Demand was stable in most markets, but signs of softness in domestic corporate and government demand was experienced from September. Overall capacity was up 29 per cent on the comparative six-month period.
Operating costs, including fuel, increased 21 per cent due to a substantial increase in long-haul flying this year.
Inflationary pressures also continue to be felt. Non-fuel operating costs have increased around 5 per cent or $100m due to price inflation, which is on top of an increase totalling 15 to 20 per cent across the last four years.
“The cumulative effect of these increases is having a significant impact on the cost of providing air services, including on the domestic network, and the airline is currently reviewing fares and capacity to better reflect ongoing cost pressure,” the airline said.
Chair Dame Therese Walsh said the half-year result represents the hard mahi of the Air New Zealand whānau, who rallied together in the face of unavoidable challenges.
“We knew this year would be tougher than the last, when pent-up levels of demand and industry-wide capacity constraints drove one of the strongest financial results in our history.
“And while we have reported a solid first-half result, it is against the backdrop of significant ongoing supply chain issues, particularly the additional Pratt & Whitney engine maintenance requirements on our A321neo fleet, which will see up to five of our newest and most efficient aircraft out of service at any one time across the next 18 months at least.”
She said the airline was “leaning into the reality” of a worsening revenue and cost environment, which is expected to have a significant adverse impact on performance in the second half.
Earlier this week the airline provided a full-year profit outlook, noting among other things a deterioration in the forward bookings profile.
It said intense international competition featured heavily, especially for North America where US competitors have not yet returned to China at scale.
For now, the airline directed some of that additional capacity to the New Zealand market, putting pressure on yields.
Chief executive Greg Foran said engine maintenance requirements for both Pratt & Whitney and Rolls-Royce have seen aircraft spend more time on the ground.
“While this is beyond our control, we are managing these issues with changes to our schedule and additional leased aircraft.”
Dreamliner delays
The airline has been dealt a blow by aircraft delivery delays that will mean it has to keep Dreamliners not ideally suited on its Auckland-New York route for longer.
“Boeing has now confirmed that the first of the new 787 Dreamliners is unlikely to arrive until at least mid-2025, which will delay delivery of our innovative new Skynest. The interior retrofit of our current 787 fleet remains on track,” said Foran.
To mitigate these challenges, the airline introduced a dry lease 777-300ER in November. A second dry lease 777-300ER will enter the fleet mid-year and negotations are underway for a third.
“While the global aviation ecosystem remains under immense pressure, Air New Zealand is committed to providing the best experience possible to our loyal customers while we navigate these issues,” the airline said.
Today it repeated a tough outlook for the second half of the year.
“The airline considers that performance for the second half of the 2024 financial year will be markedly lower than the first half.”
The airline currently expects earnings before taxation for the 2024 financial year to be in the range of $200m to $240 m.
This range includes $20m of currently assumed additional Covid-related credit breakage over the second half. Future redemptions of Covid-related credits remain uncertain and subject to further actions.
Shares opened at 61.5c. This time last year they traded at around 80c.
Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.
