A 14% revenue jump still can’t outrun a $6.8m daily fuel bill

Air New Zealand has fixed most of what was in its control. It cannot fix the price of jet fuel, and that one line is wiping out the gains.

Forsyth Barr analysts Andy Bowley, Hugh Lockwood and Kiola Visser now forecast a $338 million pre-tax loss and $243 million after-tax loss for the year to June 2027. That is almost exactly the $336 million pre-tax loss the airline posted for FY26. A year of genuine commercial improvement, and the bottom line has barely moved.

The commercial engine is working

The underlying numbers are strong. In the first quarter of FY27, revenue per available seat kilometre rose 14% and passenger revenue rose 12%, led by long-haul routes where competitors have pulled capacity. Load factor hit 84.8%, with capacity still only at 91% of pre-Covid levels.

That is an airline running full, pricing well and recovering. In a normal fuel market, those numbers would be heading towards a decent profit.

Fuel is eating the recovery

This is not a normal fuel market. Forsyth Barr says Air NZ now spends about $6.8 million a day on fuel, up from $5.6 million at the start of the financial year, and has lifted its full-year fuel assumption to roughly $2.3 billion. For comparison, FY26 fuel costs were $1.738 billion, at an average of US$111 a barrel, and the Iran conflict only touched the last four months of that year.

The shock began after the conflict broke out on 28 February. By May, Air NZ said jet fuel had swung between US$160 and US$230 a barrel, against US$85-90 beforehand, calling it, in Bloomberg’s coverage, a full-year loss driver the airline could not avoid. By the September annual meeting, fuel had climbed from about US$150 to about US$170 a barrel, and the board declined to give FY27 guidance at all.

CFO Kris Cudmore is blunt. “Jet fuel now costs more than twice what it did before the war,” he told the Herald, adding that the airline had hedged 80% of its first-half Brent exposure but only 20% of its jet fuel crack spread exposure.

The hedge gap is the second-half risk

That crack spread number matters. Refining margins on jet fuel have blown out, and most of that premium is unhedged. In August, second-half FY27 cover sat at just 38% of expected volume, and Forsyth Barr notes no new hedges have been added in the past two months. Locking in at US$170 is unappealing, but leaving the back half exposed is a bet on the Middle East calming down.

The analysts do not expect a bailout or equity raise. They expect continued capex deferral instead. That is sensible balance sheet management, but deferred capex in an airline eventually shows up as older fleet, slower growth and fewer new routes.

Why fares cannot simply follow fuel

CEO Nikhil Ravishankar has been unusually candid about pricing limits. In August he said Air NZ could recover only 20% to 30% of a fuel spike at first, rising to 40-60% over time. Push harder and passengers vanish. “We saw volumes drop off as fast as we were putting prices up,” he said.

That is the key point for business readers. If fares cannot absorb the shock, capacity has to. Expect the airline to protect yield by trimming marginal routes, holding growth and keeping planes full. Reuters framed FY26 as the airline’s biggest annual loss in three years, and fuel was only part of it, with engine problems costing an estimated $190 million.

What it means if you fly or ship

For corporate travellers, a system running at 85% loads on 91% of pre-Covid capacity means flexible and premium fares stay firm. Budget accordingly, and book earlier.

For tourism operators and regions, the risk is quieter: fewer frequencies on thinner domestic routes, where the economics are weakest when fuel is dear.

For exporters, cargo revenue slipped to $484 million in FY26. Belly-hold freight depends on passenger networks, so any route cuts hit perishable and high-value shippers directly.

And for the Crown, as 51% owner, it means another year without a dividend from an airline that is otherwise doing its job.

The bet now riding on the Middle East

Air NZ has done the hard work: better on-time performance, stronger yields, $100 million in cost savings. Ravishankar’s target is an underlying profit in FY27. Whether that becomes a reported profit now depends almost entirely on oil, and on whether the airline closes its second-half hedging gap before prices move again. If fuel stays near US$170, the recovery will keep arriving everywhere except the bottom line, and businesses that rely on the network will feel it in fares and routes first.

Sources

• NZ Herald: Air New Zealand forecast to lose $338m as jet fuel prices stay high (2026-10-26)
• RNZ: Air New Zealand plunges to $242 million loss as fuel and engine costs bite (2026-08-28)
• NZ Herald: Air New Zealand CEO targets return to profit in 2027 financial year – unless jet fuel prices have other ideas (2026-08-28)
• RNZ: Air New Zealand expecting full-year loss of nearly $400m due to jet fuel costs (2026-05-14)
• Air New Zealand: 2026 Annual Results Market Release (2026-08-28)