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Air New Zealand flags weaker earnings as tourism market growth eases

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Air New Zealand lowered its profit outlook by as much as 30 per cent on Wednesday as it forecast revenue growth would ease due to weaker tourism, raising broader concerns about slowing arrivals to New Zealand and nearby Australia.

[WELLINGTON] Air New Zealand lowered its profit outlook by as much as 30 per cent on Wednesday as it forecast revenue growth would ease due to weaker tourism, raising broader concerns about slowing arrivals to New Zealand and nearby Australia.

Air New Zealand shares dropped more than 13 per cent and were poised for their steepest daily loss in 17 years after the airline said it would lower capacity and review business plans. Shares in Australian rival Qantas Airways fell by as much as 5.8 per cent.

Both countries have been beneficiaries of a boom in tourism arrivals in recent years, led by the fast-growing Chinese market.

But the latest statistics show signs of easing growth, with Chinese arrivals in New Zealand down 4.4 per cent in November from the same period the previous year and up just 1.6 per cent in Australia.

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Air New Zealand said there was a trend of "softening inbound tourism traffic" as well as a weaker domestic leisure travel market that had led it to downgrade its pretax profit forecast to a new range of NZ$340 million (S$314.4 million) to NZ$400 million for the financial year ending June 30.

That is as much as 30 per cent lower than its previous guidance, taking into account the NZ$30 million to NZ$40 million impact from issues with Rolls-Royce Holdings PLC engines included in the latest forecast, Reuters calculations showed. The new estimate also includes a lower fuel-price forecast.

"We are concerned with our latest outlook, which reflects the softer revenue growth we are seeing in the second half," chief executive Christopher Luxon said in a statement.

"We have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward."

Westpac Bank economist Paul Clark said New Zealand's total annualised tourism growth was still around 3 per cent in the 12 months ended October, but that was much slower than the roughly 11 per cent growth hit in 2016 when the tourism boom was at its height.

Judy Chen, the chief executive of New Zealand's Tourism Export Council, said some of the members it represents were reporting a softer summer compared with the previous year.

"There's a variety of reasons," she said. "Going forward, the outlook for Brexit, the potential slow down in the Chinese economy and the trade war will all probably play a role."

A UBS survey of Chinese traveller intentions released last month found a sharp pull-back in plans for trips to long-distance destinations such as Australia, New Zealand and the United States and a preference for trips closer to home in Asia.

Tourism Australia chief executive John O'Sullivan said growth rates in Chinese arrivals had slowed from the 2015 peak as the market matured.

"That's why we are putting more focus upon repeat visitation, encouraging travel out of peak travel periods and encouraging our Chinese visitors to venture out of the cities and explore further afield," he said.

Air New Zealand and Qantas, which are due to release half-year financial results next month, declined to comment on Chinese booking trends.

Air New Zealand cut its full-year capacity growth forecast to 4 per cent, the bottom end of its prior range of 4 to 6 per cent.

REUTERS