Macquarie is predicting Air New Zealand Ltd (ASX: AIZ) shares will deliver solid returns over the next year despite another challenging period ahead and a less-than-rosy trading update this week.
Air New Zealand released a first-half trading update recently, which revealed that the carrier, expecting a 2% to 3% increase in revenue across domestic and US-bound bookings, had not actually achieved this.
This has not materialised to date and is not yet evident in the current forward booking profile., the impact of which is approximately NZ$50 million ($44.2 million) for the half. The local economy remains subdued, with ongoing softness across business, government and leisure segments.
Air New Zealand also informed the ASX this week that its engine lease costs for the half were now expected to be approximately NZ$20 million ($17.7 million) higher, due to the recognition of end-of-lease costs on two short-term aircraft leases that were not previously included in its outlook.
Another NZ$10 million ($8.8 million) in costs would come from the company's obligations under the mandatory Carbon Offsetting and Reduction Scheme for International Aviation, which "will result in increased fuel costs''.
Swinging to a loss
The company in August said it was expecting its first half pre-tax earnings to be "similar to or less than that reported in the second half of the 2025 financial year", or NZ$34 million ($30 million).
Taking the aforementioned changes into account, Air New Zealand this week said it now expects a loss in FY26 "in the range of NZ$30 million to NZ$50 million ($26.5-$44.2 million)".
It added:
This assumes an average jet fuel price of US$85 ($130.9) per barrel for the period. Given the ongoing uncertainties, the airline will update the market as required.
Shares still look cheap
Despite the negative trading update, the Macquarie team still think there's money to be made in Air New Zealand shares.
The Macquarie analysts did cut their price target for the company, from 75 cents to 68 cents, but this is still well above the prevailing share price of 52 cents.
Another disappointing update reflecting an ongoing challenging economic backdrop with green shoots from lower interest rates yet to show up. Air New Zealand's balance sheet can weather such conditions, and the company is positioned to deliver strong profit before tax improvement as the fleet returns to scale.
Factoring in dividends, the Macquarie team is forecasting a total shareholder return from Air New Zealand shares of 18%.
Air New Zealand shares have traded within a narrow band on the ASX over the past year, with a low of 47 cents and a high of 58 cents.
