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Air New Zealand announces drop in profits

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Air New Zealand announces drop in profits
Like Qantas, Air New Zealand has seen a drop in profits compared to the same period last financial year.

Calling it an “expected reduction”, Air New Zealand’s half-year, after-tax profit was $129 million, compared to $213 million in February 2023, representing a 39 per cent drop on what was a near record result last year.

Air New Zealand’s overall capacity is up 29 per cent on the same six-month time frame of last financial year and passenger revenue was up 21 per cent. However operating costs were also up by 21 per cent.

The airline has noted “signs of softness” in domestic corporate and government travel since September 2023. On top of this, operating costs – excluding fuel – have risen $100 million over the first half of the financial year due to inflation.

“We knew this year would be tougher than the last, when pent up levels of demand and industry-wide capacity constraints drove one of the strongest financial results in our history,” said Air New Zealand’s chair, Dame Therese Walsh.

“And while we have reported a solid first half result, it is against the backdrop of significant ongoing supply chain issues, particularly the additional Pratt & Whitney engine maintenance requirements on our A321neo fleet, which will see up to five of our newest and most efficient aircraft out of service at any one time across the next 18 months at least.

“On top of these operational challenges, we are now leaning into the reality of a worsening revenue and cost environment, which is expected to have a significant adverse impact on performance in the second half.

“Earlier this week the airline provided a full year profit outlook, noting among other things, a deterioration in the forward bookings profile,” she said.

“Intense international competition features heavily in the current environment, particularly for North America where our US competitors have not yet returned to China at scale, and for now have directed some of that additional capacity to the New Zealand market, putting pressure on yields.

“The business is pulling multiple levers to mitigate the impact of these headwinds, and this is a key focus for the team.

“Despite these short-term challenges, the airline is in a fundamentally strong position.”

In its half-year results, Air New Zealand also hinted at possible airfare rises, saying “the airline is currently reviewing fares and capacity to better reflect ongoing cost pressure”.

Air New Zealand’s CEO Greg Foran noted several improvements to customer experience, including across on-time performance, food and beverage and inflight entertainment and WiFi.

However, he also confirmed Air New Zealand’s new 787 Dreamliners from Boeing are “unlikely to arrive until at least mid-2025, which will delay delivery of our innovative new Skynest”. Skynest is the set of sleeping pods set to be installed in the economy cabin for ultra-long haul flights. They were expected to be in service this year.

For a variety of reasons, the airline is expecting lower profits in the second half of the current financial year, compared to first half results.

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