Air New Zealand (ASX:AIZ): Why hasn’t it bounced back from the pandemic like Qantas?

Air New Zealand (ASX:AIZ) and Qantas (ASX:QAN) both suffered the indignity of having their market demand wiped out due to the pandemic and government restrictions. There was reason to believe that Air New Zealand could emerge stronger as it lacked the reputational damage Qantas had, and it did not face a hefty capex bill to replace an ageing fleet.

Obviously, things have been different. But the question we want to ask is if there is hope now?

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Recap of Air New Zealand (ASX:AIZ)

Air New Zealand is the flag carrier of our Kiwi neighbours. It is 51% owned by the New Zealand government with the balance owned by ASX and NZX investors. The modern company emerged from Union Airways of New Zealand (later Tasman Empire Airways) which started in 1936.

It was nationalised in 1961 and renamed in 1965 but was international only until it merged with National Airways Corporation in 1978. It was privitised in 1989, but the government was forced to take majority ownership when its the failure of Ansett (which it had a major stake in) put it on the brink of collapse.

We all know what the pandemic did to the airline – demand was wiped out and the government had to bail it out with a NZ$2-3bn package. But the airline was arguably in better shape as it had (and still has) government backing. And it has a more modern fleet than Qantas with newer A320s and 787s, with some older 777s.

Post pandemic: Not the same as its former self

In FY19, it made $5.8bn revenue, $374m EBT and $270m NPAT. In FY25, it made $6.75bn revenue but just $189m EBT and $126 NPAT. Moreover, revenue was flat and EBT went backwards from $222m.

The company is back flying, but things are not quite back to normal. There are 3 issues: Engine maintenance, cost inflation and a soft domestic market due to New Zealand’s recession. In its FY25 results, fuel costs were up 12% and there was a 6% rise in non-fuel operation costs including landing charges, labour costs and engineering materials. These figures were $208m and $235m respectively.

Moreover, just 2 months after promising that results for the first half of the year would be similar, it told investors that this would not be the case and it expected a $50m impact in the first half. It is battling for compensation from airline manufacturers for engine delays that have left 9-11 aircraft grounded at times and caused routes such as Auckland to Chicago and Auckland to Seoul to be cancelled and others scaled back. A loss of $30-55m is expected for the first half.

Hope for the future?

Air New Zealand recently changed CEOs replacing outgoing Greg Foran with former Chief Digital Officer Nikhil Ravishankar. We mentioned that the airline is seeking compensation for energy delays. It is also looking at resuming London flights (specifically at Gatwick) and potentially starting flights to India and Manila.

And after some delays, the first of the new 787 jets is expected in early 2026 with inevitably more to come after that. Certain initiatives to keep ultra-frequent flyers engaged are anticipated to play a part including a new super frequent flyer status tier, a new Elite Lounge in Auckland and new onboard business suites.

The airline has also claimed that the Kia Mau transformation programme reportedly delivered about NZ$100 million in benefit via better ancillary revenue, improved digital service and operational reliability.

Conclusion

It is easy to think that Air New Zealand is a turnaround story. After all, some doubted Qantas could recover from its reputational issues, which it did once Alan Joyce left. But Air New Zealand has issues Qantas has not faced (anytime recently) and many are out of its control. So we would avoid for now.