Air NZ profits dropped 32% last year, with coronavirus outbreak expected to bring more pain

Air New Zealand's net profit after tax for the last six months of last year was $101 million, down from $152 million during the same period a year earlier.

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The release today of the interim results comes as the airline braces itself for another downturn due to coronavirus. Source: 1 NEWS

Today's anouncement comes just days after the airline warned that travel restrictions from the coronavirus outbreak will likely cause further financial strain.

The airline this morning blamed a slowing demand growth environment, weakness in the global cargo market and the ongoing unrest in Hong Kong for the 2019 drop, which occurred before Covid-19 caused worldwide disruptions.

The company announced earnings - before other significant items and taxation - of $198 million for the six-month period that ended on 31 December 2019, compared to $217 million in the prior period. Earnings before taxation were $139 million and net profit after taxation was $101 million.

The national carrier also said operating costs increased 3.5 per cent in the period, which was impacted by significant price increases in domestic air navigation and landing charges and a weaker New Zealand dollar. 

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The price jump coincides with Jetstar’s withdrawal from regional routes. Source: 1 NEWS

Chairman Dame Therese Walsh said she was proud of of the quick adaption to the coronavirus Covid-19 outbreak.

"Our capacity discipline on existing routes, stimulation of leisure traffic with the domestic fare restructure and entrance into attractive new international markets has driven good revenue performance in the first half," she said.

"Alongside our focus on profitable top-line growth, we are on track to deliver the long-term sustainable cost savings target from our business review initiatives.

"While the Covid-19 situation is dynamic, we have taken immediate steps to mitigate the impact of softer demand and I am confident that we have the ability to manage the expected short-term impacts effectively."

The airline currently expects a net negative impact to earnings in the range of $35 million to $75 million as a result of the coronavirus.

At the midpoint of the estimated range above, which is about $55 million, the airline is targeting earnings before other significant items and taxation to be in a range of approximately $300 million to $350 million.

Air New Zealand has taken steps to mitigate the impact of demand weakness on some parts of the airline’s network following the recent coronavirus outbreak, it said.

In addition to the temporary suspension of services into Shanghai and Seoul, the airline announced that it would make further capacity reductions on other markets that are showing signs of weakness following the outbreak, including its services into Hong Kong and Japan - albeit to a lesser extent.

It is expected the reduction in services to Asia will result in about 17 per cent less capacity in the February to June period than the airline had initially planned.

"By proactively reducing these services we are better able to manage the cost implications of making late changes to our network and can redirect our most efficient aircraft, the Boeing 787 Dreamliner, to other parts of the network," chief executive officer Greg Foran said. 

"Air New Zealanders from across the business have been working around the clock to manage the impact of the Covid-19 outbreak on our operations. Our business is resilient, and we have demonstrated the ability time and again to respond quickly to changing market conditions. We have a highly capable and experienced senior leadership team who have dealt with challenges such as this before and I am confident that we will effectively navigate our way through this."

The airline noted signs of weaker demand on the Tasman, as well as popular international tourist destinations like Queenstown and Christchurch.

As a result, earlier this week, Air New Zealand announced targeted capacity reductions on certain Tasman and domestic services to ensure the appropriate level of capacity in this changing demand environment.