Air New Zealand reports first annual loss in 18 years and plans for another as int’l traffic shut down

Flag carrier will also draw on government funds to help weather COVID-19 pandemic

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Use this oneFlag carrier Air New Zealand said Thursday (27 August) it posted an underlying pretax loss of NZ$87 million in the 12 months ended June 30 compared with a NZ$387 million profit a year earlier. Stronger-than-expected domestic demand and cargo helped it beat a NZ$120 million loss the company had forecast in June. But the bottom-line figure blew out to a NZ$454 million loss (US$300 million), driven by aircraft impairments and restructuring charges. The airline declined to provide any guidance but said it was likely it will suffer another loss in 2021 because the COVID-19 global pandemic has virtually shut down international aviation from which the airline makes the majority of its money.

Air New Zealand CEO Greg Foran. (PHOTO: Air New Zealand)

“Until global borders reopen, we will continue to be significantly impacted by this crisis,” Chief Executive Officer Greg Foran told reporters. “The unfortunate reality is that we don’t expect to see a return to long-haul travel for some time and until then we will be a keenly focused domestic airline.” That focus on domestic traffic is also affecting other airlines like Qantas which has shuttered its international flights and is zeroing in on domestic traffic to survive.

Air New Zealand has laid off about 4,000 staff and grounded some aircraft, while domestic services have been hampered by a second lockdown in largest city Auckland after a new COVID- 19 outbreak. The airline said COVID-19-related travel restrictions resulted in a 74 percent drop in passenger revenue from April to the end of June compared to the prior year, which drove the airline’s operating losses.

Air New Zealand Chairman Therese Walsh “the 2020 financial year has been a year of stark contrast. Air New Zealand had a solid start to the year and was focused on driving profitable growth into the second half. We were also preparing to launch the first ever non-stop link between New Zealand and New York and had announced several exciting innovations in the customer experience space.”

The airline said short-term liquidity as of 25 August 2020 was approximately NZ$1.1 billion, made up of cash and the NZ$900 million standby loan facility from the New Zealand government. Due to the strong cash position pre-COVID-19, swift action taken by management to reduce cash burn and a better than expected return of domestic demand after the initial lockdown was lifted in New Zealand, the airline has not yet utilised the standby loan facility. However, it expects to start drawing on these funds in the coming days.

Cash burn averaged approximately NZ$175 million per month from April to June, including higher than average refunds, redundancy payments and fuel hedge close out costs, but this reduced to $85 million for July. The airline is estimating the go forward average monthly cash burn to be in the range of NZ$65 million to NZ$85 million while international travel restrictions remain and assuming resumption of domestic travel with no social distancing requirements, as well as a continuation of government-supported cargo flights. Given the uncertainty surrounding travel restrictions and the level of demand as these restrictions lift, Air New Zealand said it is currently not able to provide specific 2021 earnings guidance. “However, each of the scenarios we are currently modelling suggest we will make a loss in 2021,” the airline said.

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