Air New Zealand posts half year loss of $72 million

Air New Zealand has posted an after tax loss of $72 million for the six months to December 30, largely due to the impact of Covid-19 border restrictions on international travel.

The result is down from the $101m the airline reported for the same period in 2019.

Ongoing restrictions on international travel to and from New Zealand resulted in the airline’s operating revenue falling 59 per cent to $1.2b in the first six months of the financial year.

As at February 23, the airline had short-term available liquidity of just over $700m, consisting of about $170m cash and $550m of undrawn funds on a $900m Crown loan facility Air New Zealand secured at the beginning of the Covid-19 pandemic.

The loan has interest rates of between 7 per cent and 9 per cent and cost Air New Zealand $12m in interest in the six months to December 30.

When Air New Zealand’s shareholding minister Grant Robertson set out the details of the loan on March 20 he said it would be available for 24 months and the interest rates would step-up by 1 per cent if the facility remained after 12 months.

The loan facility agreement allows for the conversion of the loan to equity at the request of the Crown.

The Government, a 52 per cent owner of the airline, recently committed to participating in a capital raise, which the airline plans to undertake before June 30.

“Cost discipline” resulted in cash burn declining to an average of $79m per month from September through January 2021. For the five months to June 30 average monthly cash burn is expected to be in the range of $45m to $55m.

Aircraft impairment and lease modifications cost the airline $39m. This follows $338m worth of aircraft write-downs in 2020.

Air New Zealand chief executive Greg Foran said staff should be proud of the result given the pandemic had “virtually suspended” international air travel.

“While we made significant changes to our business and cost base, and did this more quickly than most airlines, since the outbreak of the pandemic we have still burnt through over $1 billion in our own cash reserves – that’s just huge,” Foran said.

The airline’s domestic and cargo operations had performed strongly, with domestic capacity at 76 per cent of pre-Covid levels and cargo revenue up 91 per cent on the same period last year.

“Following the most challenging year in the airline’s 80-year history, it has been incredibly satisfying for the team to see both the domestic and cargo businesses perform so well,” Foran said.

The airline had been fortunate to receive financial assistance from wage subsidies and the Government’s aviation relief package and had also benefited from lower fuel prices, he said.

However, these benefits were not expected to extend into the second half of the financial year, he said.

In the six months to December 30 the airline received $51m in wage subsidies, $58m in aviation support package grants, and recognised $142m in relation to grants awarded as part of the Government’s International Airfreight Capacity scheme.

Since the start of the pandemic “incredibly tough calls”, especially concerning staff, had to be made to ensure Air New Zealand’s survival, he said.

“The fact is, we must remain vigilant and disciplined in our approach to cost management and cash burn while borders remain closed,” Foran said.

In August Air New Zealand posted its first annual loss in 18 years. At the time Air New Zealand said modelling suggested it would also make a loss for the 2021 financial year. On Thursday it reaffirmed that position.

Air New Zealand shares closed at $1.58 on Wednesday, down 36 per cent over the past year.

Chairman Dame Therese Walsh said while the results from the first half of the 2021 financial year were still “significantly subdued”, she was optimistic that the changes made to the business over the last year or so had set the airline up well for when borders reopened and the capital raise was complete.

Compared to pre-Covid times, operating costs, excluding fuel, in the first half of the 2021 financial year declined more than 50 per cent, she said.

Some of these were expected to be sustainable cost reductions in the future.

Some cost-reduction actions had taken time to implement, but it was now seeing the benefits of those, she said.

“This will be pivotal as we enter recovery mode as it means we will not only be highly cost effective, but with the changes we have made to our fleet, we will also have one of the most modern, efficient fleets in the world.”