Air New Zealand, which last month reported a return to profit after three years of losses during the Covid-19 pandemic, warned it is facing multiple challenges this year.
In speech notes prepared for the company’s annual meeting in Wellington on Tuesday, chief executive Greg Foran warned of headwinds the business was up against since reporting its annual result only four weeks ago.
“Although we have been experiencing a strong trading environment due to high levels of demand and industry-wide supply constraints, we are facing an uncertain macroeconomic environment,” he said.
Market capacity from North America was expected to increase more than 120% this summer with American carriers and Qantas adding new services, while in Asia Chinese carriers were also adding services, he said.
“While more capacity is a good thing for markets that are currently undersupplied, the increasing cost of living may start to impact discretionary spend and with it, people’s travel plans.”
Air NZ has $200 million of Covid travel credits on its balance sheet. Customers had to book that travel by the end of January for travel in 2024.
Fuel prices, which have a big impact on the airline, have risen substantially, and the cost to purchase that fuel in US dollars was even more expensive due to the weaker New Zealand dollar, he said.
Foran also warned that inflation continued to bite, driving increased costs across the whole business.
Shares in Air NZ fell 2% to 74 cents in late morning trading on the NZX on Tuesday.
The airline is also facing disruptions to its operations after US aerospace manufacturer Pratt & Whitney changed the maintenance plan for some of its engines. The company supplies and maintains engines on 16 of Air NZ’s Airbus A320neo aircraft which operate primarily on the Tasman and Pacific Islands.
Foran said he is expecting more details from Pratt & Whitney in coming weeks and the airline has been developing plans to reduce the potential disruption to customers.
“As we navigate our way through these challenges, I’m confident we are well positioned as an airline, have the right strategy and a core set of enduring competitive advantages that we have spent years cultivating and fortifying,” he said.
“These advantages will support us through difficult periods, and when times are good they really help power up our performance.”
“After three years of pandemic related losses, it felt good to return to profitability,” chairperson Dame Therese Walsh said in speech notes to be delivered at the annual meeting.
Walsh said the last financial year was particularly unique, with significant customer demand, constrained market capacity, and lower overall fuel prices in the second half, and said the current year would be more reflective of future financial performance.
While customer demand remained solid across most of the airline’s markets, recent weeks had seen a softening in corporate and domestic demand, she said.
Walsh said Air NZ was closely monitoring fuel prices, the weaker New Zealand dollar, passenger demand and Pratt & Whitney’s engine issues.
“Given the uncertainty and volatility of some of these macroeconomic factors, the airline will not be providing guidance at this time,” she said.
Walsh said decarbonisation was one of the airline’s most critical challenges.
“The future of our industry depends on the global transition to net zero emissions by 2050 and we must all be invested in this transition,” she said. “We know we must decarbonise our operations.”
Still, she said the challenges were significant.
“Aviation is one of the hardest sectors to abate, there are very few levers available, and we don’t control all of those levers,” she said.
While the airline could deliver greater operational efficiency, other pathways to decarbonisation, such as sustainable aviation fuel and next generation aircraft, required global collaboration, policy change and significant advances in technology, she said.
Walsh said the airline was working to accelerate access to high quality, affordable sustainable aviation fuel and had partnered with aircraft developers and innovators to give them confidence the company would be an early adopter of new lower emissions aircraft.
“We know the task ahead is immense, but we are moving in the right direction,” she said.