Fuel price increases to take bigger toll on Air NZ

Higher jet fuel prices will further reduce full-year profit, Air New Zealand indicated yesterday.

The national carrier noted that some analysts had used company disclosures and publicly available information, such as oil prices, to reduce their earnings forecast to below its earlier guidance.

"These reductions are consistent with the fact that average jet fuel prices have increased from US$72 a barrel ($112) in the first half to US$78 a barrel in the second half of this financial year," Air NZ said in a commentary accompanying its March and April operating statistics.

The airline released earnings guidance last November saying June-year profit before tax and abnormal items would be $140 million, down from $235 million a year earlier.

Last month, Forsyth Barr lowered its full-year forecast for earnings before tax from $135 million to $119 million.

"There is probably still a little bit more room for our numbers to be dropped but not materially," said head of research Rob Mercer yesterday.

Bloomberg reported average market forecasts for Air NZ's full-year net profit had eased to $105 million, from $112 million four weeks ago. The company's net profit last year was $180 million.

Air NZ said it had no plans to provide more specific earnings guidance itself "given that key macro inputs, such as oil prices, are publicly available and sufficient disclosures are now in place to help market participants better understand the key forces impacting on the company's trading and financial environment".

Goldman Sachs JBWere research head Peter Sigley said the airline was not necessarily indicating that the revised forecasts were accurate but "the idea's right".

While not endorsing the forecasts, the airline was clearly indicating earnings were likely to be lower then previously suggested.

"You have to bear in mind they do have a reasonably chunky amount of hedging on board but certainly not enough to fully offset the increased liability."

Sigley said the announcement would come as no great surprise to those following fuel prices.