-half profit at the top end of the range it has given today, that will be only 77% of last year’s 1H result, whereas at the low end it would be 60% of last year.

The announcement to the stock exchange does say that the airline cautions against extrapolating the first half FY24 earnings guidance to the full year, so that cuts both ways, and perhaps the second half will produce a much better return than last year.

In the here and now this guidance brings the airline back to earth with a financial thud, and after throwing resources at the recovery, the tide is turning to making a profit in the current environment, not just for Air New Zealand but for all airlines.