Forsyth Barr believes Air New Zealand will announce a profit of $36 million for the six months to December 31, compared with $115 million for the previous corresponding period (pcp).
It was also forecasting a full year profit to June 30 of $49.8 million, compared with $251 million for the pcp.
Air NZ was expected to benefit from steps taken to match capacity with lower demand, with the broker predicting revenue would rise 2% to $2.377 million for the six months to December 31, due to a 7.5% increase in yield.
Long-haul yield was picked to increase 12.3% and short-haul 4.1%.
Forsyth Barr broker Peter Young said Air NZ was heavily exposed to the tourist sector, which could possibly be one of the hardest hit sectors in the global economic downturn.
But it had acted quite quickly, cutting non-performing routes and addressing its costs, he said.
Tourism New Zealand has estimated summer arrivals could be down 20% this year, with most of that decline being in international visitors.
The Hospitality Association of New Zealand said last month members were reporting occupancy rates 10% to 15% lower than for the same time the previous year.
Forsyth Barr analyst Rob Mercer estimated Air NZ's costs would rise 8% to $1997 million compared with the pcp, due to higher fuel, maintenance and overhaul costs.
However, the airline's $US629 million of committed capital expenditure would benefit from the lower exchange rate, while the full benefit of lower fuel costs would be seen in the accounts in the second half of the year.
But there were some negatives for the airline, with extra competition on New Zealand and transtasman routes expected to put pressure on yields later this year.
Mr Mercer believed Air NZ had taken steps to meet that challenge, with its "Grab a Seat" campaign ensuring it would aggressively compete at the discount end of the market.
Air NZ had moved quickly to reduce costs in line with falling demand on its long-haul routes, showing it had fleet flexibility to maintain relatively high load factors.
Speculation the Australian and New Zealand Governments could make the transtasman route a domestic one was seen as a positive step for Air NZ.
Mr Young said last year it faced fuel costs based on oil at $US146 a barrel, and a high exchange rate.
Today, oil was $US38 a barrel and there was a favourable exchange rate of US51c, but the world economy was crumbling.
Importantly, Air NZ had no debt.
The Ministry of Tourism yesterday provided further evidence the sector was struggling, with data showing that spending by international visitors fell by 3.2% to $5.9 billion in the year to December 31, 2008.
Spending by Australians was 1.2% down, Germans 2.7% down and Chinese 2.8% down, but spending by Canadians - ANZ last year started direct flights to Vancouver - rose 21%.
Other Asian markets also showed lower spending: South Koreans spent 22.3% less and Taiwanese 34.1%.
