Engine issues, US competition weigh on Air New Zealand profits

Maintenance issues related to the Pratt & Whitney GTF and Rolls-Royce Trent 1000 engines have weighed on Air New Zealand's annual profits, it reported on August 29, 2024. Its annual profit after tax was NZ$146 million ($91.6 million), down from NZ$412 million ($258.4 million) a year prior. The company said: ""Accelerated maintenance requirements for Pratt & Whitney PW1100 engines worldwide have meant that up to six of the airline's newest and most efficient Airbus neo aircraft have been out of service at times. Ongoing additional maintenance requirements on the Trent 1000 engines that power the existing Boeing 787 Dreamliner fleet and reduced levels of spares in the market have meant that up to three Dreamliners are also on the ground at times."" The company's CEO Greg Foran commented: ""We took immediate action to minimise the disruption, leasing three Boeing 777-300ERs, securing additional spare engines and adjusting our network and schedule to deliver greater reliability."" In an earnings call, Air New Zealand CFO Richard Thomson commented: ""2025 will be the low point for aircraft on ground [AOG]. Once we start getting the A321s back into the system and some more 787s flying, we will start to see the benefits of that starting to come through."" The ""tougher economic background"" in the country has also driven a fall in domestic demand - particularly for corporate and government segments - in the second half of its annual report, it said. Additionally, competition from US carriers and the ""cumulative effect of high inflation"" has significantly impacted Air New Zealand's operational and financial performance for the 2024 financial year. The airline reported annual revenues of NZ$6.8bn ($4.3bn), up from NZ$6.3bn ($3.9bn) in the previous year. Passenger revenues was up from NZ$5.3bn ($3.3bn) to NZ$5.9bn ($3.7bn). Operating expenses were up from NZ$5bn ($3.1bn) to NZ$5.8bn ($3.6bn). The company's earnings before tax was NZ$222 million ($139 million), compared to NZ$574 million ($359.3 million) a year prior. In addition, the company's cargo revenues were down 27% to NZ$459 million ($287.2 million) - though still above pre-COVID levels. This was driven by the New Zealand government ceasing the cargo subsidy scheme in March 2023 as well as growing market cargo capacity in the country. ""We know these challenges will pass, some faster than others, but they have had a significant impact on our financial performance this year,"" said Air New Zealand chair Therese Walsh. As a result of the ""ongoing uncertainty"" in the midst of a challenging aviation environment, the company said it would not provide guidance at this time. It expects these trading conditions to continue through the first half of the 2025 financial year. Thomson added: ""It will take a little while for confidence to return."" Foran added: ""We remain committed to investing for the future, with expected aircraft-related capital expenditure of NZ$3.2 billion ($2bn) over the next five years. This includes a significant, multi-year interior retrofit programme on our 14 existing Dreamliner aircraft. We anticipate delivery of the first new GE-powered Boeing 787-9 aircraft towards the end of the 2025 calendar year."" The company has declared a final dividend of 1.5 cents per share, resulting in total ordinary dividends of 3.5 cents per share for the year. Total assets were valued at NZ$8.5bn ($5.3bn) at the end of the financial year, down from NZ$9.2bn ($5.8bn) a year prior. Total liabilities were NZ$6.5bn ($4.1bn), down from NZ$7.1bn ($4.4bn), while total equity was down slightly from NZ$2.1bn ($1.3bn) to NZ$2bn ($1.3bn). The company's revenue per available seat kilometre (RASK) decreased by 9.8% excluding foreign exchange. Both load factors and yields were impacted by the airline's significant growth in long-haul aircraft. Air New Zealand's capacity was up 17% in the period. Liquidity at the end of period was NZ$1.5bn ($939 million). Net debt to EBITDA was 0.8x, compared to 0.3x at the end of the previous financial year.