Air New Zealand Reports Profit Drop, Forecasts Rising Airfares

Air New Zealand has announced a significant drop in its annual profit, reporting $126 million for the year ending June 30, 2023, down from $146 million the previous year. This decline has prompted warnings of potential increases in airfares due to ongoing operational challenges, including soft demand and persistent engine maintenance issues affecting the airline’s fleet.

The airline’s chairperson, Dame Therese Walsh, noted that the results reflect the company’s resilience amid various economic factors. Chief Executive Greg Foran revealed that the airline faced significant operational disruptions, with as many as six narrowbody and five widebody aircraft grounded for engine maintenance at times. This situation considerably impacted overall performance.

“While the airline received $129 million in compensation from engine manufacturers, our estimates suggest that earnings before taxation of $189 million could have been approximately $165 million higher had our fleet operated as intended,” Foran stated. He emphasized the proactive measures taken, including securing additional engines and optimizing schedules, to ensure customer travel continued despite challenges.

Looking Ahead: Financial Challenges Persist

Foran cautioned that the upcoming year is expected to be just as challenging, with underlying pre-tax earnings anticipated to match or fall below the $34 million recorded in the second half of the last financial year. Although the airline’s fuel costs decreased by 12% due to lower global prices and reduced flights, this relief was offset by rising equipment, labor, and landing charges, which are outpacing inflation.

In an effort to mitigate costs, Air New Zealand implemented a cost-cutting program that yielded approximately $100 million in savings. “The airline is well-positioned for recovery when engine issues and economic conditions improve, but these challenges continue to significantly affect our financial performance,” Foran explained.

Corporate and government travel spending has also been subdued, with a reported 5% decrease in corporate travelers and a 10% drop in government spending compared to the previous year. Foran indicated that Auckland’s economic climate remains tough, mentioning his support for a proposed bed tax to alleviate some financial pressures.

Future Plans and Airfare Projections

Looking towards the future, Air New Zealand plans to begin selling flights to London Gatwick by mid-2024 for travel scheduled in 2027. However, passengers should anticipate a 5% increase in airfares to offset rising operational costs.

As Foran prepares to step down in October after nearly six years in leadership, he will be succeeded by the airline’s chief digital officer, Nikhil Ravishankar. The upcoming transition comes at a time when Air New Zealand is navigating significant challenges but holds potential for future growth as market conditions stabilize.