Full Review Must Return Air New Zealand to Profitability

Air New Zealand has launched a full strategy review to steer the airline back to profitability after reporting a $40 million net loss for HY1 of FY26. The carrier continues to suffer from engine-related issues that force it to ground aircraft, while the domestic travel market is not recovering as expected due to high inflation. ANZ confirmed the review during today’s earnings presentation, but new CEO Nikhil Ravishankar has been tasked with the job by the Supervisory Board since he took over from Greg Foran in October. “With the support of the Board, we are undertaking a comprehensive review of all aspects of the business, with the objective of returning the airline to sustained profitability through enhanced operational performance, growth and further cost transformation initiatives.” Air New Zealand suffers from multiple problems. One is operational and has to do with the persistent engine issues. For a few years, it has suffered durability issues with its Rolls-Royce Trent 1000-powered Boeing 787-9s, resulting in aircraft on ground as their engine were fixed. While Rolls-Royce has rolled out improvement packages that should significantly improve time on wing, progress has been slow at ANZ. This HY2, up to four 787-9s will be unavailable. Up to three Airbus A321neos will be grounded until July because of durability issues with the Pratt & Whitney Geared Turbofans, which require repairs and more spare engines. The airline was compensated $55 million by the engine makers, but the engine issues had an impact of $135 to $155 million. Compensation for HY2 is yet to be agreed. Capacity Whereas most airlines have fully recovered from the pandemic, Air New Zealand’s capacity is still behind 2019 levels. Domestic capacity should reach 6.5 billion ASKs compared to 7.1 billion pre-COVID, or eight percent down. International capacity is guided this year at 35 billion ASKs versus 38.9 billion in 2019. Capacity will gradually grow in HY2 by three to four percent, with two Airbus and two Boeing aircraft expected to return to service and two new Boeing 787-9s with General Electric GEnx engines delivered this April from the factory. Also factored in are two leased A321neos. This still leaves full-year capacity some ten percent below 2019 levels. Capacity will only exceed this once eight more 787s (three -9s and five-10s) have joined in the coming two years, boosting widebody capacity by 20 to 25 percent in this period. But the airline warns that there is no quick fix: “While capacity is expected to increase modestly in the second half, as aircraft return to service and new aircraft enter the fleet, the airline cautions that improvements in aircraft availability are unlikely to translate immediately into earnings uplift. This is because widebody capacity cannot be operationalised into the schedule and sold at short notice. The primary constraint is uncertainty in the timing of aircraft and engine returns, which limits the ability to plan and sell additional flying with confidence. Disruption-related costs and inefficiencies also take time to unwind, including the return of leased aircraft and engines.” Market The second problem confronting Air New Zealand is the market. Inbound demand from North America is strong, but outbound demand is weaker. Canada is performing better than the US, but overall, capacity and load factors dropped during HY1. Capacity to Asia and Japan was also down, but load factors were up, thanks to robust outbound demand. The Pacific Island and especially Tasman Island, produced the best results, with ASKs up by 6.9 and 9 percent respectively. New Zealand Domestic is of some concern, with passenger volumes stable. Inflation and rising costs are hurting the airline, which saw landing charges rise by 64 percent engineering materials by 45 percent, air navigation charges by 37 percent, and labour by 31 percent. Add to that four percent higher fuel costs in HY1, albeit lower than twelve months earlier, the weaker New Zealand dollar, and offsetting charges under the Corsia scheme, and a $98 million profit turned into a $40 million net loss. Underlying CASKs were up 5.7 percent. Revenues were almost flat at $3.4 billion, total expenses up from $2.9 to $3.1 billion. Given the current position, ANZ will issue no dividend. On the positive side, the carrier has $1.3 billion of liquidity and $2.3 billion as an unencumbered fleet. Looking ahead to HY2, Air New Zealand says: “Based on current trading conditions and assuming an average jet fuel price of US$85 per barrel for the second half, Air New Zealand expects second-half earnings to be broadly in line with, or modestly below, the first half. The outlook remains subject to material uncertainty, including engine return schedules, the timing and quantum of compensation, and continued volatility across key input costs and demand conditions.” FY25 ended with a $126 million net profit, which was down 14 percent year-over-year. The carrier upholds a Capex of $3.4 billion in aircraft and associated assets from HY2 through 2031. This includes the cabin retrofit of 14 787-9s and seven 777-300ERs, with the former expected to be completed before the end of 2026 and the latter to start early 2027.

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