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Air New Zealand is getting a boost from strong travel demand while airline capacity remains limited.
Air NZ has had a ‘phenomenal’ start to the year as it benefits from robust demand for travel while there are limited planes in the air, analysts say.
The demand and supply imbalance suggests the airline may be heading for its fourth-highest first-half pre-tax profit in its entire history, one year on from its worst first-half underlying result, according to a Forsyth Barr research note published on Monday.
Air NZ was hard hit during the Covid-19 pandemic after international borders closed to travellers. But since travel restrictions have lifted, the airline has benefited from a stronger than expected recovery which is helping it return to profitability after three years of losses.
“Robust demand and constrained supply have created an enviable backdrop for airlines,” Forsyth Barr analysts Andy Bowley and Paul Koraua said in the research note.
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The analysts said Air NZ’s revenue generation was back to pre-Covid-19 levels on reduced capacity.
“Air New Zealand has had a phenomenal start to (its 2023 financial year), with elevated passenger yields and strong forward bookings accelerating its return to above average levels of profitability,” they said.
AIR NEW ZEALAND
Watch as Air New Zealand’s first direct flight to New York from Auckland lands at John F Kennedy International Airport on Sunday morning.
In July and August, the airline’s revenue per seat kilometre (RASK) for long haul services was up 40% from pre-Covid levels in 2019, and up 31% for short haul services, they said
RASK, used as a measurement of an airline’s performance, was particularly strong on Tasman and North American routes, where Air NZ’s market positions had been temporarily strengthened and industry capacity constrained, the analysts said.
Craigs Investment Partners also noted the favourable demand and supply imbalance for Air NZ, which it said was most obvious on the Tasman and Pacific routes where the airline was only back to 66% of its pre-Covid capacity and some competitors had yet to re-commence services.
“Consequently we think traditional levels of demand elasticity are not being seen with fares and yields increasing to unusually high levels,” Craigs analyst Wade Gardiner said in the note.
Still, the analysts said the benefit to Air NZ would be short term, and the high loads and yields were not sustainable over the long term as airline capacity ramped up.
Demand for travel may also slow after an initial rush and a decline in fuel prices could increase rivalry, they said.
Last month, Air NZ said it expected profit before tax and one-time items of $200 million to $275m in the first six months of its financial year to December 31. That’s a turnaround from its $367m loss last year.
The airline did not provide full-year guidance, saying there were many uncertainties in the trading environment. It warned against extrapolating the first-half guidance to the full year.
