Air NZ skirts $3b ash fallout

The volcanic eruption that has cost the aviation sector billions is unlikely, so far, to have inflicted significant financial pain on Air New Zealand, say analysts.

Thousands of flights across the aviation industry have been cancelled and delayed because of concerns that ash from Iceland's Eyjafjallajokull volcano could cause engines and instruments to fail.

The fine ash is mostly made up of silica particles and has been floating at the 6000m and 11,000m altitude at which large passenger jets travel.

The Centre for Asia Pacific Aviation estimated that eight million passengers had been affected and the total cost for the aviation industry, including airlines, airports, suppliers, freight operators and handlers, could be well over US$2 billion ($2.8 billion) "and rising with each day of disruption".

Air New Zealand spokesman Mark Street said the company had not looked in detail at the financial impact.

"Obviously the focus at the moment is moving customers," Street said. "We will look at the financial impact down the track but at the moment the focus is operationally on getting passengers to where they need to be."

The incident, relatively speaking, had affected a fairly small part of the airline's network, he said.

First NZ Capital analyst Jason Familton said he did not expect the volcanic disruption to have a significant financial impact.

"The key thing with this is how long it goes on for, how many passengers are affected and assuming things start to recover somewhat over this week and into next then things should be back to normal and I don't expect a significant financial impact," Familton said.

"It's only a small part of their business ... quite clearly they can still operate to Australia, to Pacific Islands, to Asia and to North America as well."

Air New Zealand's shares closed down 4c yesterday at $1.37.

"You saw even the European airlines were down only 2 to 3 per cent on Friday so there is a little bit of an impact but it's more so the market's down as a whole rather than [anything] specific to the aviation sector at this stage," Familton said.

Goldman Sachs JBWere analyst Marcus Curley said the principal impact would be lost revenue with passengers offered a refund or an alternative booking.

However, the cost burden appeared to be fairly limited given that Air New Zealand, outside of the first people that had been caught out, had told people they travelled at their own risk in terms of the onward flight, Curley said.

Aircraft load factors at present were relatively good and there would be some lost marginal revenue, he said.

"But I don't think it's going to be too dramatic. You're probably talking low millions of dollars so relative to the size of the group it's probably relatively modest at this stage, assuming that things get back to normal."

Air New Zealand's revenue for the six months ending December 31 was $2.05 billion.

Most people had expected its next half-year financial performance to be better than the company had suggested, Curley said.

"So maybe this at the edge claws back some of that outperformance but I'd be surprised if it's material enough to change their own expectations for profitability."