Air New Zealand now expects to it will be near to break even for its full year - before tax and unusuals.
It had been forecasting a loss of $63.4 million at the pretax for the year to the end of June .
Chairman John Palmer says the improved result comes on the back of a significant improvement in tourist traffic, a recovery in passenger numbers generally and cost reduction initiatives.
But Palmer warns the final result is subject to the volatility of the industry and the extent of the traditional seasonal weakness in the last three months of the financial year.
The upbeat forecast comes straight after a bullish UBS Warburg report on Monday and a change to the airline's index weighting on the New Zealand Stock Exchange that have helped push the stock up from 38 cents to 45 cents by mid-morning on Tuesday.
It also precedes Air NZ board's regular monthly meeting on Thursday, at which the directors are expected to consider a strategic review examining options including converting some parts of its operations to that of a low cost carrier.
The UBS Warburg aviation analyst, Timothy Ross, valued Air NZ's shares at 50c, but he forecasts another 12c could go on top of that if the low-cost option is adopted.
Ross says if Air NZ could capture only half of the difference in unit operating costs between itself and industry leader South West Airlines (in the US), it could save $155 million a year.
The low cost plan is seen as operating a one-class model domestically and throughout the South Pacific and on some short haul flights, especially to Brisbane.
Some analysts say they are suspicious about the timing of the Air NZ earnings upgrade. If the airline was discovered to have selectively briefed some broking firms and not provided the markets with the same information, it would be in breach of the continuous disclosure regime.
AMP got into trouble last year for doing just that and Australian wine giant Southcorp is being investigated there after sending an email to anaylsts asking them to tone down their forecasts on the company's earnings, but not informing the Australian Stock Exchange.
Other analysts say the airline's share price has been driven up in recent days by passive and active fund managers reacting to the change in Air NZ's weighting on the NZSE index.
Unlike some offshore funds that use the free float system - that is shares that are readily available on the market - the NZSE indexes have not been influenced by that scenario, so the funds have to retune their share holdings in keeping with the new index weightings.
In Air NZ's case, the NZSE allowed the 2.1 billion extra shares issued to the government, when it injected $885 million into the national flag carrier last year to bail it out of financial strife, to be added to its wieghting in the Top 40 and Mid-Cap.
The last of the three-stage admission of those shares on Tuesday has taken Air NZ's market cap from $946 million to more than $1.2 billion.
Some analysts say the increase in share price relates strongly to the fact that there are not many sellers. Brierley Investments (Anafi Investments) and Singapore Airlines have not indicated they are sellers at this stage and its not a big institutional investment stock.
Analysts say the remaining 'mum and dad' investors are happily watching the share price go up and not selling in the hope it will move back closer to what they paid.
When the first tranche of the government shares went into the index at the end of February, six million shares were traded lifting the price from around 33c to 36c. At the end of March a further 10 million were traded pushing the price from 33c to 37c.
This time only 5 million have been traded and the price has gone from 36c to 45c.
Analysts say that is indicative of the fact there is a supply problem.
However, just as in the past two months, some are predicting the stock will drift back lower after Tuesday. Although the airline is forecasting a turn around in its earnings, near to break even is not seen as a good investment, they say.
For a company with a market cap of $1.2 billion at 44c a share, dragging it up from 34th into top 10 of NZ companies, a profit of more than $100 million is expected.
