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Air NZ shares hit 3-month low; earnings downgrade puts tourism under microscope

Wednesday 30th January 2019

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Air New Zealand shares sank to a three-month low after the national carrier warned annual earnings will drop by as much as 37 percent, with softer tourism and slowing domestic travel restraining revenue growth. 

The shares fell as much as 15 percent to $2.80, and were recently at $2.91, down 36 cents in early trading. Air NZ cut its forecast for pre-tax earnings to $340-400 million in the year ending June 30, blaming ongoing issues with the Rolls Royce engines that have disrupted schedules. At the same time, smaller increases in domestic travel and inbound tourism weighed on revenue, prompting schedule adjustments to increase capacity 4 percent for the year, the bottom of its 4-6 percent guidance. 

Grant Davies, an investment advisor at Hamilton Hindin Greene, said airlines often experience volatile earnings in a highly competitive international market that can be exacerbated by high capital spending needs. 

"You're going to have good years and bad years, but it's hardly dire straits at the moment," he said. 

The airline's operating statistics showed a 4.5 percent increase in passengers carried across the group to 1.77 million in December, taking the year-to-date tally to 8.9 million, a gain of 4.3 percent. Its dominant domestic routes reported a 3.2 percent increase in passengers carried to 1.14 million in December, with year-to-date totals up 3.4 percent at 5.76 million. 

Long-haul passenger numbers rose 7 percent to 226,000 in December from a year earlier, with the year-to-date tally up 3.5 percent at 1.1 million. 

Auckland International Airport's November traffic update showed a 4.1 percent monthly increase in domestic passenger movements to 837,000, with year-to-date passengers up 4.4 percent at 4 million. International passenger movements rose 4.7 percent in November to 888,000, for a year-to-date increase of 4.7 percent to 4.25 million. 

Last week, government figures showed almost 386,000 international visitors arrived in New Zealand during November, up 7 percent from a year earlier, for an annual increase of 3.6 percent at 3.85 million. That same month, the accommodation survey showed guest nights were up 3.8 percent from a year earlier at 3.54 million, with domestic stays 4.2 percent higher at 1.8 million and international guest nights up 3.4 percent at 1.73 million. 

Davies said Air New Zealand is often a bellwether for tourism-related companies, and he'll be watching to see whether there's any flow-on to other companies. 

Hotel and casino operator SkyCity Entertainment Group yesterday upgraded its earnings outlook after its flagship Auckland casino delivered a strong performance, and its international business consisting of high rollers beat expectations. The company's shares hit a two-and-a-half month high yesterday, but were down 1.1 percent at $3.75 in early trading today. 

Auckland Airport shares fell 1.6 percent to $7.41 in early trading today, while Tourism Holdings was down 3.1 percent at $4.95. The rental motorhome operator and partner Thor Industries today announced ex-Expedia executive Danny Hest will lead their joint venture, TH2. 


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