Air New Zealand Warns of First-Half Loss as Engine Constraints and Softer Demand Weigh on Outlook

About Air New Zealand Ltd

Air New Zealand Limited (ASX: AIZ) is New Zealand’s flag carrier and largest airline, operating a comprehensive network of domestic and international services across Asia-Pacific, the Americas, and Europe. With its main hub in Auckland, the airline connects millions of passengers annually and plays a vital role in supporting New Zealand’s tourism, trade, and regional mobility.

The latest trading update and traffic figures for September 2025 reveal both operational progress and financial headwinds. While demand across short-haul and regional routes remains resilient, Air New Zealand faces pressures from rising costs, engine availability constraints, and a soft domestic economy.

Traffic Performance and Network Trends

Group capacity increased 3.7 % in September 2025 compared to the same month last year, supported by the addition of new ATR and Airbus A321 aircraft. Passenger numbers rose 4.5 % to 1.58 million for the month, lifting the year-to-date total to 3.94 million.

Domestic routes recorded steady growth, with load factors climbing to 84.9 %, up 3.3 percentage points from last year, driven by strong school-holiday traffic and stable leisure demand. Short-haul international sectors — covering Tasman and Pacific Island services — rose 10.2 % in capacity and 11.1 % in revenue passenger kilometres (RPKs), reflecting the airline’s focus on profitable mid-range routes.

Long-haul operations remained mixed. The Americas market continued to face weakness, with passenger load factors down 3.9 points to 79.8 %, while Asia showed modest improvement amid steady demand for Japan and Singapore services. Overall, the Group maintained a healthy load factor of 84 %, nearly flat year-on-year, and a YTD RASK improvement of 0.5 % driven by capacity discipline and revenue optimisation across key routes.

Financial Update and Earnings Outlook

In its latest trading update, Air New Zealand announced it expects a pre-tax loss of between NZ $30 million and NZ $55 million for the first half of FY26, revising its earlier guidance of a break-even result. The downgrade primarily reflects softer-than-expected revenue from domestic and US-bound bookings, which were initially forecast to grow by 2–3 %, but have instead remained flat, creating an estimated NZ $50 million shortfall in projected first-half revenue. On the cost side, engine lease expenses are expected to rise by around NZ $20 million following end-of-lease recognition on two short-term aircraft, while mandatory carbon-offset obligations under the CORSIA scheme have added approximately NZ $10 million to fuel costs. In addition, between nine and eleven aircraft remain grounded due to ongoing engine-availability issues, constraining capacity and reducing scheduling flexibility. To address these challenges, the airline continues to roll out its Kia Mau transformation programme, introduced in late 2024, aimed at achieving sustainable operational efficiencies and revenue growth through digital innovation, network simplification, and fleet renewal. Despite these short-term pressures, Air New Zealand remains committed to investing in fleet expansion and infrastructure to support medium-term growth, with capacity expected to increase in the second half of FY26 as engine availability improves and seasonal demand strengthens.

Regional Partnerships and Connectivity

A key strategic development during October was the announcement of a new interline partnership with Air Chathams, a regional carrier serving Whakatāne and other domestic destinations. Launching in December 2025, the agreement will allow customers to book a single ticket for combined flights across both airlines, with checked baggage transferred seamlessly to the final destination. The initiative, endorsed by New Zealand’s Associate Transport Minister James Meager, aims to enhance connectivity for regional communities and stimulate local economic activity. The agreement also grants Air Chathams greater visibility through Air New Zealand’s sales channels and is expected to serve as a template for future regional co-operation projects.

Sustainability and Carbon Reduction Commitments

In October, Air New Zealand announced its first purchase of internationally verified carbon removals through a partnership with My Native Forest, a New Zealand-based forest restoration company. The airline has committed to buy 8,000 tonnes of nature-based carbon removals by 2030, equivalent to offsetting a portion of its residual emissions under its 2030 emissions guidance. The initiative forms part of Air New Zealand’s broader plan to reduce jet-fuel-related emissions by 20 – 25 % from 2019 levels by 2030 and reach net zero by 2050 through fleet renewal, sustainable aviation fuel (SAF), and high-integrity carbon credits.

Operational Recognition and Industry Advocacy

Air New Zealand continues to receive international recognition for service quality. Its Star Alliance Lounge at Los Angeles International Airport was awarded North America’s Leading Airport Lounge for the sixth consecutive year at the World Travel Awards 2025, praised for its design, service excellence, and iconic outdoor terrace overlooking the Hollywood Hills. Domestically, the airline welcomed the Commerce Commission’s review of New Zealand airport charges, urging regulatory reform to ensure infrastructure investment translates into fairer pricing for consumers. Outgoing CEO Greg Foran said airport costs were rising faster than inflation and risk reducing affordability for travellers, with projected fees at Auckland Airport expected to quadruple by 2032.

Outlook

Looking ahead, Air New Zealand is focusing on stabilising earnings through cost management, fleet reliability, and sustainable growth initiatives. The airline expects stronger performance in the second half of FY26 as seasonal demand returns and network capacity expands.

While the near-term earnings outlook is challenged by macro headwinds, ongoing transformation initiatives and sustainability investments position Air New Zealand for a measured recovery and long-term value creation.