Air New Zealand slashes earnings forecasts

The guidance is well below previous pre-tax earnings forecasts of $NZ425-525 million (A$405-500m), excluding a $30-40 million hit from disruptions caused by a global recall of Rolls Royce Trent 1000 engines.

Air New Zealand has 13 787-9s in its fleet.

“The Rolls Royce engine issues continue to be challenging for the business, both commercially and operationally, but are expected to improve as the year progresses,” the airline said in its investor update.

In April 2018, the US Federal Aviation Administration (FAA) issued an airworthiness directive (AD) that limited extended operations for Boeing 787s with Rolls-Royce Trent 1000 engines due to some durability issues on the intermediate compressor rotor blade for Trent 1000 Package C engines.

The US FAA’s ruling followed the European Aviation Safety Agency (EASA) calling for more regular checks on the intermediate pressure compressor rotor blades.

There are about 1,000 Rolls-Royce Trent 1000 “Package C” engines in service powering Boeing 787-9s, including with Air New Zealand, All Nippon Airways and British Airways.

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Airlines have already been forced to park aircraft while waiting for their Trent 1000 Package C engines to be inspected, repaired and/or replaced amid a shortage of replacement engines. Further, some carriers have temporarily leased aircraft as cover while their 787 engines were being inspected.

In response to having up to five of its 787-9s out of service, Air New Zealand leased one EVA 777 and two Singapore Airlines 777s as cover and made some schedule changes in order to free up aircraft to maintain some form of schedule reliability.

Air New Zealand warns of softer revenue growth

Air New Zealand reported annual pre-tax earnings of NZ$540 million for 2017/18, its second highest on record. The net profit of $390 million was up two per cent from the previous year.

“We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year,” Air NZ chief executive Christopher Luxon said.

“Therefore we have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward.”

Luxon said the Air NZ board still anticipated an interim dividend of 11 NZ cents per share after the company posted its interim results on February 28.

The investor update accompanying the earnings forecast showed passenger numbers across the Air New Zealand network rose 4.3 per cent in the six months to December 31 2018.

Revenue passenger kilometres (RPK) rose 5.3 per cent, while available seat kilometres (ASK), a measure of capacity, was up 4.3 per cent.

Finally, load factors increased 0.9 percentage points to 83.4 per cent, compared with 82.5 per cent in the prior corresponding period.

The airline said in the update that it had adjusted the rate of capacity growth to around four per cent for the year, at the low end of its previous capacity guidance of between four and six per cent.

Slower than anticipated revenue growth was reflected in less leisure travel within New Zealand and softening inbound tourist traffic to New Zealand.

However, an expected average jet fuel price of US$75 a barrel for the rest of 2018/19 would partially offset the impact of the slower revenue growth.

Air New Zealand has been actively discounting thousands of domestic New Zealand flights on its Grabaseat app in recent weeks.

On Wednesday morning, it launched an offer of 500 $1 fares for routes throughout the country – its second $1 deal over the summer holiday period. They were snapped up in 32 minutes.

The company then announced it would offer a further 200 $1 fares at 1400 local time on selected routes.