Why Air New Zealand and Qantas shares hit turbulence today

Here's why the Air New Zealand Limited (ASX:AIZ) share price and the Qantas Airways Limited (ASX:QAN) share price came under pressure today…

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The market may have edged lower on Wednesday, but two shares in particular have stood out with significant declines. These are the Air New Zealand Limited (ASX: AIZ) share price and the Qantas Airways Limited (ASX: QAN) share price.

At the time of writing the Air New Zealand share price is down 13% and the Qantas share price has dropped 5% lower.

Why are Air New Zealand and Qantas shares dropping lower?

The catalyst for these declines was a disappointing market update out of Air New Zealand this morning.

According to the release, Air New Zealand has downgraded its earnings before tax guidance for FY 2019 after updating its revenue forecasts based on recent forward booking trends.

Although revenue growth is forecast to remain positive, it is now expected to be at a slower rate than previously anticipated.

The slowing growth has been experienced in leisure travel within the New Zealand domestic market and softening inbound tourism traffic.

As a result, the airline now expects earnings before tax of NZ$340 million to NZ$400 million in FY 2019, compared to previous guidance of NZ$425 million to NZ$525 million.

The new guidance also includes an estimated NZ$30 million to NZ$40 million impact from schedule changes prompted by the global Rolls-Royce engine issues.

What else was announced?

Management also advised that it has made adjustments to its schedule which will reduce the rate of capacity growth to approximately 4% for the full year. This is at the low end of its original capacity growth guidance of 4% to 6%.

The company's chief executive officer, Christopher Luxon, appeared disappointed with current trading conditions.

He said: "We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year. Therefore, we have commenced a review of our network, fleet and cost base to ensure the business is on a strong footing going forward."

Should you buy the dip?

I wouldn't be a buyer of Air New Zealand's shares whilst it is reviewing its operations, but due to today's decline and reasons outlined here, I think that Qantas shares could be worth a look ahead of rival Virgin Australia Holdings Ltd (ASX: VAH). Just as long as oil prices don't surge higher any time soon.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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