Forsyth Barr has today downgraded Air New Zealand from “neutral” to “underperform”, citing poor demand, capacity challenges and cost inflation.

The investment firm issued a research note today.

Air NZ on Wednesday said it expected to report a first half pre-tax loss of $30-$55 million.

Forsyth Barr today said the airline was currently loss-making but this half, which ends on December 31, should be the trough.

That was partly because there should be fewer aircraft grounded in the second half, Forsyth Barr said.

Forsyth Barr estimated revenue in the 2026 financial year of $6.9b, up from $6.75b.

Air NZ has had between nine and 11 aircraft grounded at times since the beginning of the 2026 financial year.

Forsyth Barr estimated return on equity of 1.2% in the current financial year, down from 5.6%.

The investment firm said Air NZ currently traded broadly in line with its net asset value.

But it said return on capital was currently sub-WACC, and likely to remain so in the absence of a structural change in the jet fuel price.

“We are cognisant that the company’s buy-back programme is contributing a material share of current NZX demand ... for its shares, and thereby providing some downside support,” Forysth Barr added.

The firm said the domestic economy should improve in the second half.

In an update on Wednesday, Air NZ said an expected 2% to 3% uplift in revenue across domestic and United States-bound bookings had not materialised.

“The local economy remains subdued, with ongoing softness across business, government and leisure segments,” the airline added.

Air NZ also said its financial obligations under the mandatory Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) were up about $10m since an August outlook.

That meant increased fuel costs, the airline said.