Our national airline says it is 'leaning into the reality of a worsening revenue and cost environment'

Air New Zealand (AIR) says it's currently reviewing fares and capacity "to better reflect ongoing cost pressure" as it prepares for a second half of the financial year where results are expected to be "markedly lower" than the first half.

Our national carrier had warned earlier in the week ahead of the release of its first-half profit results that the second half of the current financial year ending June 2024 is proving to be tough and it has forecasted pre-tax earnings for the full year of between $200 million and $240 million.

That's comfortably less than half what our national carrier made in its stunning post-Covid bounce-back 2023 financial year, in which it made pre-tax earnings of $574 million, its second highest ever profit.

Air New Zealand on Thursday announced earnings before taxation of $185 million for the first half of the 2024 financial year. Net profit after taxation was $129 million. The airline's paying a 2c a share interim dividend.

Air New Zealand gave the following key points:
• Earnings before taxation of $185 million
• Passenger revenue of $3.1 billion driven by a significant ramp-up in capacity across the international network
• Airline is currently reviewing pricing and capacity to reflect ongoing inflation pressures
• Unimputed ordinary interim dividend of 2.0 cents per share declared
• Significant improvement in onboard experience, reliability and customer response times
• Tougher forward trading environment. Earnings before taxation for the 2024 financial year now expected to be in the range of $200 million to $240 million, including $20 million of currently assumed additional Covid-related credit breakage

The airline said passenger revenue of $3.1 billion was up 21% driven by a significant ramp-up in capacity across the international network.

"Demand was stable in most markets, but signs of softness in domestic corporate and Government demand was experienced from September. Overall capacity was up 29% on the comparative six-month period. Operating costs, including fuel, increased 21% due to a substantial increase in long-haul flying this year.

"Inflationary pressures also continue to be felt. Non-fuel operating costs have increased around 5% or $100 million due to price inflation, which is on top of an increase totalling 15% to 20% across the last four years. The cumulative effect of these increases is having a significant impact on the cost of providing air services, including on the domestic network, and the airline is currently reviewing fares and capacity to better reflect ongoing cost pressure."

Air New Zealand Chair Therese Walsh said the airline 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".

"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."

The business is "pulling multiple levers" to mitigate the "headwinds" it is facing.

Chief executive Greg Foran said Boeing had now confirmed that the first of the new 787 Dreamliners is unlikely to arrive until at least mid-2025, "which will delay delivery of our innovative new Skynest. The interior retrofit of our current 787 fleet remains on track".

"To mitigate these challenges, we introduced a dry lease 777-300ER in November. A second dry lease 777-300ER will enter the fleet mid-year and we are well advanced on negotiations for a third."