Are you ready for some turbulent times in the airline industry? Air New Zealand reported a 61% drop in annual profit on Thursday, citing sticky inflation, intense competition, and engine-related maintenance issues as key factors. This news has sent shockwaves through the market, with the airline’s shares taking a hit as investors brace for a bumpy ride ahead.
The country’s flagship carrier pointed to tough competition from U.S. counterparts and the impact of high inflation on demand. Additionally, engine maintenance requirements from Pratt & Whitney have been a major headache, causing delays in aircraft availability. Last year, Pratt & Whitney removed over 1,000 engines from Airbus planes, leading to intermittent groundings of Air New Zealand aircraft and significantly impacting the airline’s performance in fiscal 2024.
“Air New Zealand is expecting a challenging year ahead,” said CEO Greg Foran in a statement. The airline anticipates that unfavorable trading conditions will persist in the first half of the 2025 financial year, without providing specific guidance for the year.
To navigate these rough waters, Air New Zealand plans to make targeted adjustments to its cost base, including a nearly 2% reduction in headcount. Despite the challenges, the airline’s earnings before tax fell to NZ$222 million from NZ$574 million a year earlier, beating expectations.
The road ahead is not smooth sailing, with the airline projecting aircraft-related capital expenditure of NZ$3.2 billion over the next five years. However, it did declare a final dividend of 1.5 New Zealand cents per share for fiscal 2024.
As the industry grapples with these headwinds, it will be interesting to see how Air New Zealand steers through the storm and emerges on the other side. Stay tuned for more updates on this developing story!
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($1 = 1.6023 New Zealand dollars)