Jarden upgrades Air NZ’s rating to neutral

AUCKLAND: Jarden has upgraded its rating of Air New Zealand from sell to neutral on a better outlook for the company, which will report a heavy fullyear loss on August 25.

The airline is on track to deliver an underlying loss before tax of $707 million for the 2022 financial year, but could turn this around to make a profit in the current year, Jarden analysts say.

This year’s forecast loss compares with guidance in June of a loss of less than $750 million, and the even worse $800 million when the airline reported its interim result in February.

While the heaviest full yearloss of the pandemic, it is still dwarfed by the aftertax loss of $1.4 billion in 2001 when its Australian investment, Ansett, collapsed, along with global aviation for a time following the 9/11 terror attacks.

Jarden analysts Andrew Steele and Nick Yeo said they saw limited scope for a major earnings surprise come Thursday.

Underpinning this large pretax loss was forecast revenue of $2.587 billion (up 3% on last year, although 55% down on the 2019 financial year — before the pandemic.

‘‘This weak FY22 result reflects a period that was heavily impacted by Covid19 restrictions and border closures,’’ the analysts said.

Short haul available seat kilometres (ASKs) were down 63.4% on 2019 and longhaul ASKs down 87.9%.

The outlook remains uncertain for the current financial year.

‘‘Whilst border restrictions have been removed, a number of operational elements remain highly uncertain — in particular, staff disruptions from Covid19, the highly volatile and elevated cost of jet fuel and a much shorter forward booking curve,’’ Mr Steele and Mr Yeo said in a note.

There was a low chance that the company would provide a specific earnings guidance range. Instead, guidance on specific cost elements and capacity expectations was expected.

The analysts said they would be focused on any commentary regarding the management of the rampup in capacity versus operational constraints and the resulting costing increases.

‘‘Despite this operational uncertainty, we believe Air New Zealand will see a material step change in earnings from the lows of FY22, reflecting the reopening of New Zealand’s borders.’’

They expect that in the current year the airline’s shorthaul ASKs will recover to 88%of 2019 capacity and long haul to recover to 68%.

Reflecting this improvement in capacity, the Jarden analysts forecast the airline will return to profitability in the 2023 financial year, with profit before tax of $79 million.

Underlying net after tax loss/ profit was forecast to be $502 million, +$64 million and +$164 million during the next three years.

The upgrade to neutral (from sell) comes with a 12 million target share price increased to 72 (from 65c) on nearterm earnings upgrades.

This rating upgrade reflects:

Modest upside to target price

Greater confidence in passenger recovery following the full reopening of New Zealand’s borders

Current strong demand for travel.

However, these positives are tempered by:

Ongoing risk of Covid disruption

High cost inflation A softening macroeconomic backdrop.

High demand and high yields have helped other airlines, including American Airlines, United and Singapore Airlines, swing back into operating profit this year. —