Air New Zealand heading for $1b turnaround as profit surges to $1.3m a day: analyst

Air New Zealand is on course for a dramatic turnaround in its half-year result, with underlying profit forecast by Forsyth Barr to reach $323 million, up 188 per cent on the same period last year.

Analysts say its net profit is on track for $232m for the six months, or $1.27m a day, as the airline benefits from strong demand for travel and reduced competition. It will report its interim profit on Thursday.

For the current full-year, Air New Zealand could turn around its massive underlying loss of $507.5m last year to a $468m profit for the 12 months to June, say analysts Andy Bowley and Paul Koraua.

They said the ‘‘impressive” rebound in profitability for the half-year would land at the top end of management’s guidance range of $295m– $325m.

‘‘Strong passenger revenue across all sectors driven by elevated yields will be a key feature.’'

They said higher fuel costs, wage inflation and lower cargo revenue will only modestly impact the strong performance. The strong yield backdrop will continue to boost earnings through the second half of the current financial year.

The airline has been under fire for its fare increases; with domestic prices up last year by 15 to 20 per cent. International airlines have been returning but are nowhere near pre-pandemic levels meaning less competition and Air New Zealand’s long-haul capacity is well down.

Yields - the average amount of revenue received per paying passenger flown for every kilometre - are at record levels with the analysts calculating short-haul yields are up 43 per cent on the same period just prior to the pandemic and long-haul yields are up 50 per cent.

Bowley and Koraua say monthly operating statistics suggest pax income of $2.53b for the past six months are only marginally lower than the first half of 2020 as elevated yields compensate for lower capacity.

The post-pandemic capacity rebuild has been gradual - total available seat kms (ASKs) through the first half were 72 per cent of the pre-pandemic period with domestic at 96 per cent, Tasman and Pacific Islands at 71 per cent, and long-haul at 49 per cent.

The capacity recovery should continue through the second half of this year at the airline, which is 52 per cent owned by the Government on behalf of taxpayers.

The shining light of the past two years will show material decline through 1H23 as the Government’s Maintaining International Air Connectivity (MIAC) scheme unwinds and airfreight rates subside.

For the full year, its return on assets is forecast to top 9 per cent (up from -8 per cent last year) and return on equity at 21.8 per cent, up from -30 per cent.

The Forsyth Barr analysts say they don’t forecast an interim dividend “given prior management commentary and the political read-through,” though one is possible given the earnings recovery, and well-capitalised balance sheet.

Earlier this month, Jarden forecast an interim profit of $312m.

Across the industry, most airlines are recovering strongly. The International Air Transport Association says the global industry will make a US$4.7 billion ($7.45b) profit this year, although this is well down from $26b in the 2019 pre-pandemic year.