Fuel price surge sees Air New Zealand flag FY2026 loss

By Andrew Curran.

Air New Zealand has flagged a full-year pre-tax loss of between NZD340–390 million (USD201–230.6 million) because of rising fuel costs. In response, the airline will extend its capacity cuts into late 2026 while reducing costs “we can live without for now”.

In a May 14, 2026, market update, Air New Zealand said the scale and speed of changes in jet fuel prices had created a “material external shock for the global aviation sector”.

The airline said jet fuel prices were around USD85–90 per barrel before the start of the Iranian war but had recently risen to between USD160–230 per barrel.

In the six months to June 30, Air New Zealand expects to consume approximately 4.1 million barrels of jet fuel at a cost of around NZD980 million (USD579.4 million). In contrast, the airline spent NZD740 million (USD437.5 million) on fuel in the six months to June 30, 2025.

“We are paying over double what we normally pay for fuel,” CEO Nikhil Ravishankar told Radio New Zealand yesterday.

Air New Zealand struggling before fuel prices started to rise

Air New Zealand was already struggling with engine maintenance issues, sluggish domestic demand, and rapidly rising operational costs before fuel prices began climbing in late February. At the time, the airline announced an after-tax net loss of NZD 40 million (USD 23.6 million) for the six months to December 31, 2025.

“Assuming an average jet fuel price of USD 85 per barrel for the second half, Air New Zealand expects half-year earnings for the six months to June 30, 2026, to be broadly in line with, or modestly below, the first half,” a February 26, 2026, stock market filing stated.

Two days later, the military campaign against Iran began and oil prices surged.

Twelve days later, Air New Zealand suspended its earnings guidance, and flagged fare increases and network adjustments.

The airline has since cut around 5% of its flights, mostly off-peak services on higher-frequency routes.

The initial cuts ran through to early May. That was later extended through June and, earlier this month, until late July.

“If fuel prices stay at these elevated levels, the airline expects to announce further capacity updates in the coming weeks,” yesterday’s filing stated.

This time, however, there will be less focus on domestic network cuts. Instead, the carrier will look at trimming long-haul international flying between August and October. The airline said outbound demand on long-haul routes had softened and the North American inbound market was “mixed”.

While fares have already increased, Ravishankar said there was a limit to how high ticket prices could rise.

“Cost-of-living challenges are real and, where we've implemented price increases, we are starting to see that we are reaching the limits of certain markets and their ability to absorb those costs,” he told RNZ. “We're being very thoughtful about what we do with price increases.”

“Recovering the full impact of higher fuel costs over a short period would risk further demand softness, and the airline is taking a measured approach to pricing and capacity,” the market update said.

Air New Zealand says it is financially sound

Despite the challenges, decisions made in recent years to strengthen Air New Zealand’s financial position are now paying dividends. The market update referred to “balance sheet resilience”, noting that liquidity, funding depth, and financial flexibility have all improved since the Covid era.

Annual cost savings of NZD100 million (USD59.1 million), identified late last year, will also carry through into the next financial year.

More recent decisions to cap expenditure include reviewing aircraft delivery timelines to ensure capacity aligns with demand. In some cases, aircraft delivery delays caused by manufacturing issues will work in Air New Zealand’s favour, with capital expenditure consequently deferred.

Air New Zealand said the forecast loss remains subject to change, with jet fuel prices, macroeconomic conditions, passenger demand, and engine return schedules all likely to influence the final result.

“Air New Zealand will continue to update the market,” the filing added.

You can read the full market update here.

Photo: Aero South Pacific.

Contact the writer: andrew@aerosouthpacific.com