Air New Zealand Announces 2018 Interim Result
Media release
22 February 2018
Air New Zealand reports $323m interim result, on track for
second highest profit in company history
Air New Zealand today announced earnings before taxation for the first six months of the 2018
financial year of $323 million, compared to $349 million in the prior period. Net profit after taxation
was $232 million.
The result was driven by operating revenue growth of 5.6 percent, with robust demand across all
markets and particularly strong growth in the short-haul network. Passenger revenue reached an
all-time record for an interim result, at $2.3 billion. The airline’s continued focus on sustainable
cost initiatives also contributed to the interim performance, as efficiencies offset the impact of
inflation on unit costs, excluding fuel. Cash flow from operations grew $103 million or 27 percent
to $479 million, driven by growth in cash operating earnings and a strong working capital cash
flow as the business grows.
Chairman Tony Carter says shareholders can be very pleased with the high quality financial
performance demonstrating the airline’s resilience despite an 18 percent increase in fuel price.
“This high quality interim performance was driven by robust passenger demand and revenue
growth, reflecting the airline’s strong position in New Zealand and throughout our Pacific Rim
network.”
The Board has declared a fully imputed interim dividend of 11.0 cents per share, an increase of
10 percent from the prior period and the highest ordinary interim dividend in the airline’s history.
“Based on the strength of the result, and the airline’s financial position, future capital commitments
and positive trading environment, the Board felt it appropriate to raise the level of the interim
dividend,” says Mr Carter. The interim dividend will be paid on 16 March 2018 to investors on
record as of the close of business on 9 March 2018.
Chief Executive Officer Christopher Luxon says 2018 is shaping up to be another exciting year of
growth for Air New Zealand.
“We are thrilled with the performance of our network in the period. The domestic market continues
to show strength driven by the New Zealand economy as well as inbound tourism, and we will be
increasing capacity approximately six percent across our regional and jet services to support that
demand over the second half of the financial year. The Trans-Tasman and Pacific Island routes
have also responded strongly to additional wide-body services and targeted capacity increases.
Finally, our alliance partnerships continue to drive value across our international long-haul
network, and have been a key factor in our ability to effectively compete against much larger
airlines.”
The airline also announced today the launch of a new direct service to Taipei, beginning in
November 2018. Taipei will become the airline’s seventh destination in Asia, and is another
strong addition to Air New Zealand’s focused strategy of connecting the Pacific Rim to New
Zealand. Taipei is an economic centre with renowned attractions, cuisine and shopping, and the
airline is excited to offer New Zealanders the opportunity to explore this new destination.
Mr Luxon also acknowledges and thanks the airline’s staff for their dedication and professionalism
while dealing with recent operational disruptions.
“We have had some unprecedented weather events, along with the fuel pipeline disruption and
the unscheduled engine maintenance on some of the Boeing 787-9 aircraft. All of these
disruptions are outside of our control, but our people have been remarkable, with a clear focus
on doing the best for our customers, and that is what really sets us apart and drives such strong
loyalty for our airline.”
Outlook
Commenting on the outlook Chairman Tony Carter says, “Looking to the remainder of the year,
we are optimistic about the overall market dynamics. Based upon the current market conditions
and despite the increased price of jet fuel, the Company is still expecting 2018 earnings before
taxation to exceed the prior year.”
Media release
22 February 2018
Air New Zealand reports $323m interim result, on track for
second highest profit in company history
Interim highlights
• Earnings before taxation of $323 million
• Net profit after taxation of $232 million
• Operating revenue of $2.7 billion
• Record passenger revenue of $2.3 billion
• 8.5 million passengers carried during the period
• Capacity increased 3.4%
• Operating cash flow of $479 million
• Board approves fully imputed interim dividend of 11.0 cents per share, a 10% increase on
the prior period and the highest ordinary interim dividend in the airline’s history
• Announces new direct international service to Taipei
• Reaffirms full year guidance based upon current market conditions and despite the increased
price of jet fuel, with the Company still expecting 2018 earnings before taxation to exceed the
prior year
Ends
Issued by Air New Zealand Public Affairs ph +64 21 747 320
---
2018
INTERIM
FINANCIAL
REPORT
23
A high
quality result
Contents:
Letter from the Chairman 2
Financial Commentary 4
Change in Profitability 6
Condensed Interim Financial Statements 7
Independent Review Report 15
Earnings
before taxation:
$323 million
Net profit
after taxation:
$232 million
Operating
cash flow:
$479 million
Tony Car ter Chairman
Air New Zealand Group
2018 Interim Financial Report
Strong financial performance
Air New Zealand reported earnings before
taxation for the first six months of the 2018
financial year of $323 million. The prior
period result of $349 million included a
$22 million gain related to the divestment
of Virgin Australia. Adjusting for this one-off
gain and a $72 million impact of increased
fuel prices, the Company delivered a very
strong result. Robust operating revenue
growth of 5.6 percent was driven by positive
pricing dynamics across much of the
airline’s network and capacity growth of
3.4 percent. Also demonstrating considerable
strength was our cargo business, which
grew revenues 11 percent by achieving
strong improvement in pricing and volumes.
