Air New Zealand warns of 'substantial' loss

4:00 pm - By DANIEL RIORDAN

Air New Zealand has warned it will report a "substantial operating loss" in the year to June 30.

The airline, which owns Ansett Australia, warned when it released its lacklustre December-half result in February of a potential for further deterioration in business in the short term.

Chairman Sir Selwyn Cushing now says trading in January and February deteriorated due to further intense competitive price pressures in the Australian market and a slowdown in the Australian economy.

He said the decline in the Australian dollar was putting added pressure on costs.

"We do not see any relief in these conditions for the balance of the year and therefore expect to report a substantial operating loss for the full year."

Air New Zealand in February reported a half-year profit of $3.78 million, compared with $127.2 million for the same period a year earlier.

Only a $29.5 million tax credit kept the airline in the black.

Qantas yesterday downgraded its full-year profit forecasts, citing similar conditions to Air New Zealand, prompting international rating agency Moody's Investors Services to downgrade its outlook from stable to negative.

Air New Zealand's A shares (which can be owned only by New Zealand nationals) are trading at a nine-and-a-half year low and the B shares at a two-and-a-half-year low.