At a CAPA Conference in Brisbane last year, Air New Zealand CEO Greg Foran was asked if 2023 was "as good as it gets" for the airline, and he was forthright enough to agree that it probably would, at least in the current climate. His view was borne out yesterday when the airline released its 2024 Interim results, which revealed that profit for the first half of the 2024 Financial Year had nosedived 39% compared to last year.
An expected profit drop has happened
For the six months ending December 31, 2023 (1H 2024), Air New Zealand reported earnings before taxation of NZ$185 million compared to NZ$299 million ($114m - $185m) in the same period last year (1H 2023). For the same period, the full-service carrier reported a net profit of NZ$129 million in 1H 2024, compared to NZ$213 million ($80m - $132m) in 1H 2023.

Having already flagged there would be a significant change in profit, Air New Zealand said this is an expected reduction on the comparable period last year when the airline recorded one of its highest-ever results following the rapid return of air travel as New Zealand's borders reopened.

Passenger revenue was up 21% year-on-year (YoY) to NZ$3.1 billion ($2.05b), primarily driven by the significant ramp-up in capacity across the international network. The airline said demand was stable in most markets, but signs of softness in domestic corporate and government demand were felt from September. Capacity increased by 29% compared to 2023, and operating costs, including fuel, increased by 21% due to the substantial increase in long-haul flying in 1H 2024.

Inflation has been a major issue for households and businesses over the last year, and those "cost of living pressures" have taken a big bite out of Air New Zealand's profit over the last six months. Non-fuel operating costs have increased by around 5% or NZ$100 million ($62 million) due to price inflation, which comes on top of an increase totaling 15% to 20% across the last four years. This inflationary trend is significantly impacting the airline's costs, so it is reviewing fares and capacity to better reflect ongoing cost pressure, meaning ticket prices will soon be rising again.

Looking beyond the finances, CEO Greg Foran said that doing the basics brilliantly without ever compromising on safety has positioned the airline well to compete, noting that both on-time performance and call center wait times have improved, and food and beverage options have also been enhanced.

Air New Zealand added that inflight entertainment options and WiFi have also been improved, and an additional 400,000 people have joined the airline's loyalty program over the past year, pushing membership up to 4.4 million, which is pretty good given New Zealand's population is only around 5.3 million.

OEMs are letting Air New Zealand down
The issues with Pratt & Whitney GTF engines are still a major concern with the single-aisle Airbus A320neo fleet, and over at least the next 18 months, there will be up to five of the newest and most efficient aircraft in the fleet out of service at any one time. While that is an expensive issue, perhaps what is more disappointing is that Boeing has advised that the first of the new 787 Dreamliners is unlikely to arrive until at least mid-2025.

Air New Zealand has developed one of aviation's most innovative solutions ever for the economy cabin with the Skynest, a set of sleeping pods that passengers can buy access to during long nonstop flights on routes such as Auckland - New York. The late arrival of the new 787s also means the late introduction of the eagerly awaited Skynest, a major disappointment to Air New Zealand and its customers.

This comes just as Qantas announced that delays at Airbus have pushed the launch of Project Sunrise flights back to mid-2026, so we are seeing the impact of these failures at both Airbus and Boeing, which will be around for some time. Airbus and Boeing have spruiked their technologies for years, and now their internal failings are hurting airlines and passengers, just at a time when aviation needs some positive developments to move forward confidently from the ravages of COVID.

Air New Zealand said it will dry-lease a second Boeing 777-300ER around the middle of this year and is well advanced on negotiations for a third. It also added that the interior refit of its existing Boeing 787 Dreamliners remains on track.