Air New Zealand Reports Profit Decline, Airfares Set to Rise

Air New Zealand has experienced a decline in profit, reporting $126 million for the year ended June 30, 2023, down from $146 million the previous year. This downturn is attributed to reduced demand for air travel, ongoing aircraft supply issues, and extensive engine maintenance requirements. The airline has faced challenges with its fleet, at times grounding more than ten aircraft for maintenance, which has significantly impacted its financial performance.

In a statement, the airline’s chairperson, Dame Therese Walsh, highlighted the company’s resilience amid operational and economic fluctuations. Chief Executive Greg Foran noted that the airline had up to six narrowbody and five widebody planes out of service, primarily due to engine problems. He indicated that while the airline received $129 million in compensation from engine manufacturers, the potential pre-tax earnings could have been approximately $165 million higher if the fleet had operated as intended.

Challenges and Future Outlook

Foran emphasized that the upcoming year could be as challenging as the last, with underlying pre-tax earnings expected to match or fall below the $34 million recorded in the second half of the financial year. Although the airline’s fuel costs dropped by 12% due to lower world prices and fewer flights, this was counterbalanced by rising expenses in equipment, labor, and landing fees, which are increasing faster than inflation.

The airline’s cost-cutting measures have led to approximately $100 million in savings. Foran expressed optimism about the airline’s ability to recover once engine challenges and economic conditions improve. He pointed out that both corporate and government spending remains subdued, with a 5% decline in corporate travelers and a 10% decrease in government travel compared to the previous year. Foran also mentioned that Auckland is facing difficult times, supporting the implementation of a bed tax to aid recovery.

Air New Zealand intends to expand its offerings by selling flights to London, Gatwick, starting in mid-2024 for travel in 2027. As part of its response to rising operational costs, the airline anticipates increasing airfares by 5%.

Leadership Transition

As the airline navigates these challenges, Foran will step down in October 2023 after nearly six years in the role. He will be succeeded by the airline’s chief digital officer, Nikhil Ravishankar. The transition comes at a critical time as the airline adapts to a rapidly changing aviation landscape.

With air travel demand fluctuating and operational hurdles persisting, Air New Zealand faces a pivotal moment in its history, striving to stabilize its financial footing while preparing for future growth.