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Auckland-headquartered Air New Zealand (ASX: AIZ) has warned it expects a full-year loss before tax of NZ$340 million to NZ$390 million ($314 million to $360 million) in FY26, as surging jet fuel prices driven by escalating conflict in the Middle East blow a NZ$240 million hole in the carrier's second-half cost base.
The airline disclosed the updated outlook this morning after suspending FY26 earnings guidance in March due to extreme fuel price volatility.
"The scale and speed of recent movements in jet fuel prices and refining margins have created a material external shock for the global aviation sector," says Air New Zealand in a statement on the ASX.
"Air New Zealand is responding from a position of resilience, reflecting deliberate actions taken over recent years to improve liquidity, funding depth and financial flexibility across its fleet.
"The airline has moved quickly to mitigate the impact of higher fuel costs to protect earnings and preserve liquidity.
"This includes implementing a number of targeted financial, commercial and operational actions, and accelerating the cost reduction work already under way."
Air New Zealand reports that jet fuel prices have surged from about US$85 to US$90 per barrel to between US$160 and US$230 per barrel, with crack spreads - the margin refiners charge above crude oil - ranging from US$55 to US$120 per barrel.
The result is a dramatic escalation in second-half fuel costs, now expected to reach NZ$980 million compared with the NZ$740 million assumed when Air New Zealand reported its interim result in February.
Air New Zealand had already posted a first-half loss before taxation of NZ$59 million for the six months to 31 December 2025, weighed down by ongoing Pratt & Whitney engine reliability issues that grounded several aircraft and cost the airline an estimated NZ$100 million to NZ$150 million across FY25 and FY26.
The updated FY26 outlook incorporates NZ$70 million of mitigating actions including fare increases and capacity reductions of 3 to 5 per cent across the network.
Air New Zealand has also identified up to NZ$100 million in annualised cost savings, although the bulk of that benefit is expected to flow into FY27 and beyond.
On the balance sheet, the carrier is in the final stages of securing a US$400 million revolving credit facility that would lift pro-forma liquidity by NZ$670 million to a total exceeding NZ$1.3 billion.
The airline notes that this facility, combined with existing cash reserves and undrawn credit lines, provides a significant buffer against continued fuel volatility.
Moody's affirmed Air New Zealand's investment-grade Baa1 credit rating on 24 April but downgraded the outlook to negative, citing the deterioration in earnings and heightened exposure to geopolitical fuel supply disruption.
The loss guidance carries a NZ$50 million band of uncertainty, reflecting the wide range of possible fuel price outcomes for the remainder of the financial year.
The airline says that every US$10 per barrel movement in jet fuel prices shifts its annual fuel bill by about NZ$55 million.
Air New Zealand has flagged it is conducting a broader strategy review encompassing fleet planning, network optimisation and cost structure, a process first signalled by CEO Nikhil Ravishankar at the interim result in February.
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