Air New Zealand Earnings: Competition Is Weighing on Profits

Profitability is normalizing for Air New Zealand after an exceptional fiscal 2023. Interim fiscal 2024 profit before tax fell 38% to NZD 185 million, in line with guidance. The second half is set to be much weaker. Pent-up demand has largely exhausted, and previously constrained capacity is easing. Price competition is intensifying as capacity bottlenecks ease. Burdened by high fixed costs, relatively low barriers to entry, and low switching costs, airlines globally lack economic moats and Air New Zealand is no exception. These conditions, which plagued the airline industry before the pandemic, appear to be returning. Air New Zealand reiterated full-year guidance of NZD 200 million to NZD 240 million, implying only modest second-half profit. We make no changes to our fiscal 2024 pretax profit forecast of NZD 226 million.