The airline’s annual net profit fell 65%. The CEO Greg Foran explains how the economy and engine issues are impacting its earnings. Video / Alyse Wright
An economic slowdown and weaker demand for travel, higher costs for staff and aircraft maintenance, as well as unexpected engine issues are all impacting Air New Zealand’s bottom line.
“We did know that the second half of the year would be tougher than the first, and this [result] highlights the volatility we’ve cautioned about in the past,” chief executive Greg Foran said on Thursday.
Travel demand had deteriorated, especially domestically with Government travel down 28% and corporate travel down 10 to 12%.
“Those tend to be our most profitable categories because people tend to buy tickets late and therefore they’re paying slightly higher fares,” Foran told Markets with Madison.
“So to have each of those sectors down does have an impact.”
On the bright side, passenger demand across the Tasman and to parts of Asia and back, such as Japan and Bali, were still “pretty good”, Foran said.
Costs across the business, excluding fuel, rose 6% - a continuation of the impact of inflation, which had increased the airline’s costs over the past five years by between 20 and 25%.
It let go of 400 employees in the financial year to save millions of dollars (although some cabin crew and engineers had been hired since).
But Foran was optimistic about the airline’s prospects as he loosely expected some signs of an economic recovery by the second half of this financial year.
“It feels like we’re at the bottom of that cycle.
“In terms of pricing on seats, I don’t think you’ll see too much change to what we currently have at the moment for the next six months.”
That was despite capacity for the group looking to stay flat this financial year due to 10 aircraft being out of action (four Boeing 787-Dreamliners and six Airbus neo aircraft) due to issues with Pratt & Whitney and Rolls Royce engines.
Capacity increased in the financial year just ended, driven largely by a 50% increase in flights on US routes.
Watch Greg Foran discuss how the economy is impacting the airline in today’s episode of Markets with Madison above.
Air New Zealand chief executive Greg Foran says the airline is dealing with 'frustrating headwinds'.
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Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
