Air NZ blames market conditions for $40m-$50m cut in pre-tax earnings guidance

Air New Zealand expects market conditions to worsen in the current financial year.

Air New Zealand has cut its pre-tax earnings guidance for this financial year by $40 million to $50m due to worsening market conditions.

The airline now expects its pre-tax profit to come in at $190m to $230m, down from a previous guidance of $200m to $240m.

The prior guidance, issued in February, included the benefit of $65m in Covid-related credit “breakage” for the year, with $45m recognised in the first half, and $20m of assumed credit breakage in the second half.

The new range includes the $40m to $50m impact of deteriorating market conditions, as well as a total of $95 million in Covid-related credit breakage for the 2024 financial year.

“Since providing that guidance, Air New Zealand has continued to see softening in revenue conditions over the fourth quarter both domestically and on the North American market,” the company said.

Domestic performance had seen ongoing softening, with challenging economic conditions and ongoing cost-of-living pressures.

Government and corporate demand had remained subdued.

North American performance continued to be impacted by very competitive pricing pressures, as the market adjusted to the significant capacity added into the New Zealand market by US carriers.

Separately, following a significant decline in the rate of redemption of Covid-related credits in recent months, the airline had increased the assumed level of additional Covid-related credit “breakage” for the second half from $20m to $50m.

Customers who have a Covid-related credit have until January 31, 2026, to book travel for completion by December 31 of that year.

Today’s revised guidance assumes a jet fuel price of US$105/barrel for the second half.

Last year, Air New Zealand’s earnings before taxation (ebit) came to $574m.

In February it reported ebit of $185m for the first half alf of the 2024 financial year, down from $299m for the previous corresponding period, a 38 per cent drop.

Net profit fell by 39 per cent to $129m.

The airline said then that it was an expected reduction on the comparable period last year when the airline recorded one of its highest-ever full-year results following the rapid return of air travel as borders reopened.

In its half-year results announcement, the company said demand was stable in most markets, but signs of softness in domestic corporate and government demand were experienced from September. Overall capacity was up 29 per cent on the comparative six-month period.

Inflationary pressures also continued to be felt including non-fuel operating costs.

“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 in February.