Latest / Best of Business / Andy Bowley: Forsyth Barr Head of Research on their prediction Air NZ will lose $338 million this financial year

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Andy Bowley: Forsyth Barr Head of Research on their prediction Air NZ will lose $338 million this financial year · Best of Business

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  Speaker 2: New insight into our national carry this morning, though. Forsyth
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  Speaker 2: Bar calling a $ 338 million pre-tax loss for the 27th
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  Speaker 2: financial year for Air New Zealand. A couple of forces
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  Speaker 2: at play, interestingly. Increasing demand and yet expensive oil, of course.
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  Speaker 2: Andy Bowley is the Forsyth Bar Head of Research back
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  Speaker 2: with us this morning.
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  Speaker 3: Good morning, Mike.
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  Speaker 2: So you're looking at the price of fuel, you're looking
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  Speaker 2: at the money coming in, you're looking at the demand.
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  Speaker 2: When you weigh it all up for Air New Zealand,
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  Speaker 2: are things broadly improving or not?
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  Speaker 3: I think from a financial profitability point of view, not really.
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  Speaker 3: It's still very, very challenging for them with what we're forecasting,
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  Speaker 3: pretty sizable losses again for this financial year.
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  Speaker 2: A lot of the US major airlines are saying the
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  Speaker 2: same thing. Oil's killing us and they're downgrading their profit.
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  Speaker 2: But the word is they're still making a profit. Is
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  Speaker 2: there something unique to Air New Zealand that's a problem here?
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  Speaker 3: I think they've come through some very challenging years in
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  Speaker 3: the post-COVID recovery phase. And I say that on the
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  Speaker 3: basis of a couple of things. One, their reliance on
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  Speaker 3: domestic or outbound New Zealanders. So Kiwis buying tickets, broadly
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  Speaker 3: half of their business. And we've been in and out
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  Speaker 3: of a recession for the last two or three years.
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  Speaker 3: The rest of the world hasn't. So there's been a
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  Speaker 3: A New Zealand point of sale problem for them. So
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  Speaker 3: that's a key thing. The second thing which has been
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  Speaker 3: impacting them much more than most other airlines out there
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  Speaker 3: are these engine maintenance issues, which has hampered their ability
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  Speaker 3: to fly the services that they've wanted to fly over
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  Speaker 3: the last two or three years.
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  Speaker 2: That's done now, though, isn't it?
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  Speaker 3: That's largely over, yeah. There's one or two planes on
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  Speaker 3: the ground still that are suffering from that engine maintenance
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  Speaker 3: type problem.
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  Speaker 2: Right, so what I'm looking at going forward here is
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  Speaker 2: if oil's the same for everybody and we come out
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  Speaker 2: of recession, we've got some GDP growth and you're seeing
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  Speaker 2: a little bit of domestic bounce back and we still
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  Speaker 2: seem to be travelling internationally, should we expect better times
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  Speaker 2: for them or if not, why not?
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  Speaker 3: I think we should, but we've got to be patient.
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  Speaker 3: So this financial year, yes, will be challenging. But next
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  Speaker 3: financial year, assuming we see some normalisation of fuel prices,
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  Speaker 3: the financial backdrop for the business will be a lot better.
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  Speaker 2: What about the international story? Is that global demand, no
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  Speaker 2: matter what the price of a ticket, we will pay it?
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  Speaker 2: Is that helping Air New Zealand as well?
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  Speaker 3: I think the broader global backdrop is helpful. So if
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  Speaker 3: we look at the demand profile for Air New Zealand currently,
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  Speaker 3: inbound demand is a lot healthier than outbound demand. So
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  Speaker 3: that's certainly helpful from a broader New Zealand Inc. point
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  Speaker 3: of view, from a tourism perspective. And it's helpful for
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  Speaker 3: Air New Zealand to help mitigate or offset, or at
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  Speaker 3: least partly offset, the weakness that they've had in their
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  Speaker 3: outbound business.
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  Speaker 2: Those refurbs that you can get now on the new planes,
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  Speaker 2: does that materially, can you see materially any difference there
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  Speaker 2: yet or not?
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  Speaker 3: From a financial point of view, you mean?
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  Speaker 2: Yeah, yeah.
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  Speaker 3: I think at the margin. So what we can't see
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  Speaker 3: with the numbers that they provide us, so last week
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  Speaker 3: they provided a quarterly update which highlighted some pretty positive
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  Speaker 3: changes Yield improvements, so by yield I mean average airfares
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  Speaker 3: are going up. Now, average airfares are a combination of
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  Speaker 3: price and mix. The one thing that we can't see
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  Speaker 3: is what's going on from a mix point of view,
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  Speaker 3: and the mix really reflects the premiumisation in the business,
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  Speaker 3: so their ability to get more passengers at the front
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  Speaker 3: of the plane paying more.
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  Speaker 2: All right, Andy, appreciate it. Andy Bowley. By the way,
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  Speaker 2: on related matters, the aforementioned Americans jet blue overnight. They're
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  Speaker 2: going through a cost-cutting process, but they are increasing premium revenue.
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  Speaker 2: It's the old story. People with money are more than
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  Speaker 2: prepared to pay to sit at the front of the plane.
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  Speaker 2: So they haven't made a profit since 2019. They've got
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  Speaker 2: a net loss of $ 257 million, but they are still
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  Speaker 2: seeing increasing demand. So the oil, like everybody else, is
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  Speaker 2: killing them. So they join all the others in the
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  Speaker 2: last couple of days. You said basically the same thing,
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  Speaker 2: United American and Southwest as well.
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