Air New Zealand – brightness on the horizon?

By Greg Smith, Head of Retail at Devon Funds

The reopening post-Covid then saw supersonic passenger demand with airfares rising accordingly, and turbo-charging earnings. Volatile jet fuel costs on the back of wars and geopolitical tensions have made the journey more testing.

From the stock market’s perspective, the sector has descended around 30% over the past five years, while global equity markets have risen strongly – the S&P500 is up over 70% in this time. Air New Zealand has also lagged the NZX50, which will not have gone unnoticed by legions of retail investors (who increased their position via the $1.2b capital rise in 2022), and the government given its 51% stake. Air New Zealand’s share price is down nearly 20% year to date, with recent weakness driven by a downgrade to earnings forecasts.

Last month the airline reduced underlying earnings guidance for the year to 30 June 2024 by $40-$50 million, citing a softening of trading conditions both at home and abroad. In NZ, driving factors have been cost of living pressures along with subdued corporate and government demand. The kiwi economy is in recession and with airfares elevated, people are cutting back on travel. The airline’s ratio between revenues and available seat kilometres (RASK) on short haul routes is down ~7% year to date versus a year ago. The airline is now putting up prices which could help but may also be a hindrance.