Air New Zealand sparked a sell-off in airline stocks yesterday after it cut its 2018-19 forecast profit by $NZ100 million, blaming continuing problems with its Rolls Royce engines and softer travel domestic travel conditions.
In a statement to New Zealand and Australian stock exchanges, the company said it now expects earnings before taxation of $NZ340m-to-$NZ400m for the year ended 30 June 2019.
That is down from the previous forecast of $NZ425m to $NZ525m, which excluded an estimated $NZ30m to $NZ40m impact of schedule changes resulting from the global 787 Rolls-Royce engine issues which have been around now for more than a year.
Slower domestic holiday travel and a softening of inbound tourism were other reasons given for the profit downgrade. Air New Zealand shares fell 13% in early trading and Qantas saw its shares lose 5% on the downgrade.
Air NZ shares weakened a bit more, ending down more than 14.2% at $2.70 while Qantas shares closed off 5% at $5.59.
In yesterday’s statement Air New Zealand chief executive Christopher Luxon said the company was “concerned” with the trading update.
“Therefore, we have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward,” he said.
The softer conditions and extra costs from the engine problems (forcing the airline to charter two Airbus jets fully crewed for more than a year to make up for the shortfall in capacity) offset good news on the fuel front.
Jet fuel prices have eased and the new targeted earnings estimate is based on an average price of US$81 a barrel, compared with the previous guidance of US$85 a barrel.
The full year guidance will be released in more detail at the interim result announcement on February 28.
Mr. Luxon said the company was looking beyond short term-earnings volatility and the board anticipated declaring an interim dividend of 11 NZ cents per share.
