Air New Zealand Reports Profit Decline, Forecasts Higher Airfares

Air New Zealand has announced a drop in profitability, reporting a profit of $126 million for the financial year ending June 2023, down from $146 million the previous year. The airline attributed this decline to a combination of reduced passenger demand and ongoing challenges with aircraft maintenance and supply issues.

The airline faced significant operational hurdles during the past year, including having up to six narrowbody and five widebody aircraft grounded for maintenance at various times. This situation was exacerbated by engine maintenance problems that contributed to fewer flights and increased operational costs. In a statement, the airline’s chairperson, Dame Therese Walsh, emphasized the resilience shown by the airline amidst these difficulties.

Greg Foran, the airline’s Chief Executive Officer, highlighted the financial impact of the ongoing maintenance issues. Although Air New Zealand received $129 million in compensation from engine manufacturers, Foran estimated that the earnings before taxation of $189 million could have been approximately $165 million higher if the fleet had been fully operational.

Challenges and Future Outlook

Foran acknowledged that the upcoming year is likely to present similar challenges, with forecasts indicating that underlying pre-tax earnings may match or fall below the $34 million recorded in the second half of the previous financial year. The airline noted a 12% reduction in its fuel expenditure due to lower global prices and fewer flights; however, this was offset by rising costs in equipment, labor, and landing charges, which are expected to continue increasing faster than inflation.

Despite these challenges, Air New Zealand’s cost-cutting initiatives achieved savings of approximately $100 million. Foran stated, “The airline is well-positioned for recovery when the engine challenges and economic conditions start to alleviate, but these issues continue to have a significant impact on current financial performance.”

Corporate and government spending has been subdued, with corporate travel down 5% compared to last year and government spending down 10%. Foran expressed concern about the economic situation in Auckland and supported the introduction of a bed tax to bolster local tourism.

Looking ahead, Air New Zealand plans to resume selling flights to London Gatwick by mid-2024 for travel in 2027. However, Foran warned passengers to expect a 5% increase in airfares to accommodate rising operational costs.

As Foran prepares to step down in October after nearly six years at the helm, he will be succeeded by the airline’s Chief Digital Officer, Nikhil Ravishankar. The airline’s focus will remain on navigating the current challenges while positioning itself for future growth as the aviation market evolves.