Air New Zealand has warned shareholders that the carrier is heading for a full year pre tax loss of between $340 million and $390 million as the Middle East conflict pushes jet fuel to levels the national flag carrier has never had to absorb.
In a market update lodged with the NZX, the airline said its second half fuel bill will come in at around $980 million, up $240 million on the $740 million it had forecast just three months ago. Jet fuel that traded around US$85 to US$90 a barrel before the Iran conflict has spent much of the past ten weeks in a US$160 to US$230 a barrel range, and the airline is now budgeting on an average US$145 a barrel for the rest of the financial year, according to Interest.co.nz.
Chief executive Nikhil Ravishankar told 1News the result was “not a surprise” given the speed of the oil shock, and that roughly two thirds of the deterioration reflects fuel while the remaining third reflects underlying business performance the airline was already trying to fix. He confirmed redundancies were coming, telling the broadcaster “we do” foresee job cuts, “but exactly the size and scale of that, we don’t know yet”, adding that “everyone understands that there’s a fuel crisis and we have to do something about that”. Air New Zealand staff watching this unfold can read our guide on your rights when your employer makes you redundant in New Zealand for the consultation, notice and final-pay rules.
The airline has already pulled 3 to 5 percent of its capacity out of the network and Ravishankar warned further capacity adjustments would be made in the coming weeks if jet fuel stayed at current levels. He pushed back on the idea of mothballing entire routes, telling 1News dropping a city pair would be “a very, very big decision” and “at this stage, we’re not intending to do any of that”. Two fare increases have already been put through and demand is starting to soften, although the chief executive said the airline wanted to time any further moves “in such a way that it gives people confidence to book”.
The crisis has hit at a particularly awkward moment for the carrier. Engine and supply chain problems have grounded a chunk of the Dreamliner and Airbus fleets, and Air New Zealand has been paying for leased replacement aircraft and engines while passenger revenue per available seat kilometre runs below where it should be. The airline now expects all of its Boeing 787s back in the air by late June and its full Airbus fleet operational by 2027, with the lease costs running until the end of that year, RNZ reported.
Management has been at pains to reassure the market that the balance sheet can handle the squeeze. The carrier said it had roughly $1.3 billion of available liquidity, a $250 million undrawn standby facility, and around $4 billion of aircraft equity sitting in its unencumbered fleet. A new US$400 million secured debt facility is in development which the airline says would add about $670 million of pro forma liquidity once drawn. The airline has also identified up to $100 million of annualised cost savings which are being accelerated in response to the fuel environment, and it is 85 percent hedged for the second half of this financial year and 55 percent hedged for the first half of next year.
Air New Zealand was explicit that it is “not currently contemplating any capital transactions”, a line aimed at quelling any investor anxiety about a dilutive equity raise. Even so the ratings agency Moody’s reaffirmed the airline’s Baa1 long term credit rating but downgraded its outlook to negative, signalling a downgrade is on the table if conditions worsen. The shares fell about 3.5 percent in late morning trading after the update was lodged.
The numbers carry consequences well beyond the airline itself. Air New Zealand is one of the country’s largest single buyers of jet fuel, lifting around 1.4 million barrels in May and June alone, and the carrier sits at the centre of an export and tourism economy that has already been knocked around by the same oil shock. Newswire reported earlier that petrol prices jumped 13 percent and diesel rocketed 37 percent in April as the Middle East conflict drove the worst fuel shock the country has ever seen, and that the Port of Tauranga was struggling to clear a 220 million tray kiwifruit season because container ship capacity has thinned out as carriers reroute around the Strait of Hormuz.
Domestic tourism operators, regional councils chasing connectivity, and the export sector all have skin in the question of how much further Air New Zealand’s network shrinks. For now the airline is signalling pain rather than panic, with cost cuts, fare rises, hedging and a beefed up debt facility doing the work while management waits for the oil price to behave. If jet fuel stays north of US$160 a barrel into the new financial year, the conversation will turn quickly from cost discipline to harder questions about routes and headcount.
Have you cancelled or rebooked a flight because of higher fares this year, or are you in an industry that ships product through Air New Zealand’s cargo network? Drop your story in the comments below.
See also Auckland Airspace — Newswire’s live ADS-B map of every aircraft above Auckland right now.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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