Air New Zealand, the flag carrier of New Zealand, has released its financial results for the 2024 fiscal year, revealing a challenging period marked by significant headwinds.
The New Zealand flag carrier saw its profits fall approximately 60% in a climate of strong inflation, and industry challenges. Competition for US carriers and ongoing engine and supply issues were cited as key influencing factors.
Financial Overview
The airline reported earnings before taxation of $222 million, a substantial decrease from the $574 million recorded in the previous year. Net profit after taxation stood at $146 million.
While these figures represent a significant decline, it’s important to contextualize them against the exceptional performance of the previous year. This was buoyed by the reopening of New Zealand’s borders and pent-up travel demand.
Air New Zealand’s fiscal year was a story of contrasting fortunes. The first half showed promising results, buoyed by the continued recovery of international travel. However, the second half proved to be increasingly challenging as multiple factors converged to impact the airline’s performance.
Domestic Market Challenges
A key factor in the airline’s performance downturn was the weakening domestic demand, particularly in the corporate and government segments.
This softening can be attributed to the tougher economic backdrop in New Zealand, with businesses and government entities likely tightening their travel budgets in response to economic uncertainties.
Operational Hurdles
Air New Zealand faced significant operational challenges related to its fleet. Up to six of its newest and most efficient Airbus neo aircraft were out of service at times due to accelerated maintenance requirements for Pratt & Whitney PW1100 engines.
This issue, which affects airlines worldwide, has put a strain on Air New Zealand’s operational capacity and efficiency.
Furthermore, ongoing maintenance requirements for the Trent 1000 engines powering the Boeing 787 Dreamliner fleet.
This, coupled with reduced availability of spare parts in the market, led to up to three Dreamliners being grounded at times. These fleet issues have undoubtedly impacted the airline’s ability to optimize its network and meet passenger demand efficiently.
Competitive Pressures
The airline faced elevated competition, particularly from US carriers. This increased competition likely put pressure on yields, especially on lucrative long-haul routes.
This forced Air New Zealand to balance between maintaining market share and preserving profitability.
Revenue and Cost Analysis
Despite the challenges, Air New Zealand managed to increase its passenger revenue by 11% to $5.9 billion. This growth was primarily driven by a 23% increase in capacity, focusing on the international long-haul network. However, the weaker demand environment and heightened competition partially offset these gains.
On the cost side, the airline faced significant pressures. While average jet fuel prices were slightly lower for the year, total fuel costs increased by around $190 million due to the expanded capacity. Non-fuel operating costs also rose faster than revenue, driven by both capacity increases and broad-based inflation across the cost base.
The impact of inflation cannot be overstated, with non-fuel operating cost inflation of approximately $225 million significantly impacting the airline’s financial performance. This brings the cumulative impact of inflation over the past five years to 20-25%, a substantial challenge for the airline’s cost management efforts.
Strategic Response and Future Outlook
In response to these challenges, Air New Zealand is taking decisive action. The airline has leased three Boeing 777-300ERs to mitigate the impact of aircraft unavailability, secured additional spare engines, and adjusted its network and schedule to improve reliability.
Looking ahead, Air New Zealand is focusing on cost discipline, including a planned 2% reduction in headcount and improvements in its controllable cost base.
Despite these near-term measures, the airline remains committed to long-term investment, with planned aircraft-related capital expenditure of $3.2 billion over the next five years.
This investment includes a significant multi-year interior retrofit program for the existing Dreamliner fleet and the anticipated delivery of new GE-powered Boeing 787-9 aircraft starting in late 2025.
These investments demonstrate Air New Zealand’s confidence in its long-term prospects and commitment to enhancing its product offering.
Conclusion
Air New Zealand’s 2024 financial year results reflect the complex and challenging environment facing the global aviation industry.
While the airline has faced significant headwinds, its strategic responses and continued focus on long-term investments suggest a measured approach to navigating these challenges.
The coming year is expected to remain difficult, with many of the current challenges persisting into the first half of the 2025 financial year.
However, Air New Zealand has a healthy balance sheet, strategic fleet investments, and focus on operational efficiency position. This should help it to weather the current storm and capitalize on future opportunities as market conditions improve.
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