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Air NZ flags weaker earnings as revenue growth seen slowing

Wellington

AIR New Zealand said on Wednesday that it expected much weaker earnings in 2019 than previously forecast as slowing tourism and domestic trips dragged on revenue growth and problems with Rolls-Royce engines started to bite.

Shares in New Zealand's national carrier dropped as much as 13 per cent to a three-month low of NZ$2.80 (S$2.58) and were poised for their largest daily loss in 15 years. They last stood at NZ$2.89.

The airline, which is part-owned by New Zealand's government, said it expected pre-tax earnings of between NZ$340 million and NZ$400 million for the year to June 30, down from its previous guidance of NZ$425 million to NZ$525 million, prompting the company to review its networks and costs.

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"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 to the stock exchange.

The company said that revenue growth, though expected to remain positive, would be slower than previously anticipated.

"We have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward," said Mr Luxon in the statement, adding that domestic leisure travel and inbound tourism were showing signs of softening.

Adding to that were scheduling changes caused by problems with Roll-Royce engines, which had cost the airline an estimated NZ$30-40 million.

Air New Zealand is one of several Boeing 787 operators affected by maintenance issues on Rolls-Royce's Trent 1000 engines. Problems with a deteriorating compressor in the engines had forced a number of airlines to ground flights.

The company said it would elaborate on annual guidance when it reported half-year results on Feb 28. It expected to declare an interim dividend of 11 cents per share.

Separately, Air New Zealand said it carried 4.5 per cent more passengers in December 2018 than it did a year earlier. REUTERS