22 Aug 2011

Higher fuel costs expected to hurt Air NZ earnings

9:01 am on 22 August 2011

Higher fuel costs, ash and earthquake disruptions are expected to have hurt Air New Zealand's bottom line.

The majority government-owned airline reports its annual results on Thursday.

Forsyth Barr head of research Rob Mercer is expecting underlying profit to fall by more than a third to $51 million.

He says as well as the Canterbury earthquakes and volcanic ash disruptions in the second half, Air New Zealand has had to absorb higher fuel prices, as it takes time for air fares to rise.

Mr Mercer says a loss of $46 million is forecast for the second half, with an overall profit of $51 million for the full year.

He says fuel prices have started to fall back, however, and Air New Zealand will be a carrier for a substantial number of the teams playing in the Rugby World Cup, which should lift earnings in the six months to December.

But Mr Mercer says after that general economic conditions will need to improve to see passenger traffic pick up.

He says it's expected that earnings will improve in 2012 but there is still a question mark over when there will be genuine growth resuming in the long haul markets.

He says that may be delayed due to where the New Zealand currency is against the US and the euro and the economic recovery stalling globally.