The airline’s focus on sustainable cost
improvement contributed to the result, as
efficiencies from cost saving initiatives and
economies of scale offset price inflation
and kept non-fuel unit costs stable.
Delivering superior returns
We are extremely proud of the strength
of this financial result, which demonstrates
our continued commitment to deliver
superior returns for our shareholders over
the long term. The Company’s strategy
to expand the network profitably has driven
sustainable value over the years. In fact,
Air New Zealand’s total shareholder return
was 300 percent over the past five years,
outperforming the Bloomberg World Airline
Index, consisting of global airline peers, by
two and a half times.
Maintaining a strong financial position
Our financial position remains strong and
the airline maintains a stable investment
grade credit rating from Moody’s of Baa2,
among the top-ranked airlines globally.
Gearing was 52.4 percent, a minor increase
from 51.8 percent at the end of the 2017
financial year, reflecting the investment in
new aircraft. Cash flow from operations
grew $103 million or 27 percent to $479
million, driven by growth in cash operating
earnings and strong working capital cash
flows. Cash on hand was $1.3 billion.
Increasing the interim dividend
The Board is pleased to declare a fully
imputed interim dividend of 11.0 cents
per share, a 10 percent increase from
the prior period. This dividend reflects the
Board’s confidence in the medium-term
outlook for the airline and considers the
strength of the company’s balance sheet,
the positive trading environment and
future capital requirements.
Strategically expanding our
Pacific Rim network
We continue to see opportunities to expand
across our network, and to do so profitably.
The domestic network was our strongest
performer in the first half of this year, as
a buoyant New Zealand economy and
continued strong inbound tourism resulted
in positive growth in unit revenues on a
capacity increase of 5.2 percent. This year
we have also targeted some strong growth
in parts of our Tasman and Pacific Island
network, and have been pleased with the
customer response. A large portion of our
international long-haul growth will come
from growing Tokyo, with the addition of
a new service to Haneda Airport, which
complements our existing Auckland to
Narita route. Overall, we are planning to
grow our network approximately five
percent for the year.
Looking beyond the 2018 financial year,
we have announced plans for a new direct
service to Taipei, beginning in November
2018. This destination, with strong tourism
as well as connections to New Zealand,
is an exciting addition that aligns with our
Pacific Rim growth strategy. Our revenue
share alliances continue to strengthen our
international proposition for customers, as
we will begin offering a third daily service
to Singapore, with our partner Singapore
Airlines in October 2018.
Fleet investment continues
to drive long-term value
A key enabler to achieving profitable growth
across our network is our modern and
simplified fleet. In the period, we welcomed
two of our newly configured Boeing 787-9
Dreamliners into service, bringing the total
number of Dreamliners to 11. We are in
the final stages of confirming a new lease
agreement for an additional Boeing 787-9
aircraft, which will join the fleet in the
2020 financial year.
Our forecasted aircraft capital expenditures
through to 2021 will be approximately
$1.1 billion. A key component of that
investment will be the Airbus A320/321
NEO aircraft, which we will start receiving
in the 2019 financial year.
Changes to our Executive team
During the period we saw the departure of
two longstanding members of our Executive
team. Rob McDonald, our Chief Financial
Officer for the past 13 years, retired from
his position at the end of December and
is succeeded by Jeff McDowall, a 17-year
veteran of Air New Zealand. Stephen
Jones, our Chief Strategy, Networks &
Alliances Officer, left to take up an exciting
external opportunity in Europe after 16
years with the airline. Succeeding him in
the role is Nick Judd, another high calibre
internal candidate with 14 years tenure at
Air New Zealand. Talent development and
succession planning are key focus areas for
the Board of Directors, and to be able to
promote two world-class internal candidates
into the Executive says a lot about the
calibre of talent at Air New Zealand.
