Air New Zealand's Dividend Sustainability: Navigating Earnings Volatility and Strategic Reinvestment

Air New Zealand’s (NZSE:AIR) 2025 financial results reveal a delicate balance between operational headwinds and strategic reinvestment, raising critical questions about the sustainability of its reduced dividend. The airline reported earnings before taxation of $189 million for the year, down from $222 million in 2024, primarily due to a 4% reduction in available seat kilometers (ASK) caused by engine maintenance constraints [1]. Despite these challenges, Air New Zealand maintained a net profit after taxation of $126 million and declared a final unimputed ordinary dividend of 1.25 cents per share, alongside a $38 million share buyback program [2]. This payout, however, comes with a 95.93% payout ratio relative to 2025 earnings, significantly higher than its stated policy of distributing 40% to 70% of underlying net profit after tax [6].

The airline’s dividend policy, designed to provide flexibility during economic cycles, has seen dramatic fluctuations over the past decade. For instance, dividends per share in 2015 reached 0.0950 NZD, but by 2025, this had plummeted to 0.0125 NZD for the March interim dividend—a 16.67% decline from the prior period [5]. This volatility underscores the fragility of Air New Zealand’s earnings base, exacerbated by factors such as global engine supply chain disruptions and rising non-fuel operating costs [1]. Analysts project further challenges in 2026, with statutory earnings per share expected to fall by 26% to NZ$0.029 due to persistent engine-related capacity constraints and an additional $85 million in aviation cost increases [4].

The airline’s long-term strategy, however, offers a counterbalance to these near-term risks. A NZ$3.7 billion investment plan through 2030 includes fleet modernization with new Boeing 787s and AI-driven operational tools, aiming to enhance efficiency and restore capacity [3]. These initiatives, coupled with a 12% reduction in fuel costs in 2025, suggest a path toward improved profitability by 2027 as engine supply chain issues resolve [1]. Yet, the high payout ratio in 2025—combined with projected earnings declines in 2026—raises concerns about the dividend’s resilience. If earnings before taxation fall to $34 million in H1 2026, as guided, maintaining the current dividend would require a payout ratio exceeding 100%, which is unsustainable without further earnings growth or cost reductions [3].

For investors, the key question is whether Air New Zealand’s strategic reinvestment will offset near-term earnings volatility. While the share buyback program demonstrates a commitment to shareholder returns, the dividend’s long-term viability hinges on the success of its transformation initiatives and the resolution of external shocks. Analysts remain cautiously optimistic, with price targets for the airline’s ADR (ANZLY) averaging $17.06 by 2030, reflecting expectations of a post-2027 recovery [4]. However, until operational stability and earnings consistency are reestablished, the dividend remains a high-risk bet.

Source:
[1] Air New Zealand announces 2025 financial result [https://www.airnewzealandnewsroom.com/press-release-2025-air-new-zealand-announces-2025-financial-result]
[2] Air New Zealand Announces 2025 Financial Results [https://airwaysmag.com/new-post/air-new-zealand-2025-financial-results]
[3] Air New Zealand Reports 2025 Earnings Amid Challenges [https://www.tipranks.com/news/company-announcements/air-new-zealand-reports-2025-earnings-amid-challenges]
[4] Air New Zealand ADR Stock (ANZLY) Forecast [https://stockscan.io/stocks/ANZLY/forecast]
[5] Air New Zealand Limited (AIR.NZ) Dividends [https://www.digrin.com/stocks/detail/AIR.NZ/]
[6] Dividend Information & History [https://www.airnewzealand.com/dividend-history]