An Air New Zealand Boeing 787-9 Dreamliner plane taxis at O'Hare International Airport in Chicago, Illinois, U.S. November 30, 2018. REUTERS/Kamil Krzaczynski

By Jasmeen Ara Islam Shaikh

(Reuters) -Air New Zealand on Wednesday warned it would report a first-half loss after soft local economic conditions dented expectations for a revenue pickup in domestic and U.S.-bound bookings and engine leasing costs increased.

The airline said it no longer expected the 2% to 3% revenue lift it had forecast in August, with current forward bookings showing little momentum.

It forecast a loss before tax of NZ$30 million ($17.20 million) to NZ$55 million for the six months ending on December 31.

Previously, the carrier had anticipated first-half results to be roughly in line with the NZ$34 million profit before tax it reported in the second half of the prior financial year.

Shares in the company fell 1.7% to NZ$0.585 in early trading.

"The weak economic backdrop in New Zealand is weighing on revenue, and persistent engine issues are a material cost drag," said Angus Hewitt, equity analyst at Morningstar.

"Air New Zealand's fortunes should turn as engine issues ease, additional capacity comes online, and economic conditions in New Zealand improve. We forecast a material uptick in profitability from the second half (and beyond)."

Air New Zealand's challenges have been compounded by a small domestic market and fierce competition from Australian rivals Qantas Airways and Virgin Australia.

Weaker-than-expected revenue is forecast to have a negative NZ$50 million impact in the first half, Air New Zealand said.

Delayed aircraft deliveries and grounded jets have also strained operations. It said between nine and 11 aircraft have been out of service at times since the start of the 2026 financial year due to engine issues.

Engine lease expenses are now projected to be about NZ$20 million higher after the airline recognised end-of-lease obligations on two short-term aircraft leases that were previously excluded from its outlook.

Meanwhile, its obligations under the mandatory Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) have climbed by roughly NZ$10 million since August, adding to fuel costs.

The carrier has also continued to grapple with global supply chain disruptions. The 2025 financial year marked its first full year affected by additional maintenance requirements on Pratt & Whitney and Rolls-Royce engines.

($1 = 1.7443 New Zealand dollars)

(Reporting by Jasmeen Ara Shaikh and Rishav Chatterjee in Bengaluru; Editing by Maju Samuel and Jamie Freed)