Reaffirming our 2018 outlook
Looking to the remainder of the year, we
are optimistic about the overall market
dynamics. Based upon the current market
conditions and despite the increased price
of jet fuel, the Company is still expecting
2018 earnings before taxation to exceed
the prior year.
Tony C ar ter
Chairman
22 February 2018
“ The 2018 interim result
sets Air New Zealand on
a path to achieve the second
highest profit in history,
despite rising fuel prices.”
Letter from the Chairman
Gearing:
52.4%
Operating revenue
growth of:
5.6%
Cash on hand of:
$ 1. 3 b
Interim dividend
declared of:
11. 0 cps
5 year total
shareholder return
(as at 31 December 2017)
400
350
300
250
200
150
100
50
0
(50)
PERCENTAGE
AIR NEW ZEALAND
BLOOMBERG WORLD AIRLINE INDEX
DEC
2012
DEC
2013
DEC
2014
DEC
2015
DEC
2016
DEC
2017
Exceeding global airline peers
2.5x
Air New Zealand’s
earnings before taxation
for the first six months
of the 2018 financial
year were $323 million.
Net profit after taxation
was $232 million.
This interim result saw strong revenue
growth driven by increased capacity
and positive pricing dynamics, as well
as improvements in the competitive
environment. Revenue growth was offset
by increased fuel cost in the period and
unfavourable foreign exchange, as well as
a prior period gain of $22 million related
to the divestment of Virgin Australia.
Operating Revenue
Operating revenue grew by $145 million
to $2.7 billion, an increase of 5.6 percent
on the prior period. Excluding the impact
of foreign exchange, operating revenue
increased 6.1 percent.
Passenger revenue grew by $122
million to $2.3 billion, a 5.5 percent
increase. Excluding the impact of foreign
exchange, passenger revenue increased
by 6.0 percent. Capacity (Available Seat
Kilometres, ASK) growth of 3.4 percent
reflected growth in the domestic network,
increased wide-body flying across the
Tasman and Pacific Island routes and
the commencement of a new service
to Tokyo’s Haneda Airport. Demand
(Revenue Passenger Kilometres, RPK)
lagged slightly behind capacity growth
at 2.7 percent, resulting in a decreased
load factor of 82.5 percent. Passenger
Revenue per Available Seat Kilometre
(RASK) for the Group increased 2.0
percent, driven by positive pricing
dynamics on the Domestic and Tasman
and Pacific Island routes. Excluding the
adverse impact of foreign exchange,
RASK increased 2.5 percent.
International long-haul capacity increased
2.3 percent due to the new service into
Tokyo’s Haneda Airport. Demand on
international long-haul routes remained
stable, with load factor declining 1.9
percentage points to 83.0 percent.
International long-haul RASK decreased
by 3.3 percent reflecting the capacity
growth into Japan as well as the
annualisation of competitive entrants in
the Asian and European markets. This
decline was partially offset by RASK
improvements on the North and South
American routes, driven by stronger
pricing dynamics and the stabilisation of
U.S. competitor capacity in the period.
Excluding the adverse impact of foreign
exchange, RASK declined by 2.0 percent.
Short-haul capacity grew 4.8 percent,
driven by increased frequency on New
Zealand domestic main trunk routes
including Auckland to Queenstown and
larger aircraft and increased frequency
on a number of Tasman and Pacific
Island routes. Demand grew by 6.2
percent, with load factor increasing
1.1 percentage points to 82.0 percent.
Short-haul RASK increased 5.3 percent,
and excluding the benefit of foreign
exchange, improved 5.2 percent, driven
by positive pricing dynamics.
Cargo revenue was $189 million, an
increase of $18 million or 10.5 percent.
Excluding the adverse impact of foreign
exchange, cargo revenue increased
10.7 percent. The increase was driven
by a 9.0 percent increase in volume and
1.7 percent increase in yield.
Contract services and other revenue was
$203 million, an increase of $5 million
or 2.5 percent on the prior period. The
increase reflected higher third-party
maintenance and ancillary revenue. There
was no impact from foreign exchange.
Operating Expenses
Operating expenditure increased by
$142 million on the prior period, an
increase of 7.5 percent. Excluding the
additional $72 million related to increased
fuel prices in the period, operating
expenditures increased 3.7 percent on
a 3.4 percent increase in ASKs and
a 5.5 percent increase in passengers.
Net foreign exchange did not have an
impact on total operating expenses.
