ANALYSIS: People who have hunkered down during the Covid-19 pandemic are now looking to spread their wings and get out into the world for some stimulating travel experiences. That should be good news for the national carrier Air New Zealand, which was hard hit during the pandemic. So will it now rebound? READ MORE:
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The pandemic impact
The airline posted a $454 million loss in 2020 and a $289m loss in 2021, and has stayed afloat during the pandemic through government loans and support, selling shares to investors, reducing its fleet, standing down staff and suspending dividends.
Its shares have fallen from $3.05 at the start of 2020 to 57 cents at the close of trading on Thursday. The value of each share was diluted after the airline issued new shares as part of its capital raising in April.
A less bad outlook
Air New Zealand has warned that it was headed for a bigger loss for the financial year just ended on June 30. But it recently said the loss wasn’t expected to be quite as bad as initially thought, revising its forecast to a pre-tax operating loss of less than $750m, from a previous expectation of less than $800m as demand for travel picks up. Analysts are divided on whether the company will post a smaller loss in the coming financial year, or return to profit.
Even if the earnings are improving, the airline has flagged that dividends will remain suspended for some time, saying it will consider resuming payments from its 2026 financial year.
Caution
While the travel market may be picking up, the airline still has plenty of headwinds in front of it, many of which are out of its control.
Ticket costs are going up as Air New Zealand faces higher fuel costs. That’s happening at the same time as consumers are feeling the pinch from higher inflation and interest rates, leaving them with less to spend on travel.
Air New Zealand chief executive Greg Foran told Reuters on the sidelines of an industry event in Doha last week that the airline’s airfares were running 20% to 25% above pre-Covid levels, in part to cover fuel prices that have more than doubled.
Investors need to weigh pent-up demand for travel and less airline capacity on the one hand, with higher prices and constrained consumer spending on the other.
Recovery
Analysts generally agree that Air New Zealand is headed for recovery as travel picks up, with reports titled ‘Light at the end of the runway’, ‘Ready for takeoff’ and ‘Lifting the nose despite heavy fuel load’, but uncertainty remains around the risks ahead in a post-Covid environment and the timing of an earnings recovery.
That’s reflected in the wide range of views on the stock, with one ‘buy’, two ‘hold’ and two ‘sell’ recommendations.
Whether you choose to buy, sell or hold will depend on whether you see risk or opportunity ahead.
