Air NZ reports first-half loss, undertakes strategic review to ‘reset’ business

Feb 26 (Reuters) – Air New Zealand said on Thursday it was carrying out a strategic review to “reset” its business as persistent engine maintenance delays, weak travel demand and higher costs continue to plague the airline, driving it into a half-year loss.

Shares of New Zealand’s flag carrier were down 2.2% in afternoon trading in Wellington, in contrast with a 0.3% gain in the benchmark S&P/NZX 50 index.

Chief Executive Officer Nikhil Ravishankar, who took over the top job in October last year, said a strategic review was underway, intending to return the airline to profitability.

Global engine maintenance delays over the past few years have grounded the carrier’s fleet and constrained capacity. And though aircraft availability could be slightly better in the second half, any progress is expected to be “patchy and nonlinear”.

“Improvements in aircraft availability are unlikely to translate immediately into earnings uplift as capacity, particularly wide-body capacity, cannot be operationalized into the schedule and sold at short notice,” Ravishankar said during an investor briefing.

He also pointed to early signs of domestic demand recovering, although a weaker New Zealand dollar continues to dampen outbound travel to the United States.

For the six months ended December 31, Air New Zealand reported a loss before tax of NZ$59 million ($35.38 million), significantly wider than the Visible Alpha consensus estimate of a loss of NZ$21 million.

That compares with a profit of NZ$144 million a year ago.

The carrier forecast second-half earnings to be flat or weaker than the prior six months, predicting continued pressure from supply chain and aviation system costs.

It also warned of uncertainty in its discussions with engine manufacturers regarding compensation for the engine shortage, which could materially impact full-year earnings.

In the half year through December, Air New Zealand said it received NZ$55 million in compensation from engine manufacturers, but added that it still missed out on at least another NZ$90 million of earnings as its fleet did not operate as intended.

The airline did not declare an interim dividend, while it had declared an interim dividend of 1.25 New Zealand cents per share a year ago.

($1 = 1.6675 New Zealand dollars)

(Reporting by Nichiket Sunil, Sameer Manekar, and Roushni Nair in Bengaluru; Editing by Alan Barona)