Air New Zealand reported an NZ$87 million ($58 million) underlying loss for the financial year (FY) ended 30 June, as the Covid-19 pandemic swiftly changed its fortunes during the reporting period.

“The 2020 financial year has been a year of stark contrast. Air New Zealand had a solid start to the year and was focused on driving profitable growth into the second half,” chairman Therese Walsh said in a statement today.

“Now, nearly six months following the declaration of a global pandemic, the NZ$87 million loss we are reporting today, our first loss in 18 years, reflects the quick and severe impact Covid-19 has had on our business.”

Operating revenue declined by 16% to NZ$4.8 billion as total network capacity shrank by 21% while CASK increased by 11.5% from NZ$0.10 in FY 2019, “mainly driven by diseconomies of scale and inefficiencies associated with Covid-19 schedule changes”, according to a statement and investor presentation about its financial results made available today.

The upside was a 15% gain in cargo revenue to NZ$449 million, inclusive of foreign exchange impact.

Air New Zealand had booked a strong interim profit of NZ$198 million for July to December 2019 period and saw positive demand on North American and regional routes in early 2020, it says.

From April to the end of June, however, Covid-19-related travel restrictions sent passenger revenue plummeting 74% year-on-year, and this drove the airline’s operating losses.

Loss before other significant items and taxation for FY 2020 came up to NZ$87 million, compared with $387 million EBIT in FY 2019.

Other significant items included in the airline’s pre-tax losses amount to NZ$541 million on a net basis, comprising NZ$453 million in non-cash charges and NZ$88 million cash items.

The bulk of this was a NZ$338 million non-cash aircraft impairment charge, related to the grounding of its Boeing 777-200ER fleet “for the foreseeable future”. It also expects to gain approximately NZ$21 million cash from the sale of airport slots.

Other amounts include NZ$140 million associated with reorganisation costs and NZ$105 million for losses on hedges, both partially non-cash.

The company also booked a NZ$46 million non-cash charge arising from the disestablishment of fair value hedges, and a NZ$67 million non-cash gain from uncovered foreign currency debt.

The group reports it had NZ$735 million in cash and cash equivalents as at 30 June, down from NZ$1.27 billion on 31 December. It will not pay dividends for FY 2020, the first time since 2005.

It also had NZ$1.1 billion in short-term liquidity as at close of business 25 August, including NZ$900 million from the government’s standby loan facility, which it has yet to utilise. Air New Zealand states in its latest update that it expects to start drawing on these funds in the coming days.

From April to June, the carrier’s average monthly cash burn was approximately NZ$175 million, in part due to higher than average refunds, redundancy payments and costs associated with closing out fuel hedges.

This was down to NZ$85 million in July, and it is expecting a NZ$65-85 million range going forward, for as long as international travel restrictions remain and assuming domestic travel resumes with no social distancing requirements while government-supported cargo flights continue.

In the investor presentation, Air New Zealand states that it is uncertain when global borders will reopen and it does not expect passenger demand to return to 2019 levels until 2023 or later.

It has, however, observed strong domestic demand from June through August. At 70% of pre-Covid-19 capacity this is “happening more quickly than other [jurisdictions] around the world”, it says.

Air New Zealand’s cargo flights have also continued to exceed expectations, driven by heavy charter volumes and flights under the government’s International Airfreight Capacity scheme, which was recently extended to November. It says that on a revenue basis, cargo flights now equate to 30% of its previous long-haul business.

The airline will also reduce its aircraft capital expenditure by NZ$200 million in 2020-2022. Five Airbus A321neos and one ATR 72-600 that were due to arrive between 2021-2023 have each been delayed by up to a year. Its owned fleet on order comprises eight 787s, nine A320/A321neos and two ATR 72-600s, due for delivery between 2021 and 2025.

Chief executive Greg Foran highlights the performance of the airline’s domestic passenger network and cargo segments, but tempers expectations given the uncertainty Covid-19 brings.

“The recent resurgence of community transmission in New Zealand in August, has also reminded us that we cannot afford to be complacent.”

He adds: “It is clear that Covid-19 is unlike any other crisis the aviation industry has experienced and we will need to be more nimble than ever as borders reopen.”