Bubble trouble for Tasman travel

Earnings outlook details only part of Covid-19’s impact

Air New Zealand expects to report an underlying loss before significant items of $120 million for the 2020 financial year. On March 9 the company suspended its previous earnings guidance for the 2020 financial year due to the significant uncertainty surrounding the duration, scale and impact of the Covid-19 pandemic.

In a statement yesterday, Air NZ said “the New Zealand Government’s recent move to alert level 1 has enabled the airline to slowly restart the domestic network, however revenue and earnings are significantly lower than expected prior to the outbreak of Covid-19.

“As the company nears the end of its financial year on 30 June 2020, it is expecting to report an underlying loss before other significant items and taxation of up to $120 million for the 2020 financial year.”

The $120m figure tells only part of the story, however.

The underlying earnings guidance excludes the impact of fluctuations in foreign currency rates for the month of June, as well as any fuel price changes for the remainder of the period, which are not expected to be material given the reduced level of flying.

In addition to the $120m under

lying loss, a number of other significant items will hit the 2020 financial results, the company said.

Figures released by the airline in May showed it was burning through cash.

In a market update, Air NZ said it would feel the impact of $85m-$105m from “fuel hedging de-designation”,

aircraft impairment charges of $350m-$450m, and reorganisation costs of up to $160m in the full financial year.

At the time it had short-term liquidity of $640m, versus $1 billion prior to the outbreak.

Given the scale of the cash burn, the Government has stepped in to

provide loan facilities of up to $900m to the airline.

So far, Air New Zealand has not tapped into this option.

Last week, in response to media speculation, the airline said it was considering various options for funding, including a potential capital raising.

Revenue and earnings are significantly lower than expected prior to the outbreak of Covid-19.

Air New Zealand