Friday, August 30, 2024 Air New Zealand has announced its earnings before taxation for the 2024 financial year, totaling $222 million—a significant decrease compared to the $574 million recorded in the previous year. This reduction was anticipated, especially after the airline’s record-breaking results following New Zealand’s border reopening last year. Net profit after taxation stood at $146 million, highlighting the challenging conditions that the airline faced during the second half of the financial year.
While Air New Zealand enjoyed a robust first half of the financial year, the latter half proved to be increasingly difficult. The airline encountered numerous operational and economic challenges that considerably impacted its performance. The economic landscape in New Zealand worsened, leading to a decline in domestic demand, particularly within the corporate and government segments.
This downturn in demand was one of the major factors contributing to the airline’s reduced profitability. Additionally, the global aviation industry faced widespread operational disruptions, further complicating Air New Zealand’s situation. Maintenance issues with the Pratt & Whitney PW1100 engines resulted in up to six of the airline’s newest and most efficient Airbus neo aircraft being grounded at various times.
Compounding this, ongoing maintenance requirements for the Trent 1000 engines that power the Boeing 787 Dreamliner fleet, coupled with a shortage of spare parts, led to up to three Dreamliners being out of service simultaneously. These challenges, alongside increased competition from US carriers and persistent inflation, significantly affected the airline’s operational capabilities and financial outcomes. Despite these challenges, Air New Zealand reported an 11 percent increase in passenger revenue, reaching $5.
9 billion for the year. This growth was primarily driven by a 23 percent increase in capacity, especially across the international long-haul network. However, this revenue boost was partially offset by a weakening demand environment and intensified competition.
Within this revenue, the airline included $90 million from credit breakage for unused customer credits that were deemed unlikely to be redeemed. Fuel costs also saw a significant increase, despite slightly lower average jet fuel prices for the year. The total fuel costs rose by approximately $190 million, a result of the expanded capacity across the airline’s network.
Non-fuel operating costs grew at a faster rate than revenue, further straining the airline’s financial performance. Broad-based inflation across the cost base contributed to an estimated $225 million increase in non-fuel operating costs, with landing charges, air navigation fees, and engineering materials being the main drivers. The cumulative impact of inflation over the past five years has been substantial, with a total increase of 20 to 25 percent in non-fuel operating costs.
Despite the challenging year, Air New Zealand’s balance sheet remains strong, enabling the airline to declare a final unimputed ordinary dividend of 1.5 cents per share. This brings the total ordinary dividends declared for the year to 3.
5 cents per share. The dividend is scheduled to be paid on 26 September, with shareholders on record as of 13 September set to receive their payouts. Air New Zealand’s Chair, Dame Therese Walsh, expressed her gratitude to the airline’s 11,700 employees for their dedication and resilience in the face of the year’s challenges.
“It’s been a difficult year managing both macroeconomic and operational challenges. I’d like to thank the Air New Zealand whānau, not only for navigating these issues with great skill and manaaki, but also for never losing sight of what the organization needs to do to be a future-fit airline,” she said. Dame Therese acknowledged the significant impact these challenges have had on the airline’s financial performance, noting that earnings before taxation could have been approximately $100 million higher had the airline been able to operate its aircraft and schedule as planned.
Despite the current difficulties, she emphasized that Air New Zealand remains focused on improving returns and maintaining its commitment to providing a world-class travel experience for its customers. Chief Executive Officer Greg Foran echoed these sentiments, thanking customers and employees for their ongoing support during this challenging period. “I want to acknowledge the understanding and loyalty of our customers who were impacted by unavoidable scheduling changes while traveling with us this year.
We do not take our customers’ choice to fly with Air New Zealand for granted and are grateful for the patience they have shown us,” Foran said. In response to the operational challenges, Air New Zealand took immediate steps to minimize disruptions. The airline leased three Boeing 777-300ERs, secured additional spare engines, and adjusted its network and schedule to improve reliability.
Despite these efforts, Foran admitted that the customer experience has been less than ideal, but the airline is committed to making further improvements. Looking ahead, Air New Zealand expects the challenging conditions to persist into the first half of the 2025 financial year. The airline has outlined several trading conditions that will continue to impact its performance, including the tough economic environment in New Zealand, ongoing inflationary pressures, aircraft availability issues, and heightened competition on its US routes.
However, Foran remains optimistic about the airline’s long-term prospects. “As we continue to navigate this difficult environment, we remain focused on the big picture – controlling what we can, relentlessly focusing on our customers and our people, and investing for the future. Our Kia Mau strategy continues to serve us well, driving improvements in our core capabilities, and we’ve made considerable progress on many fronts,” he stated.
Air New Zealand is committed to maintaining a disciplined approach to cost management, including a targeted reduction in headcount by around 2 percent. The airline is also focused on investing for the future, with planned aircraft-related capital expenditures of $3.2 billion over the next five years.
This investment includes a significant interior retrofit program for its existing Dreamliner fleet and the anticipated delivery of new GE-powered Boeing 787-9 aircraft by the end of 2025, which will support the airline’s growth and network expansion objectives. Air New Zealand is bracing for another challenging year ahead as it continues to navigate economic and operational headwinds. However, with a robust balance sheet, strategic investments, and a focus on customer service, the airline is well-positioned to overcome these challenges and emerge stronger in the long term.
While the immediate future remains uncertain, Air New Zealand’s leadership is confident in its ability to manage through these difficulties and deliver on its purpose of providing exceptional travel experiences for its customers..
