Air NZ upgrades first half earnings forecast on strong demand

Air NZ has upgraded its earnings prospects thanks to strong demand and lower jet fuel prices. Photo / NZ Herald

Air New Zealand has substantially upgraded its first half earnings forecasts in response to high demand and lower jet fuel prices, which it said accelerated its financial recovery after Covid-19 border closures hit hard.

The airline now expects earnings before other significant items and tax for the first half of the financial year to be in the range of $295 million to $325 million.

This compares to the previous guidance range provided on September 21 of $200m to $275m for the half year.

The updated range is based on current forward sales expectations and assumes an average jet fuel price of around US $127/a barrel for the six months to December 31, 2022.

It also assumes the airline will fly approximately 75 per cent of pre-Covid capacity levels across the entire network in December, with domestic at just under 100 percent, short haul at about 85 per cent and international at around 70 per cent.

“Ticket sales over the past two months have remained strong as New Zealanders continue to book travel overseas and at home, and as the majority of our remaining international destinations re-open for passenger travel,” Air NZ said.

Fuel prices have also moderated in recent weeks, with current jet fuel prices of about US$102/barrel.

While fuel prices are around 20 percent higher than pre-Covid levels at present, the six-month average has declined since the airline’s last market update in September, adding almost $20m upside to the guidance range.

While fuel is a contributor to this earnings update, it is not the only factor, it said.

Capacity remained constrained, which would continue to impact pricing.

Air New Zealand is focused on ensuring operational reliability while also adding capacity to alleviate this pressure.

Since February 2022 the airline has hired over 2,200 employees and has added two new A321 aircraft to the fleet.

These new aircraft add an additional 200,000 seats per year into the domestic network and alongside the additional employees, will help ease capacity restraints.

However, Air NZ said there were many factors that had the potential to slow the airline’s recovery and significantly impact earnings. These included ongoing fuel price volatility, global recessionary risks, continued inflationary pressures and increased costs.

“Consequently, the airline is not providing full year guidance at this time,” Air NZ said.

Air NZ did not comment on current problems with potential jet fuel rationing.