Air NZ identifies headwinds in that could push its profit down 28 per cent for the full year

Headwinds for Air NZ include more competition and a decline in the Japanese market. Photo / Nick Reed

Air New Zealand says continued strong growth in inbound tourism and scaled back capacity from competitors on some routes will help as it faces a drop in profit of up to 28 per cent for for the full year.

The airline has set guidance for the full year after tax profit of between $475 million to $525m, down from $663m on 2016.

The guidance is based on jet fuel prices of US$65 a barrel. This month it has been trading at around US$67 a barrel.

Today it announced an after-tax profit for the past six months of $256m and while the second-best first-half profit in the airline's 77-year history, it was down 24 per cent on the prior corresponding period.

The result exceeded expectations of some analysts and the airline's share price bounced 7c to $2.22 soon after the announcement. Shares had declined by around 20 per cent in the past year.

Chief executive Christopher Luxon said other tailwinds into the second half of the year included ''supportive economic conditions'' in this country and big driving demand on domestic flights where it has about 80 per cent of the market.

The World Masters Games and Lions tour are within the current half-year period.

Headwinds include the impact of the first full year of new international competition in North America and Asia and industry capacity growth across the Tasman where Emirates has increased the number of seats.

Luxon said the Tasman is still profitable for his airline but is getting tougher.

Air New Zealand was also suffering from a fall-off in demand from Japan following the Kaikoura earthquake. Pre-tax earnings fell to $349m in the six months ended December 31 from $457m in the same period a year earlier.

Operating revenue decreased by $114m to $2.6 billion, a decrease of 4.2 per cent on the prior period although after stripping out the impact of foreign exchange, operating revenue decreased 3 per cent.

Passenger revenue decreased by $93m to $2.2b as increased competition cut what Air New Zealand was able to charge for seats. In commentary Luxon and chairman Tony Carter said the last six months saw unprecedented levels of international carriers.

''As expected, the change in the competitive landscape in a relatively short period of time has impacted on our airline's profitability when compared to the prior year,'' they said.

''We responded swiftly by adjusting our capacity plans and accelerating the exit of older aircraft, together with increased productivity and efficiencies from our fleet.''

The last of Air New Zealand's Boeing 767s would be out of the fleet next month. Total future aircraft capital spending through to 2021 will be approximately $1.6b.

In the last six months, Air New Zealand received three additional Boeing 787-9 Dreamliners, bringing the total to nine.

Rival airline Qantas today delivered a big drop in first-half profit, hurt by staff lay-off and restructuring costs. It was also hit by fierce competition on international routes due to lower oil prices.

Net profit fell to A$515m ($55m) from $688m a year earlier.

Luxon said he welcomed competition and more international capacity, including from Qatar Airways, as other carriers fed passengers on to his airline's domestic operation.

When it launched its Auckland-Doha services ealier this month, Qatar Airways head Akbar Al Baker criticised Air New Zealand for ending a commercial deal.

Luxon said that it was a ''storm in a teacup'' and the deal had been a minor one that crossed airline alliances.

''I thought he was just trying to get attention for his own launch which is the standard operating procedure for Akbar,'' he said.

Air New Zealand will pay a fully imputed interim dividend of 10c a share, the same as the previous period.