Air New Zealand expects to incur losses of between NZ$85mn-105mn ($52mn-64mn) from its fuel hedges in the 2019-20 fiscal year to 30 June because of the impact of the Covid-19 pandemic on air travel. The airline cut its flight capacity by more than 95pc in March and April.
These losses were partially offset by gains from closing out foreign exchange contracts relating to foreign currency operating revenues and expenditure no longer expected to occur, the airline said.
Air New Zealand's passenger numbers in March fell by 26pc from a year earlier.
The airline expects domestic air travel to increase again in the coming months as the New Zealand government lifts travel restrictions. "We are preparing for a scenario in which the airline is still 30pc smaller than pre-Covid levels in two years' time" said its chief financial officer Jeff McDowall.
Air New Zealand's network capacity for the second half of 2019-20 is expected to be about 50pc lower than a year earlier, driven by a reduction of about 90pc in the April-June.
The reduction in flights and little revenue coming in during March and April meant the airline is now expecting to report an underlying loss for the current fiscal year.
It anticipates that global demand for international air travel will rebuild slowly. It expects to book an impairment charge in 2019-20 relating to some of its Boeing 777 aircraft. The airline currently estimates a non-cash impairment charge in relation to these aircraft in a NZ$350mn-450mn range, which will be partially offset by a reduction in the airline's deferred tax liability, McDowall said.
The sharp drop in air travel will affect New Zealand's jet fuel demand and production. The country's only refinery, the 135,000 b/d Marsden Point, produced about 29,000 b/d of jet fuel last year. The country imported a further 4,400 b/d last year, down from 5,900 b/d in 2018.
