A sweeping operational review was also flagged.
Air New Zealand shareholders did not embrace the news and its shares initially plunged 15% on opening yesterday to $2.80, a three-month low, but ended the day retracing some losses at $2.88.
The national carrier had previously expected earnings before taxation for the year ending June of $425million to $525million, but yesterday downgraded that to $340million to $400million.
A decline from $525million to the lower-end $340million represents a 35% plunge.
Air New Zealand's chief executive, Christopher Luxon, said the previous guidance had excluded an estimated $30million to $40million impact of schedule changes, prompted by the global Rolls-Royce engine issues.
Because of the expected revenue decline, there would be a review of its network, fleet and cost base to ensure the business was on a strong footing for the future, Mr Luxon said.
''We are concerned with our latest outlook which reflects the softer revenue growth that we are seeing in the second half of the year,'' he said in a statement.
Shareholder dividends, including the government's near 52% stake, would not be affected and an interim 11c per share would be paid, equating to $123.5 million.
Air New Zealand's interim half-year result is scheduled for release on February 28.
Rolls-Royce found problems last year with its Trent 1000 engines, which power Boeing's 787 Dreamliner aircraft, causing problems for many airlines.
Some of the affected aircraft were grounded, prompting flight cancellations and forcing some airlines to lease other aircraft.
Mr Luxon said the engine issue was still challenging for the company, both commercially and operationally, but was expected to improve as the year went on.
''Revenue growth is forecast to remain positive, albeit at a slower rate than previously anticipated,'' he said.
Craigs Investment Partners broker Peter McIntyre said given reports of the slowing in global growth, Air New Zealand was now on the ''outer edge'' of those predictions.
''What's of concern to the market is the signal that domestic and international passenger numbers are slowing,'' he said.
He noted others in the sector were affected. Tourism Holdings' shares were down 4.9% and Auckland International Airport's down 2.5%.
Forsyth Barr broker Damian Foster said slower demand was behind the lower revenue growth, which suggested yields were also coming under pressure, particularly from domestic business.
''While business traffic is growing and New Zealand outbound appears solid, domestic leisure demand is under pressure,'' he said.
Mr Luxon said offsetting the slower revenue growth was the assumed average jet fuel price for the rest of the year, at $US75 ($NZ109) a barrel, which meant the full-year average would come in at $US81.
Mr McIntyre said some analysts believed the fuel cost would have come in below $US81.
Analysts were also aware Air New Zealand's fuel hedging contracts, which can be crucial to profitability, were finishing up.
''Everyone will be waiting to see how they [new contracts] are managed over the coming year.''
It was positive Air New Zealand had given a ''heads up'' of the situation before a material decline in growth appeared on its balance sheet, he said.
Mr Luxon said the markets that were showing signs of slower growth included leisure travel within New Zealand and inbound tourism, which was softening.
He said original capacity guidance for the full year was in a range of 4% to 6%, but schedule adjustments meant the capacity growth rate would be about 4% for the full year.
The airline's passenger numbers increased 4.5% to 1.77 million in December from a year earlier, taking the year-to-date total to 8.9 million, which was up 4.3% from a year ago.
Air New Zealand came under pressure from its engineers before Christmas, when strike notices were issued that threatened to disrupt 120,000 travellers during one of the airline's busiest periods. However, an agreement in principle meant the industrial action was averted. - Additional reporting: BusinessDesk
