It also cut some capacity and targeted opex savings, but these likely had a small impact given the scale of fuel cost increases, he said.
Craigs lowered its FY26 pre-tax profit forecast from a loss of $134m to a loss of $427m.
Looking further ahead, it expected the airline to lose $239m in the 2027 financial year, which will end on June 30 next year.
Gardiner said an earlier end to the Middle East conflict could mean a higher level of earnings in FY27.
The airline’s balance sheet at least had some flexibility, he said, with $1.3 billion of liquidity.
“So while we think there is some risk of [Air New Zealand] raising new equity in the future if the conflict carries on for an extended period, we don’t think this is imminent and may be avoided completely.”
Since the war started, the airline’s market capitalisation had fallen by about $410m, he added.
Air New Zealand in March said it was 83% hedged against Brent crude for the second half of the 2026 financial year.
But it said that as with most global airline peers, it was exposed to movements in the crack spread or jet fuel refinery margin.
Craigs’ price target was now $0.48, down from $0.60 previously.
The airline’s shares were trading at $0.42 early this afternoon.
The price was $0.55 when the war started.
“The share price appears to have factored in a conservative view of the duration of the conflict and the ongoing impact on prices/crack spread, but there remains a high degree of uncertainty,” Gardiner said today.
He said jet fuel prices averaged about US$86 a barrel for January and February, with the crack spread at US$17.
But current spot prices were about US$190 for jet fuel, with a crack spread of US$68.
Gardiner said the airline’s hedging was mainly for Brent crude and not the crack spread.
Early this afternoon Brent crude was trading at US$113.8.
The airline had some jet fuel hedges through January and February but has been exposed to crack spread volatility since then, he said.
Gardiner said with the underlying Brent oil price also increasing, the airline would get some relief from its hedges.
“From discussions with management we understand no material additions have been made to the hedge position since the beginning of the Iran war.”
The airline faced a dilemma, he said.
A Boeing 787-9 Dreamliner arrives from Auckland at JFK International Airport in New York. Photo / Charly Triballeau, AFP
“To lock in prices now risks consigning [the airline] to a higher fuel expense for FY27 and potentially missing out on any benefits that could come from an end to hostilities and the reopening of the Strait of Hormuz.
“On the flipside, it would help to avoid even greater losses that could come from a scenario where hostilities and an elevated jet/oil price remain for longer.”
He estimated that if the airline locked in jet fuel at US$110 a barrel, that would equate to total fuel costs about $370m (or 25%) higher than in the 2025 financial year.
Some schedule reductions helped reduce costs, as did modest fare increases, he added.
“We are conscious this level of additional cost may be very hard to recover in the current tough economic environment where demand could be more sensitive to fare increases.”
Air New Zealand in March said for someone flying one-way in economy, its domestic flights had increased by $10, short-haul flights by $20 and long-haul flights by $90.
Gardiner said Craigs already expected the airline’s debt levels to climb over the next 18 months.
The airline had reported reasonably strong operating statistics for March, he said, and that likely reflected having more Airbus A321s on short-haul routes.
Previously, those aircraft were unavailable with engine issues when there was a need to check the Pratt & Whitney PW1100G engines for microscopic cracks.
Gardiner said the airline was reporting strong demand domestically but capacity was only at about 87% of pre-Covid levels.
The headline on this article has been amended so the figure reflects the current financial year, given the uncertainty over the Iran conflict.
John Weekes is a business journalist covering aviation. He previously covered consumer affairs, crime, politics and courts.
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