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Airlines’ boom turns to bust as fuel prices soar

In the year leading up to June, Qantas (ASX:QAN), Virgin, and Air New Zealand (ASX:AIZ) all enjoyed a boom, with soaring business, revenues, and earnings as international and domestic travel rebounded. However, the surge in oil and fuel prices has since dimmed their 2022-23 performance.

Qantas, in its first-quarter update, issued a cautionary note about the impact of higher fuel and other costs. Now, Air New Zealand has issued a more detailed warning, stating that it expects its December-half year profit to drop by over a third in the gloomiest forecasts. The airline now anticipates pre-tax earnings of $NZ180 million to $NZ230 million for the six months ending in December, down from $NZ299 million the previous year.

Air New Zealand cited “solid” customer demand across most markets but noted recent softness in domestic travel, particularly corporate and government travel. The airline also expressed uncertainty about future performance, attributing it to factors such as increased international competition, volatile fuel prices, currency fluctuations, and ongoing inflationary pressures.

Additionally, higher jet fuel prices and a weaker New Zealand dollar have increased costs in most of the September quarter. Jet fuel prices rose by 35% in the quarter but decreased by almost 10% over the past week, highlighting the continuing volatility of a critical input cost for airlines.

Another source of uncertainty is the ongoing Pratt & Whitney engine issues, which will have a minor financial impact in the first half but may affect some flying schedules in the second half.

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