Air New Zealand (ASX:AIZ) reported a weaker set of interim results for FY2026, with management pointing to ongoing engine maintenance disruptions, elevated system-wide cost inflation, and a slower-than-expected recovery in domestic demand as the main drivers. The airline reported a loss before tax of NZD 59 million and a net loss after tax of NZD 40 million, and the board decided not to declare an interim dividend, consistent with its capital management framework.
Operational disruption remains the central earnings headwind
Chief Executive Officer Nikhil Ravishankar, on his first investor call in the role, said the operating environment remains challenging, with global engine maintenance disruptions continuing to constrain fleet availability. He said that while capacity was broadly flat in the half, the airline is still operating at about 90% of pre-COVID capacity and had up to eight aircraft grounded at times, which he described as creating “subscale” network economics.
Revenue growth led by premium and ancillary performance
Despite the operational constraints, the airline posted passenger revenue growth of 3.6%. Management said international demand held up, particularly offshore inbound, while the domestic market lagged expectations—especially business travel—pressuring mix and yield.
Ravishankar highlighted outperformance in higher-yield segments, saying premium cabins were a “genuine bright spot,” with premium cabin revenue up 10% compared with 2% growth for economy cabin revenue. Ancillary revenue increased 10% year over year, which management characterized as encouraging and supportive of a longer-term premium strategy.
Thomson said total revenue increased NZD 42 million during the period, driven mainly by RASK improvements in long-haul and short-haul international networks alongside a marginal increase in capacity. He also noted revenue included NZD 11 million of unused customer credit breakage. Cargo revenue, however, was negatively affected by increased freighter competition and mix shifts toward transshipment activity, which lowered load factors and yields.
Cost inflation and CASK pressures continue to build
Management repeatedly emphasized that non-fuel cost inflation is not easing fast enough. Ravishankar said the first half included about NZD 75 million (around 3.5%) of non-fuel cost inflation, driven mainly by mandated passenger levies, engineering and maintenance, and landing charges, and that a weaker New Zealand dollar amplified some costs.
He also described aviation system inflation as structural, highlighting increases since 2019 that exceed broader CPI growth. Examples he cited included:
- Landing charges up 64% across all airports and around 85% across domestic airports
- Engineering materials up 45%
- New Zealand CPI up around 29% over the same period
On unit costs, Thomson said reported CASK increased 7.7% for the period excluding fuel price and foreign exchange impacts, while underlying CASK rose 5.7%. He said the aircraft availability issues and reduced network footprint are hurting both cost and capacity metrics, and estimated that without the “diseconomies and inefficiencies” from the engine disruption, CASK would have been approximately 3% better.
Air New Zealand also reiterated progress on its transformation program, reporting about NZD 45 million of benefits delivered in the half and NZD 145 million since inception. Management cautioned that much of the benefit is being absorbed by inflation and disruption-related inefficiencies.
Fleet recovery, capex, and balance sheet positioning
Ravishankar said restoring aircraft availability is a priority, and the airline now expects four grounded Airbus NEO and Boeing 787 aircraft to return to service throughout 2026. The company also expects delivery of two of 10 new GE-powered 787s later in the year, which management said supports wide-body capacity growth of around 20%–25% over the next two years.
Thomson said the first two new aircraft are expected in April and June, with entry into service shortly thereafter, and will be 787-9 variants with a premium-heavy layout (including 94 business class and premium economy seats, broadly similar to the 777-300 fleet). The airline expects to debt-finance those aircraft and said it is in the final stages of a competitive funding process.
On capital and liquidity, management said end-of-half liquidity was NZD 1.3 billion, within its target range, and net debt to EBITDA stood at 2.6x. Thomson described a recent net debt increase as coinciding with a deterioration in EBITDA as capex ramps up, including pre-delivery payments, engine overhauls, and the 787 retrofit program. He also said the airline had repaid approximately NZD 1.4 billion of debt in aircraft leases since FY2023 and raised new funding through a sale-and-leaseback of four A320 aircraft in December 2024 and an AUD 300 million medium-term note issued in the first half.
Outlook: second-half earnings expected to be similar or lower
For the second half of FY2026, management expects capacity to lift around 3%–4%, conditional on engine reliability improvements and the timing of new aircraft deliveries. At the same time, management expects full-year non-fuel cost inflation to be NZD 150 million–NZD 175 million higher, and forecast life cycle maintenance expense to be an additional NZD 80 million–NZD 100 million headwind.
Air New Zealand guided that, assuming an average jet fuel price of US$85 per barrel in the second half, second-half earnings are expected to be broadly in line with or modestly below the first half. The outlook remains subject to “material uncertainty,” including engine return schedules, the timing and quantum of compensation, input cost volatility, and demand conditions. In Q&A, Thomson said the company is currently assuming roughly the same level of compensation in the second half as in the first half, but noted some arrangements remain under negotiation, and management also referenced a NZD 9 million–NZD 10 million earnings drag from recent strike action included in guidance.
Management also confirmed a company-wide strategy review is underway, covering network shape, fleet deployment, revenue opportunities, cost transformation, and capital management. Ravishankar said there is no “silver bullet” and the recovery path will not be quick, but the review is intended to address inefficiencies that have built up during the post-COVID rebuild and engine disruption period.
About Air New Zealand (ASX:AIZ)
Air New Zealand Limited provides passenger and cargo transportation services on scheduled airlines primarily in New Zealand, Australia, the Pacific Islands, the United Kingdom, Europe, Asia, and the United States. The company also offers ground handling services; engineering and maintenance services, including aircraft and component maintenance, repair, and overhaul services; aviation services; and aircraft leasing and financing services. As of June 30, 2023, it operated a fleet of 7 Boeing 777-300ER, 14 Boeing 787-9 Dreamliner, 6 Airbus A320neo, 10 Airbus A321neo, 17 Airbus A320CEO, 29 ATR 72-600, and 23 Bombardier Q300 aircrafts.