Costs per ASK increased 4.0 percent
on the prior period to 9.16 cents per
ASK, driven by fuel price increases of
18 percent. Excluding the impact of
fuel price, Costs per ASK were flat, as
efficiencies achieved throughout the cost
base offset inflation. Economies of scale
and efficiencies contributed $33 million
in savings.
Labour costs were $635 million for the
period, an increase of $12 million or
1.9 percent on a 3.4 percent increase
in capacity. Activity and rate increases
were offset by productivity improvements.
Headcount increased by 34 full time
equivalent (FTE) between December
2016 and December 2017 to 10,896
FTE employees, a 0.3 percent increase.
Fuel costs were $470 million, increasing
by $80 million. The largest driver of the
increase was the average price of fuel,
which was 18 percent higher than the prior
period, resulting in a $72 million adverse
impact. Also contributing to the increase
was 1.8 percent growth in volume, net of
fleet efficiencies.
Aircraft operations, passenger services
and maintenance costs were $605 million,
an increase of $47 million or 8.4 percent
on the prior period. Increased capacity,
passenger numbers and price increases
drove increased aircraft operations and
passenger services expenses. Maintenance
expenditure increases were driven by higher
jet fleet engine costs and fleet growth.
Sales and marketing and other expenses
increased by $8 million or 2.7 percent,
due to increased loyalty programme activity,
commission volumes and property costs,
partially offset by lower advertising costs.
Depreciation, rental and lease expense
and funding costs increased by $12
million or 3.1 percent. Excluding the
impact of foreign exchange, the increase
was 2.9 percent, and was driven by
depreciation of new aircraft, higher digital
investment and lounge refurbishments.
The impact of foreign exchange rate
changes on the revenue and cost base
in the current financial period resulted
in an unfavourable foreign exchange
movement of $18 million. After taking
into account the $5 million improvement
in hedging, overall foreign exchange
had a net $13 million negative impact
on the Group result compared to the
prior period.
Share of Earnings of Associates
The share of equity earnings of associates
reflected $15 million of earnings from the
Christchurch Engine Centre, an increase
of $5 million from the prior period, driven
by continued growth in engine volumes.
Other Significant Items
In the prior period, there were other
significant items of $22 million, reflecting
a gain on the divestment of Virgin Australia.
Cash and Financial Position
Cash on hand at 31 December 2017 was
$1.3 billion, a decrease of $29 million
from 30 June 2017.
Operating cash flows increased $103
million or 27 percent, to $479 million,
reflecting an increase in cash operating
earnings and a strong working capital cash
flow as the business grows.
Net gearing, including capitalised aircraft
operating leases, increased 0.6 percentage
points to 52.4 percent. The increase
reflected the purchase of new aircraft
during the period.
A 2018 fully imputed interim ordinary
dividend has been declared of 11.0 cents
per share, an increase of 10 percent from
the prior period.
5
Financial Commentary
4
Air New Zealand Group
Interim dividends declared
(cents per share)
10. 0
4.5
6.5
10. 0
11. 0
DEC
2017
DEC
2013
DEC
2014
DEC
2015
DEC
2016
Capacity (ASKs)
3.4%
Demand (RPKs)
2.7%
Dividend Record date
9 March 2018
Dividend Payment date
16 March 2018
2.6
2.4
2.3
2.7
2.7
DEC
2017
DEC
2015
DEC
2014
DEC
2013
DEC
2016
Operating revenue
($ billions)
376
378
300
541
479
DEC
2017
DEC
2015
DEC
2014
DEC
2013
DEC
2016
Operating cash flow
($ millions)
2018 Interim Financial Report
December 2016 earnings before taxation
Passenger capacity
$70m
- Capacity increased by 3.4 percent from growth across the network due
to the impact of a new Haneda route, increased widebody services across
the Tasman and Pacific Islands network and domestic growth
Passenger RASK
$64m
- Revenue per Available Seat Kilometre (RASK) improved 2.5 percent
excluding FX driven by strong demand on the Domestic and Tasman
and Pacific Islands routes. Loads declined by 0.6 percentage points to
82.5 percent
- Long-haul RASK declined by 2.0 percent excluding FX. Loads declined
1.9 percentage points reflecting capacity growth
- Short-haul RASK improved by 5.2 percent excluding FX. Loads improved
1.1 percentage points
Cargo, contract services and other revenue
$23m
- Increase in cargo, third party maintenance and ancillary revenue. Cargo
volumes increased by 9.0 percent and yields increased by 1.7 percent
Labour
- $12m
- Increased activity (net of improved productivity) arising from capacity
growth and general rate increases
Fuel
-$79m
- The average fuel price increased 18 percent compared to the prior year.
