Air New Zealand is expecting a full-year loss before tax of over $300 million, citing "elevated and volatile" jet fuel prices amid ongoing tensions in the Middle East.
On NZX this morning, the airline said it expected a FY26 loss before tax in the range of $340 million to $390 million.
The expected losses were based on current trading conditions and an assumed average jet fuel price of approximately US$145 per barrel for the second half of the year, with monthly prices ranging between US$85 and US$200 per barrel.
The conflict in the Middle East has sent oil prices skyrocketing, with Iran effectively closing the Strait of Hormuz, a crucial shipping route through which one-fifth of the world's oil exports travel.
How Air New Zealand's expected 300m loss will impact passengers - Watch on TVNZ+
The aviation industry has been significantly impacted by the conflict, with Air New Zealand saying jet fuel prices had skyrocketed to between US$160 and US$230 per barrel in the last 10 weeks. It said prices were around US$85 to US$90 per barrel prior to the escalation of the conflict.
Air New Zealand expected fuel costs in the second half of the financial year to be $980 million, compared to the previous $740 million.
"This has driven a $240 million headwind to the expected FY26 result, inclusive of hedging.
"The airline continues to work closely with jet fuel suppliers, government and other industry participants, and remains confident in the security of its jet fuel supply through to July 2026."
Redundancies on the cards amid ongoing conflict – Air NZ boss
Air NZ chief executive Nikhil Ravishankar told 1News redundancies could be on the cards amid the ongoing conflict in the Middle East and lagging business performance.
"We do [foresee redundancies], but exactly the size and scale of that, we don't know yet," he said.
"We're going to start that process now and between now and the end of the financial year, we'll work through it and we'll make sure that we deal with that in the most responsible way possible.
"Everyone understands that there's a fuel crisis and we have to do something about that to manage the cost for the airline because we're not just focused on ensuring that we are operating as an airline today; we're also focused on making sure we set the airline up for a very strong future.
"We're very careful and judicious about what sort of actions we take."
The airline boss said the expected full-year loss was "not a surprise", adding that the company had been "signalling this for a long time".
While two-thirds of the expected losses could be "explained by the fuel crisis", the remaining third was due to the "underlying performance of the business".
The airline said it had raised fares and reduced flights but recovering the full impact of higher fuel costs would hit demand. (Source: 1News)
He said, with the end to the conflict in the Middle East still uncertain, the "big focus" of the national carrier in the second half of the year was "ensuring that we manage this fuel crisis as effectively as we can".
"We've put in two price increases and we're starting to see demand soften a bit, so the right amount of consolidations."
Ravishankar said the airline wanted to reduce flights – particularly after July,
"We want to do it in such a way that it gives people confidence to book, because unlike Covid, people are flying."
But with the economy already under strain, Ravishankar warned the airline was heading to "elasticity limits" in parts of its domestic network as customers were becoming priced out.
"We are hitting what we call elasticity limits, where our customers can't afford to pay anymore.
"What then tends to happen is empty seats on the plane, so we're constantly trying to calibrate to make sure we can keep flying affordable."
Ravishankar said some inbound markets – such as the US and Asia – were performing well and could help recover increased fuel costs through higher ticket prices.
"Where we can recover some fuel pricing increases by putting prices up, we will but we're very thoughtful about it.
"It's not one-size-fits-all."
He said currently, around 40% of the price fuel increases was being recovered by Air NZ through ticket price increases or consolidating flights.
Ravishankar said the airline didn't intend to cut some routes, adding that disestablishing them "would be a very, very big decision".
"At this stage, we're not intending to do any of that."
Air NZ was also managing costs in other parts of the business, such as renegotiating supplier contracts, purchasing spare parts, and labour costs.
'Improving operational excellence'
In the statement to NZX this morning, the airline said it had "moved quickly" to mitigate the impact of higher fuel costs.
"This includes implementing a number of targeted financial, commercial and operational actions, and accelerating the cost reduction work already underway."
Air New Zealand said its updated earnings included the impact of higher fuel costs, which were partly offset by approximately $70 million of mitigation actions.
It also said the outlook incorporated around $50 million in unexpected leased-engine maintenance costs and $12 million in lower compensation, "reflecting the earlier than expected return of engines".
"Management remains focused on continuing to improve operational excellence and resolving our engine challenges to increase aircraft availability.
"This has enabled the airline to return grounded aircraft to service a year ahead of schedule and deliver an on-time performance in April that ranked among top airlines globally."
Aircraft availability had "improved significantly" since the interim results, with all Boeing 787s impacted by engine maintenance delays expected to return to service by late June. All Airbus planes were expected to return by 2027.
"Improved aircraft availability will strengthen operational resilience, reduce associated carrying costs progressively and provide greater flexibility to deploy the airline’s most fuel-efficient aircraft in the current higher fuel-cost environment."
The airline said that while it had implemented fare increases and flight reductions, recovering the full impact of higher fuel costs would hit demand, so it was taking a "measured approach" to pricing and capacity.
"This revised outlook remains subject to material uncertainty, including continued volatility in jet fuel prices and refining margins, global economic conditions, demand conditions, the timing and quantum of further capacity adjustments, finalisation of engine return schedules, and the finalisation and timing of realisation of annualised cost-out benefits.
"Air New Zealand will continue to update the market as appropriate."
It had identified up to $100m of annualised cost savings to date, and is reviewing upcoming capital expenditure plans.
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