Air New Zealand lowered its full-year operating profit forecast by up to 25 percent on Wednesday because of rising fuel prices.
The airline said it expected a profit of between NZD$200 million and NZD$220 million (USD$160 million - USD$176 million) before tax and unusual items for the year to June 30.
It had said in February that it expected to better last year's comparable result of NZD$268 million.
"Continued increases in the price of jet fuel now means the company will not achieve this income," Air NZ said in a statement.
Shares in Air NZ, 77 percent owned by the New Zealand government, fell 4.6 percent, or 6 cents, to NZD$1.23, its lowest level in 19 months.
It said even with hedging and higher fares it could not insulate itself against the widening gap between crude oil and jet fuel, known as the crack spread, which had risen to USD$25 a barrel in recent weeks from an average USD$15 a barrel over the past two years.
"However, if sustained, these input cost increases will have a significant impact, requiring continued review of our pricing, network and cost-base."
The airline said it was in a strong financial position, but group yields for the year to date were marginally lower than a year earlier because of currency impacts.
It said load factors on its long haul international flights were up on a year ago, particularly on North American routes, but domestic services were down because of increased competition.
In January, the airline cut domestic fares by up to 30 percent to increase passenger numbers. It has also introduced bigger planes that are cheaper to operate.
Air NZ is facing increased competition in the domestic market, which it dominates, from Australian carriers Qantas Airways and Virgin Blue.
It said in February its fuel bill was 80 percent hedged for the rest of the financial year but it would have a substantially higher fuel bill, which also reduced the certainty of any earnings forecast.