Consumption increased by 1.8 percent due to an increase in capacity
offset by fleet efficiencies
Maintenance
- $ 11m
- Increased jet fleet maintenance and fleet growth
Aircraft operations and passenger services
-$33m
- Increased activity and price increases
Sales and marketing and other expenses
- $7m
- Increased loyalty programme activity, commission volumes and higher
property costs offset by lower advertising costs
Depreciation, lease and funding costs
- $ 11m
- Increase in depreciation reflecting delivery of new aircraft, higher digital
investment and lounge refurbishments
Net impact of foreign exchange movements
- $13m
- Net unfavourable impact of currency movements on revenue and costs
offset by a decrease in foreign exchange hedging losses
Share of earnings of associates
$5m
- Improved earnings from Christchurch Engine Centre
Other significant items
-$22m
- Prior year gain on Virgin Australia divestment
December 2017 earnings before taxation
* The numbers referred to in the Financial Commentary on the previous page have not isolated the impact of foreign exchange.
NOTES
6 MONTHS TO
31 DEC 2017
$M
6 MONTHS TO
31 DEC 2016
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
2,337
189
83
120
2, 215
171
80
118
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange losses
Other expenses
3
2,729
(635)
(470)
(159)
(302)
(144)
(174 )
(9)
(135)
2,584
(623)
(390)
(147)
(278)
(133 )
(173 )
(14)
(128 )
(2,028)
(1, 886 )
Operating Earnings (excluding items below)
Depreciation and amortisation
Rental and lease expenses
701
(258)
(116 )
698
(242)
(118)
Earnings Before Finance Costs, Associates, Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)
2(a)
327
18
(37)
15
338
25
(46)
10
Earnings Before Other Significant Items and Taxation
Other significant items
2(b)
323
-
327
22
Earnings Before Taxation
Taxation expense
323
(91)
349
(93)
Net Profit Attributable to Shareholders of Parent Company232
256
Per Share Information:
Basic earnings per share (cents)
Diluted earnings per share (cents)
Interim dividend declared per share (cents)
Net tangible assets per share (cents)
20.7
20.4
11. 0
175
22.8
22.6
10.0
169
Statement of Financial Performance (unaudited)
For the six months to 31 December 2017
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410
Review of Financial Statements Performed by the Independent Auditor of the Entity, issued by the External Reporting Board. The accompanying
notes form part of these financial statements.
Change in Profitability
67
Air New Zealand Group
$349m
The key changes in profitability, after isolating the impact of foreign exchange movements,
are set out in the table below*:
$323m
2018 Interim Financial Report
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410,
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
6 MONTHS TO
31 DEC 2017
$M
6 MONTHS TO
31 DEC 2016
$M
Net Profit for the Period
Other Comprehensive Income:
Items that will not be reclassified to profit or loss:
Actuarial losses on defined benefit plans
232
-
256
(2)
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Changes in fair value of cash flow hedges
Transfers to net profit from cash flow hedge reserve
Net translation gain on investment in foreign operations
Changes in cost of hedging reserve
Taxation on above reserve movements
-
72
(23)
-
10
(15)
(2)
114
(14)
1
1
(28)
Total items that may be reclassified subsequently to profit or loss44
74
Total Other Comprehensive Income for the Period, Net of Taxation44
72
Total Comprehensive Income for the Period, Attributable to Shareholders
of the Parent Company276
328
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 2017 2,238 9 (16) (245) 1,986
Net profit for the period
Other comprehensive income for the period
-
-
-
43
-
1
232
-
232
44
Total Comprehensive Income for the Period- 431 232 276
Transactions with Owners:
Equity-settled share-based payments
Equity settlements of long-term
incentive obligations
Dividends on Ordinary Shares
2(d)
7
2
(17)
-
-
-
-
-
-
-
-
-
(124)
2
(17)
(124)
Total Transactions with Owners (15) - - (124) (139)
Balance as at 31 December 2017
2(e)
2,223 52 (15)(137) 2 ,123
NOTE
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 2016
2,252 (9) (15) (120 ) 2,10 8
Net profit for the period
Other comprehensive income for the period
-
-
-
73
-
1
256
(2)
256
72
Total Comprehensive Income for the Period
- 73 1 254 328
Transactions with Owners:
Equity-settled share-based payments
Equity settlements of long-term
incentive obligations
Dividends on Ordinary Shares
2(d)
2
(9)
-
-
-
-
-
-
-
-
-
(393)
2
(9)
(393)
