AUCKLAND- Air New Zealand (NZ) expects a substantial reduction in profits for the year ending June 30, with earnings now forecast between NZ$150 million and NZ$190 million before tax. This represents a potential drop compared to last year’s NZ$222 million profit!
Air New Zealand (NZ) expects to make NZ$20 million in the second half of its financial year from “credit breakage” – money from prepaid airfares, travel vouchers, and other credits that customers have not used and likely will not redeem.
Air New Zealand Low Profits
A major factor in the reduced earnings forecast is ongoing engine reliability issues. Air New Zealand (NZ) currently faces problems with two types of engines in its fleet-
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- PW1100GS, which powers its Airbus A320neo-family aircraft
- Rolls-Royce Trent 1000s are used in its Boeing 787 fleet
The airline expects up to 11 jets to remain grounded despite efforts to secure additional leased engines. Maintenance timeframes remain unpredictable, creating significant operational challenges.
Compensation from Engine Manufacturers
Air New Zealand (NZ) is engaged in negotiations with engine manufacturers about compensation for unserviceable engines and timeframes for repairs.
Previously, engine manufacturers offered flexibility by treating affected engines kept on aircraft as unserviceable for compensation purposes. This arrangement has now ended, resulting in lower compensation payments in the second half of the financial year.
The airline now expects to receive only about NZ$35-40 million in compensation, far less than the NZ$94 million it received in the six months ending December 31, 2024.
Operational Impacts
The engine issues have deeply affected Air New Zealand’s operations. In February, the airline forecast a 5% reduction in international capacity through the end of June, while domestic capacity would decrease by 2%.
“Adjusting the business to reflect fewer aircraft in the short-term introduces considerable complexity, especially as engines begin returning to service and capacity ramps up again.”
Air New Zealand Statement
Revenue from Customer Credits
In an interesting development, Air New Zealand (NZ) expects to make NZ$20 million in the second half of its financial year from “credit breakage” – money from prepaid airfares, travel vouchers, and other credits that customers have not used and likely will not redeem.
The airline counts these credits as revenue when it is confident they will not be redeemed or after they have expired.
Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene, explained-
Many credits originated during the pandemic when mass cancellations occurred and customers chose credits instead of refunds.
“Some may have forgotten these, moved, or found travel plans unfeasible, especially with Air New Zealand’s reduced capacity limiting booking options,” Sullivan said. “It’s a material amount of their earnings for the period.”
Consumer NZ spokesperson Jessica Walker expressed concern about the airline’s credit policies, stating: “We are concerned the airline will be able to pocket this money and that consumers are losing the money they spent on airfares with the airline.”
The consumer advocacy group has called for amendments to the Civil Aviation Act to require airlines to refund passengers when flights are cancelled or delayed, similar to regulations in other countries.
Broader Economic Concerns
Beyond engine issues and credit management, Air New Zealand (NZ) also mentioned “uncertainty” in the “broader demand environment” following the Trump administration’s tariff policies. This concern echoes similar sentiments expressed by carriers in North America, suggesting potential wider industry impacts.
As the airline works to navigate these multiple challenges, passengers with unused credits are encouraged to check their status and use them before expiration to avoid losing their value.
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