Air New Zealand eyes lower earnings for first half as domestic demand softens

By Ayushman Ojha

(Reuters) -Air New Zealand on Thursday flagged lower earnings for first half of fiscal 2024 on a recent softness in domestic travel demand and volatility in jet fuel prices, dragging its shares to a five-month low.

New Zealand’s flag carrier expects earnings before tax for the first half to be between NZ$180 million ($108.36 million) and NZ$230 million. The company had reported NZ$299 million in the year-ago period.

“With interest rates at 5.5% and inflation still well above target, people are more prudent about spending habits and air travel can take a back seat to other modes of transportation in such circumstances,” said Tim Waterer, chief market analyst at KCM Trade.

The carrier said jet fuel prices and the weaker New Zealand dollar had an adverse impact on costs for much of the first financial quarter.

Jet fuel prices increased by 35% from July to September, but came down almost 10% over the past week, it said.

The airline assumes an average jet fuel price of $110 per barrel for the remainder of the first half of fiscal 2024.

“Many airlines will be keeping a very close eye on recent volatility in fuel prices, as price swings in energy market can have oversized impact on profits,” Waterer added.

The company had termed fiscal 2023 as “unique”, recording revenue of NZ$6.3 billion and statutory earnings of NZ$574 million for the period.

Air NZ had warned in September that inspections of RTX’s Pratt & Whitney engines would have a “significant” impact on its flight schedule from next year.

It, however, said on Thursday the financial impact from the engine issues on the first half of 2024 is “expected to remain nominal”.

Air NZ shares opened 1.4% lower at NZ$0.7, their lowest level since May 11, 2023.

($1 = 1.6611 New Zealand dollars)

(Reporting by Ayushman Ojha; Editing by Shilpi Majumdar)