Total Transactions with Owners
(7) - - (393) (400)
Balance as at 31 December 2016
2,245 64 (14)(259) 2,036
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410,
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
89
Statement of Comprehensive Income (unaudited)
For the six months to 31 December 2017
Statement of Changes in Equity (unaudited)
For the six months to 31 December 2017
Air New Zealand Group
2018 Interim Financial Report
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410,
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
31 DEC 2017
$M
30 JUN 2017
$M
Current Assets
Bank and short term deposits
Trade and other receivables
Inventories
Derivative financial assets
Income taxation
Other assets
1,340
476
86
87
10
41
1,369
386
86
19
-
27
Total Current Assets2,040
1,887
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Investments in other entities
Other assets
2(a)
118
4,990
162
105
187
120
4 ,74 5
14 9
95
175
Total Non-Current Assets5,562
5,284
Total Assets7,602
7,171
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Derivative financial liabilities
Provisions
Income taxation
Other liabilities
2(c)
521
1,202
360
44
112
-
235
462
1,177
317
65
87
36
261
Total Current Liabilities2 , 474
2,405
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Provisions
Other liabilities
Deferred taxation
2(c)
190
2,353
153
23
286
184
2,197
183
23
193
Total Non-Current Liabilities3,005
2,780
Total Liabilities5,479
5 ,18 5
Net Assets2 ,123
1,986
Equity
Share capital
Reserves
2(d)
2(e)
2,223
(100)
2,238
(252)
Total Equity2 ,123
1,986
Tony Carter, CHAIRMAN Jan Dawson, DEPUTY CHAIRMAN
For and on behalf of the Board, 22 February 2018.
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410,
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
6 MONTHS TO
31 DEC 2017
$M
6 MONTHS TO
31 DEC 2016
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest paid
Interest received
2,657
( 2 ,113 )
(52)
(32)
19
2,567
(2,090)
(88)
(39)
26
Net Cash Flow from Operating Activities479
376
Cash Flows from Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for resale
Disposal of investments in quoted equity instruments
Interest-bearing asset receipts
Distribution from associates
Acquisition of property, plant and equipment and intangibles
Acquisition of quoted equity instruments
Interest-bearing asset payments
20
-
-
7
( 513 )
-
(12)
31
68
137
4
(639)
(23)
(13 )
Net Cash Flow from Investing Activities(498)
(435)
Cash Flows from Financing Activities
Interest-bearing liabilities drawdowns
Equity settlements of long-term incentive obligations
Interest-bearing liabilities payments
Rollover of foreign exchange contracts*
Dividends on Ordinary Shares
2(d)
7
307
(17)
(175 )
5
(130 )
512
(9)
(303)
(35)
(412 )
Net Cash Flow from Financing Activities(10)
(247)
Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
(29)
1,369
(306)
1,594
Cash and Cash Equivalents at the End of the Period1,340
1,288
Reconciliation of Net Profit Attributable to Shareholders to Net Cash Flows
from Operating Activities:
Net profit attributable to shareholders
Plus/(less) non-cash items:
Depreciation and amortisation
Share of earnings of associates
Movements on fuel derivatives
Changes in fair value of investments in quoted equity instruments
Other non-cash items
2(a)
2(b)
232
258
(15)
14
-
5
256
242
(10 )
-
(22)
4
Net working capital movements:
Assets
Revenue in advance
Liabilities
494
(105)
31
59
470
(57)
(5)
(32)
(15)
(94)
Net Cash Flow from Operating Activities479
376
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
1011
Statement of Financial Position (unaudited)
As at 31 December 2017
Statement of Cash Flows (unaudited)
For the six months to 31 December 2017
Air New Zealand Group
2018 Interim Financial Report
1. Financial Statements
The parent company, Air New Zealand Limited, is a profit-oriented entity, domiciled in New Zealand, registered under the Companies
Act 1993 and listed on the New Zealand and Australian Stock Exchanges. The Company is a FMC Reporting Entity under the Financial
Markets Conduct Act 2013 and the Financial Reporting Act 2013.
Air New Zealand prepares its condensed Group interim financial statements (“financial statements”) in accordance with New Zealand
Generally Accepted Accounting Practice (“NZ GAAP”). NZ GAAP consists of New Zealand equivalents to International Financial
Reporting Standards (“NZ IFRS”) and other applicable financial reporting standards as appropriate to profit-oriented entities. These
financial statements comply with NZ IFRS and International Financial Reporting Standards (“IFRS”).
