Key insights
- Air New Zealand anticipates elevated fuel costs through FY27, having hedged and increased fares for only 25-40% of the impact. The airline plans for $150/barrel jet fuel and may implement further fare hikes if demand is resilient. Despite challenges from engine issues and delivery delays, the carrier's balance sheet and assets provide liquidity. This suggests potential headwinds for the airline sector due to sustained high energy prices, which could impact consumer spending on travel and increase operating costs for other airlines globally.
By Rajesh Kumar Singh
RIO DE JANEIRO, June 6 (Reuters) - Air New Zealand has offset only 25% to 40% of the hit from higher fuel prices through hedging and fare increases, Chief Executive Nikhil Ravishankar told Reuters on Saturday, as the carrier plans for elevated fuel costs going into its 2027 financial year.
The airline is planning around $150 per barrel jet fuel out of the Singapore Jet Index, Ravishankar said on the sidelines of the International Air Transport Association’s annual meeting in Rio de Janeiro. Air New Zealand is not facing fuel supply shortages, he said, but the price shock remains the main challenge.
The airline has already imposed two rounds of fare increases and could look at further tactical hikes in markets where demand remains resilient, Ravishankar said.
"You can’t just infinitely keep raising prices. The market will respond and demand will soften and then you fly less," he said in an interview.
Ravishankar said Air New Zealand did not expect to tap markets for more liquidity, arguing that the carrier’s balance sheet and pool of unencumbered aircraft assets gave it room to withstand elevated fuel prices for an extended period.
If fuel prices stayed elevated, the airline would use a combination of cost cuts, supplier negotiations, fare increases and capacity reductions, he said.
Air New Zealand is also recovering from engine problems and aircraft delivery delays that at one point grounded up to 20% of its fleet. Ravishankar said that had fallen to less than 5%, with most aircraft expected to be back flying over the next two to three months.
Compensation from Boeing, Rolls-Royce and Pratt & Whitney had helped but had only partially offset the economic damage, he said.
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