Air New Zealand’s bumper profit: What to look out for in full-year result

Air New Zealand has flown through the Covid storm and will report a near record profit. Photo / Grant Bradley

Air New Zealand is poised to announce a half-billion-dollar profit tomorrow, a staggering turnaround on accrued losses of more than $1.9b during the pandemic years from 2020. Here’s some of what to look for when the company announces its result tomorrow morning.

Big profit – how high will it fly

The airline has upgraded its underlying earnings for the 2023 financial year twice since its interim results announcement in February.

In June it said strong travel demand and relief in fuel prices meant its pre-tax earnings would be no less than $580 million.

Forsyth Barr’s estimate is $591m, Jarden’s is $594m and it will approach the record underlying earnings of $663m in 2016. That’s a massive reversal on the loss of $725m a year ago (and a loss of $444m in 2021).

Other aviation company results out tomorrow include Auckland Airport, which is poised to report a strong recovery, and Qantas close to a record result. And Queenstown Airport’s full-year result today reflects the tone of boom times in aviation. It has reported an after-tax profit of $22m, up 244 per cent on last year and is paying a 7c per share dividend, up from 1c last year.

The return of dividends – but just how much?

When the pandemic hit in early 2020, one of Air New Zealand‘s early moves was to scrub its dividend. But the airline is set to restore a payout to shareholders, welcome news for a cash-strapped 51 per cent shareholder – the Government – and a large number of new, small retail shareholders attracted through platforms such as Sharesies.

Forsyth Barr estimates a final dividend of 5c. Jarden says it will pay out only about 26 per cent of the 2019 payment when its final dividend was 11c, attributed to the large equity raise last year diluting the stock. In the three years leading up to the pandemic, it paid interim and final dividends of 11c. In the bumper profit year, 2016, it paid a 25c special dividend.

What the airline has to say about fares

This is tricky for Air NZ. It will trumpet its big profit and what this means for investors. But this has been driven by record yields. Translation: High fares. Air NZ is not alone among airlines in appearing to charge what it wants for peak-time flights but that’s little consolation for Kiwis paying through the nose.

Air New Zealand is in a sweet spot; on domestic routes, it has 80 per cent of the market, is close to a duopoly with Qantas on the Tasman (with Virgin Australia still mainly on the sidelines) and is dominant on lucrative routes to North America. That will change with American Airlines putting more capacity into the market over the summer and Delta entering the New Zealand market for the first time, with flights between Auckland and Los Angeles.

Air New Zealand is boosting its international network this summer with up to 25 per cent more capacity than last year, in a move that should help lower airfares. At present, capacity is running at about 94 per cent of pre-Covid levels on its domestic network and 71 per cent on its international operations.

Air New Zealand is on track for a pre-tax profit of at least $580m. Photo / Estelle Sarney

How it will support a big increase in international capacity

Air New Zealand is now putting more tickets on sale for flights from October, expanding international services from Auckland, Wellington and Christchurch during the northern winter, when schedules around the world change. It will fly more than 75 flights a day across 36 global routes, with 560,000 extra seats on offer compared with the previous year.

This requires staff. Numbers are just 500 short of pre-pandemic levels of 12,000 and this means a big increase in its wage bill. Last year there were 949 management staff and 2345 aircrew and engineers paid more than $100,000. Expect this to be up sharply this year.

The airline has previously paid big cash bonuses to staff, the highest of $2500 paid in 2016 to all workers, not on incentive plans. In 2021 it gave employees $1000 worth of shares to acknowledge the work in difficult conditions during the pandemic. They’re still working in difficult conditions and Air NZ will be under pressure to reward staff again with a special payout.

As NZ Air Line Pilots’ Association president Andrew McKeen puts it: ”When announcing the result, I know the board and management will consider the wider Air New Zealand team, thanking the staff and our members for the sacrifices they made and the conditions they endured while keeping the doors open during the pandemic.”

E tū aviation director, Savage said pre-pandemic and all through the Covid period, Air New Zealand still had many hundreds of workers on minimum wage.

‘‘This was the legacy that Greg Foran inherited. E tū members want to see the focus remain on lifting the lowest pay rates, with Air New Zealand becoming a Living Wage employer so that no airline worker or sub-contractor is paid a base rate that’s below the Living Wage.’'

He said throughout the pandemic period, union members worked hard to bring the airline back to life, working long hours and dealing with ongoing skill and staff shortages.

‘‘Members would like to see to see an annual bonus for staff, similar to the company’s board bonuses paid in pre-pandemic times. Long-term E tū members are calling for an annual bonus to be locked into their collective agreements,’' said Savage.

Last year chief executive Greg Foran’s remuneration was $2,347,263 including a base salary of $1.66m (a figure that has increased slightly from the $1.65m he got in 2020, his first year in the job.) Last year short-term incentives made up 38 per cent of this.

More flying needs more planes and Air NZ is poised to release details of a lease deal it signalled earlier this year to bolster its long-haul fleet.

The outlook

Air New Zealand is traditionally a canary in the coal mine for the economy. But like many rules of economics, the pandemic has thrown this out of kilter. The rush to travel to reunite with friends and family and “revenge” leisure travel was easy to understand but demand for air travel appears to be sustained, despite the souring economy.

Forsyth Barr says the demand backdrop remains “favourable” during the next six to nine months.

Cargo was king during the pandemic but has weakened during the year and yields are expected to remain under pressure as capacity returns and demand remains soft.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.