The financial statements should be read in conjunction with the Annual Report for the year ended 30 June 2017.
The accounting policies and computation methods used in the preparation of the financial statements are consistent with those used as
at 30 June 2017 and 31 December 2016. Where necessary, comparative information has been reclassified to achieve consistency
in disclosure with the current period.
NZ IFRS 15 – Revenue from Contracts with Customers becomes effective for annual reporting periods commencing on or after
1 January 2018, and is not expected to have an impact on the financial statements other than reclassifications and additional disclosures.
Reclassifications in the six month comparative period to 31 December 2017 are expected to result in an increase in Passenger revenue
of $3 million, a decrease in Other revenue of $10 million and a decrease in Sales and marketing expense of $7 million.
These financial statements have not been audited. The financial statements comply with NZ IAS 34: Interim Financial Reporting and
IAS 34: Interim Financial Reporting and have been the subject of review by the auditor, pursuant to NZ SRE 2410 Review of Financial
Statements Performed by the Independent Auditor of the Entity, issued by the External Reporting Board.
2. General Disclosures
Group composition
(a) The Group has a 49% interest in the Christchurch Engine Centre (“CEC”) which is recognised as an investment in associate and
a 51% interest in ANZGT Field Services LLC which is recognised as an investment in joint ventures. The Group’s share of equity
accounted earnings from the CEC was $15 million (31 December 2016: $10 million). Prior to 29 September 2017 the Group
accounted for the investment in 11Ants Analytics Group Limited as a joint venture. On this date the Group acquired the remaining
50% interest for $85k and accounted for the entity as a wholly owned subsidiary.
Other significant items
(b) Prior to October 2016 the Group held an investment in Virgin Australia which was held at fair value with changes in fair value being
recognised through earnings. The fair value movement of these shares from 30 June 2016 to the date of disposal was $22 million.
Interest-bearing liabilities
(c) Interest-bearing liabilities are recognised initially at fair value and subsequently measured at amortised cost. The fair value of
interest-bearing liabilities as at 31 December 2017 is $2,673 million (30 June 2017: $2,458 million). All secured borrowings are
secured over aircraft and are subject to both fixed and floating interest rates. Fixed interest rates were 1.0 percent in the six months
to 31 December 2017 (six months to 31 December 2016: 1.0 percent). Finance lease liabilities are secured over aircraft or aircraft
related assets and are subject to both fixed and floating interest rates. Fixed interest rates ranged from 0.7% to 3.4% in the six months
to 31 December 2017 (six months to 31 December 2016: 0.7% to 3.4%). Unsecured bonds have a fixed interest rate of 4.25% .
Share capital
(d) During the six months ended 31 December 2017 the Group funded the purchase on-market of 4,932,709 shares for $17 million
(31 December 2016: 4,433,313 shares for $9 million). The shares were used to settle obligations under long-term incentive plans.
The total cost of the purchase including transaction costs has been deducted from Share Capital.
Hedge reserves
(e) As at 31 December 2017, $57 million of gains (30 June 2017: $22 million of gains) were held in the cash flow hedge reserve and
$5 million of losses (30 June 2017: $13 million of losses) were held in the costs of hedging reserve. These reserves are combined
within the Statement of Movements in Equity as “Hedge reserves”.
3. Segmental Information
Air New Zealand operates predominantly in one segment, its primary business being the transportation of passengers and cargo on an
integrated network of scheduled airline services to, from and within New Zealand. Resource allocation decisions across the network are
made to optimise the consolidated Group’s financial result.
6 MONTHS TO
31 DEC 2017
$M
6 MONTHS TO
31 DEC 2016
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
United Kingdom and Europe
Asia
America
1,677
353
131
230
338
1,582
315
135
224
328
Total Operating Revenue2,729
2,584
The principal non-current asset of the Group is the aircraft fleet which is registered in New Zealand and employed across the worldwide
network. Accordingly, there is no reasonable basis for allocating the assets to geographical segments.
4. Capital Commitments
31 DEC 2017
$M
30 JUN 2017
$M
Aircraft and engines
Other assets
1,384
5
1,637
10
1,389
1,647
Commitments as at reporting date include one Boeing 787-9 aircraft (delivery in the 2019 financial year), seven Airbus A321 NEOs
and six Airbus A320 NEOs (delivery from 2019 to 2022 financial years) and twelve ATR72-600s (delivery from 2018 to 2020 financial
years). In February 2018 the Group agreed to convert three Airbus A320 NEOs to A321 NEOs which is reflected in the above table.
