New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Air New Zealand Further recovery progress evident</h2>
Air New Zealand’s (AIR)&nbsp;latest&nbsp;monthly passenger (pax) operating stats&nbsp;show further revenue improvements. Our estimate (~NZ$198m) of its&nbsp;May&nbsp;2022 pax revenue is&nbsp;lower than April 2022 (~NZ$204m) but after adjusting for seasonality represents further recovery against CY19.
<ul>
<li>Revenue: We calculate that May 2022 passenger revenue was ~63% of May 2019. While short haul (including domestic) revenue was at ~82% of May 2019 revenue, long haul was only at ~34%.</li>
<li>RASK (revenue per available seat km): May 2022 group RASK was up +50% against CY19 albeit still heavily influenced by mix given the stronger recovery to-date in higher RASK domestic services. Nonetheless long haul RASK is up +37% against May 2019, while short haul is up +28%.&nbsp; &nbsp;</li>
<li>Capacity: May 2022 total capacity was 55% of CY19 levels, with domestic services at 95%, short haul international at 46% and long haul at 24%.</li>
</ul>
Our view
May’s&nbsp;passenger revenue shows a strong sequential improvement from&nbsp;April,&nbsp;March and February&nbsp;(on a relative basis),&nbsp;helped by the relaxation of border controls&nbsp;and capacity rebuild. On an absolute basis we calculate that May 2022 revenue was lower than April 2022 given the seasonality impact. Looking back May was the weakest pax revenue month in 2019; albeit June 2019 was only stronger given its additional week (AIR uses a 4-4-5 week approach for monthly accounting). June is usually the weakest month of the year on a revenue per day basis.
Visible Alpha consensus has AIR’s pax revenue in FY22 at NZ$1,287m (Forsyth Barr: NZ$1,520m) of total revenue of NZ$2,444m. Consensus doesn’t appear to have&nbsp;fully&nbsp;responded to AIR’s recent guidance update (underlying profit before tax of less than -NZ$750m compared to previous guidance of less than -NZ$800m) and latest&nbsp;operating stats. Consequently we expect further upgrades (i.e. lower losses) to FY22 consensus earnings forecasts ahead of the result in August.
Chart: Average daily pax revenue in May 2022 was back to ~63% of CY19
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/285/083/original/image_92557514621657186488900.png?1657186490" class="editor-image img-responsive" data-smartkarma-image-id="285083"></figure>
Source: AIR, Forsyth Barr analysis&nbsp; Note: Months are based on the number of days AIR uses for accounting purposes, typically either 28 or 35 days

Air New Zealand Further recovery progress evident
Air New Zealand’s (AIR)&nbsp;latest&nbsp;monthly passenger (pax) operating stats&nbsp;show further revenue improvements. Our estimate (~NZ$198m) of its&nbsp;May&nbsp;2022 pax revenue is&nbsp;lower than April 2022 (~NZ$204m) but after adjusting for seasonality represents further recovery against CY19.

Revenue: We calculate that May 2022 passenger revenue was ~63% of May 2019. While short haul (including domestic) revenue was at ~82% of May 2019 revenue, long haul was only at ~34%.
RASK (revenue per available seat km): May 2022 group RASK was up +50% against CY19 albeit still heavily influenced by mix given the stronger recovery to-date in higher RASK domestic services. Nonetheless long haul RASK is up +37% against May 2019, while short haul is up +28%.&nbsp; &nbsp;
Capacity: May 2022 total capacity was 55% of CY19 levels, with domestic services at 95%, short haul international at 46% and long haul at 24%.

Our view
May’s&nbsp;passenger revenue shows a strong sequential improvement from&nbsp;April,&nbsp;March and February&nbsp;(on a relative basis),&nbsp;helped by the relaxation of border controls&nbsp;and capacity rebuild. On an absolute basis we calculate that May 2022 revenue was lower than April 2022 given the seasonality impact. Looking back May was the weakest pax revenue month in 2019; albeit June 2019 was only stronger given its additional week (AIR uses a 4-4-5 week approach for monthly accounting). June is usually the weakest month of the year on a revenue per day basis.
Visible Alpha consensus has AIR’s pax revenue in FY22 at NZ$1,287m (Forsyth Barr: NZ$1,520m) of total revenue of NZ$2,444m. Consensus doesn’t appear to have&nbsp;fully&nbsp;responded to AIR’s recent guidance update (underlying profit before tax of less than -NZ$750m compared to previous guidance of less than -NZ$800m) and latest&nbsp;operating stats. Consequently we expect further upgrades (i.e. lower losses) to FY22 consensus earnings forecasts ahead of the result in August.
Chart: Average daily pax revenue in May 2022 was back to ~63% of CY19

Source: AIR, Forsyth Barr analysis&nbsp; Note: Months are based on the number of days AIR uses for accounting purposes, typically either 28 or 35 days

Air New Zealand: Further Recovery Progress Evident