Air NZ posts third annual loss, eyes recovery in travel this year
Thursday, 25 August 2022
Air New Zealand posted its third annual loss in a row as the pandemic curbed travel, but it is expecting a “significant improvement” in its financial performance this year as demand rebounds.
The national carrier reported a net loss of $591 million in the year to June 30, compared with a loss of $292m the previous year. Revenue lifted 9% to $2.7 billion, as cargo revenue rose 32% to a record $1b while passenger revenue was flat at $1.5b.
Air NZ was hard hit during the pandemic as international borders closed to travellers. Since New Zealand began to lift travel restrictions in March, the airline has benefited from a strong recovery in bookings and revenues, and the trend has continued, with high booking levels through July and August.
“We’re encouraged by the start that we're seeing,” said chief executive Greg Foran. “We're seeing pretty full planes and people very interested in getting out and travelling, whether it be domestically or internationally.
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“As we’ve been seeing overseas, travel demand is much stronger than anyone anticipated.”
With borders now open to the majority of the airline’s markets, Air NZ is heading into its first full year of uninterrupted passenger flying since the beginning of the pandemic, with total flying capacity expected to be at 75% to 80% of pre-Covid levels.
Foran said the airline anticipates “a significant improvement” in financial performance this year as passenger revenue picked up.
Still, he said it was too early to give firm predictions given the uncertainty regarding volatility in jet fuel prices, the risk of a global recession, and other macroeconomic factors including inflationary pressures on costs.
“We’re operating in a very tight labour market with high fuel prices, tough economic conditions and the highest levels of employee sickness in more than a decade,” he said.
The airline is operating a reduced schedule over the next six months, with 1.5% fewer seats than originally planned as it grapples with staff shortages.
“We're very busy bringing back another 1000 people into the business on top of the 1500 that we've already brought back, so it is a bit of a world record hiring process going on at Air New Zealand at the moment,” he said.
Volatility in fuel prices was also making it difficult to forecast future earnings, he said.
Fuel accounted for about 25% to 30% of the cost of an airline ticket to the United States, or about 12% to 15% of a domestic ticket, he said.
“That's a cost that's very difficult for us to absorb and, quite frankly, we end up having to, unfortunately, pass some of that on,” he said.
He said the airline was conscious of trying to provide good value and last year sold 3.8 million fares for less than $100.
The airline was facing inflationary pressures itself in the cost of labour and services and was cautious about how higher inflation may impact on demand for travel.
“At this point, we continue to see a very strong demand for people wanting to travel – quite frankly it's better than we expected and so we're encouraged by that,” he said.
“But we're also cautiously looking over the horizon, knowing that some of these costs at some point may make the second or third trips that customers were planning to take, it may make them a little bit more circumspect. We haven't seen that yet. So we'll just keep an eye on it and see what transpires.”
The company does not expect to consider paying dividends before the airline’s earnings substantially recover, and in the context of a supportive and sustained broader economic environment and recovery, it said.
Shares in Air NZ slid 0.7% to 67 cents in mid-afternoon trading on the NZX. The stock has lost 60% over the past three years.