Further Flight Cuts Mulled as Air NZ Forecasts Full-Year Loss

Air New Zealand expects a substantial full-year loss as the Middle East conflict stokes jet-fuel costs, forcing it to cut costs and reduce services.

The loss before tax will be NZ$340 million to NZ$390 million ($202 million to $232 million) in the year through June, the Auckland-based airline, which is 51% owned by the government, said Thursday. That compares with average analyst estimate of NZ$275 million loss, and assumes fuel prices average $145 a barrel in the six months through June.

“If fuel prices stay at these elevated levels, the airline expects to announce further capacity updates in the coming weeks,” it said, without providing details.

The loss, while not unexpected, is a fresh blow to the national carrier, which has been hit hard by groundings across both its domestic and long-haul fleets due to extra maintenance required on Pratt & Whitney and Rolls-Royce Holdings Plc. engines worldwide. The airline said it is returning grounded aircraft earlier than scheduled, which will allow it to deploy its most fuel-efficient aircraft more precisely.

Air New Zealand expects that all existing Boeing 787 aircraft will return to service by late June and all Airbus aircraft by 2027. The full-year guidance includes about NZ$50 million of unexpected leased engine maintenance costs, and NZ$12 million of lower compensation reflecting the earlier than expected return of engines.

Fuel costs remain the biggest challenge. Second-half fuel costs will be about NZ$980 million compared to the NZ$740 million expected at the time of its first-half results in February.

Air New Zealand has also increased fares and said booking momentum has moderated in recent weeks.

“While fare increases have been implemented, recovering the full impact of higher fuel costs over a short period would risk further demand softness, and the airline is therefore taking a measured approach to pricing and capacity,” it said.

The airline said it has accelerated a planned program of cost savings, and has identified NZ$100 million of annualized savings, and it’s also reviewing upcoming capital expenditure plans.

There will be near-term capex deferrals because of delays from aircraft manufacturers while management “will continue to review the timing of future aircraft deliveries to ensure fleet investment remains aligned with demand, capital priorities and the operating environment,” it said.

The airline said its balance sheet is resilient, and it has about NZ$1.3 billion of available liquidity. It is in the final stages of establishing a $400 million secured revolving credit facility which will add to its liquidity pool.