* CEO says further fare hikes possible, but demand could

soften

* Grounded fleet improves, falling from 20% to below 5%

* Supplier compensation only partly offsets aircraft

disruption

* No market liquidity raise expected despite fuel shock

(Adds more comments from the interview throughout)

By Rajesh Kumar Singh

RIO DE JANEIRO, June 6 (Reuters) - Air New Zealand ( ANZFF )

has offset only 25% to 40% of the hit from higher fuel prices

through hedging and fare increases, Chief Executive Nikhil

Ravishankar told Reuters on Saturday, as the carrier plans for

elevated fuel costs going into its 2027 financial year.

The airline is planning around $150 per barrel jet fuel out

of the Singapore Jet Index, Ravishankar said on the sidelines of

the International Air Transport Association's annual meeting in

Rio de Janeiro. Air New Zealand ( ANZFF ) is not facing fuel supply

shortages, he said, but the price shock remains the main

challenge.

The airline has already imposed two rounds of fare increases

and could look at further tactical hikes in markets where demand

remains resilient, Ravishankar said.

"You can't just infinitely keep raising prices. The market

will respond and demand will soften and then you fly less," he

said in an interview.

Ravishankar said Air New Zealand ( ANZFF ) did not expect to tap

markets for more liquidity, arguing that the carrier's balance

sheet and pool of unencumbered aircraft assets gave it room to

withstand elevated fuel prices for an extended period.

If fuel prices stayed elevated, the airline would use a

combination of cost cuts, supplier negotiations, fare increases

and capacity reductions, he said.

Air New Zealand ( ANZFF ) is also recovering from engine problems and

aircraft delivery delays that at one point grounded up to 20% of

its fleet. Ravishankar said that had fallen to less than 5%,

with most aircraft expected to be back flying over the next two

to three months.

Compensation from Boeing ( BA ), Rolls-Royce and

Pratt & Whitney had helped but had only partially offset

the economic damage, he said.

(Reporting by Rajesh Kumar Singh in Rio de Janeiro)