5. Operating Lease Commitments
31 DEC 2017
$M
30 JUN 2017
$M
Aircraft Leases Payable*
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
160
425
179
160
433
192
764
785
Property Leases Payable
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
49
144
113
43
109
70
306
222
*Includes lease commitments for five Airbus A320/321 NEO aircraft due to be delivered in the 2019 and 2020 financial years and one
Boeing 787-9 aircraft due to be delivered in the 2019 financial year.
1213
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2017
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2017
Air New Zealand Group
2018 Interim Financial Report
6. Contingent Liabilities
All significant legal disputes involving probable loss that can be reliably estimated have been provided for in the financial statements.
There are no contingent liabilities for which it is practicable to estimate the financial effect.
Allegations of anti-competitive conduct in the air cargo business in Hong Kong and Singapore were the subject of proceedings by
the Australian Competition and Consumer Commission (ACCC). Following two appeals of an initial judgment finding in favour of
Air New Zealand, the High Court released its judgment on 14 June 2017 finding in favour of the ACCC. The level of penalty will be
referred to the Federal Court for determination. An allowance for the estimated level of the penalty and costs has been made in the
financial statements.
No other significant contingent liability claims are outstanding at balance date.
Outstanding letters of credit and performance bonds total $34 million (30 June 2017: $32 million).
The Group has a partnership agreement with Pratt and Whitney in which it holds a 49% interest in the CEC. By the nature of the agreement,
joint and several liability exists between the two parties. Total liabilities of the CEC are $131 million (30 June 2017: $121 million).
7. Dividends
On 21 February 2018, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on 16 March
2018 to registered shareholders at 9 March 2018. The total dividend payable will be $124 million. Imputation credits will be attached
and supplementary dividends paid to non-resident shareholders. The dividend has not been recognised in the December 2017 interim
financial statements.
A final dividend in respect of the 2017 financial year of 11.0 cents per Ordinary Share was paid on 18 September 2017. Imputation
credits were attached and supplementary dividends paid to non-resident shareholders.
The dividend reinvestment plan is currently suspended.
Independent Review Report
To the shareholders of Air New Zealand Limited
We have reviewed the condensed Group interim financial statements of Air New Zealand Limited (“the Company”) and its subsidiaries
(“the Group”) on pages 7 to 14, which comprise the Statement of Financial Position as at 31 December 2017, and the Statement of Financial
Performance, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the six months ended
on that date, and condensed notes to the interim financial statements.
This report is made solely to Air New Zealand Limited’s shareholders, as a body. Our review has been undertaken so that we might state to
Air New Zealand Limited’s shareholders those matters we are required to state to them in a review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than Air New Zealand Limited’s shareholders as
a body, for our engagement, for this report, or for the opinions we have formed.
Directors’ Responsibilities
The directors are responsible on behalf of the Group for the preparation and fair presentation of the condensed Group interim financial
statements, in accordance with NZ IAS 34: Interim Financial Reporting and IAS 34: Interim Financial Reporting and for such internal control
as the Board of Directors determine is necessary to enable the preparation and fair presentation of the condensed Group interim financial
statements that are free from material misstatement, whether due to fraud or error.
The directors are also responsible for the publication of the condensed Group interim financial statements, whether in printed or electronic form.
Our Responsibilities
The Auditor-General is the auditor of the Group pursuant to section 5(1)(f) of the Public Audit Act 2001. Pursuant to section 32 of the Public
Audit Act 2001, the Auditor-General has appointed me, Peter Gulliver, using the staff and resources of Deloitte Limited, to carry out the annual
audit of the Group.
Our responsibility is to express a conclusion on the condensed Group interim financial statements based on our review. We conducted our
review in accordance with NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity (NZ SRE 2410).
NZ SRE 2410 requires us to conclude whether anything has come to our attention that causes us to believe that the condensed Group interim
financial statements, taken as a whole, are not prepared, in all material respects, in accordance with NZ IAS 34: Interim Financial Reporting
and IAS 34: Interim Financial Reporting. As the auditor of Air New Zealand Limited, NZ SRE 2410 requires that we comply with the ethical
requirements relevant to the audit of the annual financial statements.
A review of the condensed Group interim financial statements in accordance with NZ SRE 2410 is a limited assurance engagement. The
auditor performs procedures, primarily consisting of making enquiries, primarily of persons responsible for financial and accounting matters,
and applying analytical and other review procedures. The procedures performed in a review are substantially less than those performed in an
audit conducted in accordance with International Standards on Auditing (New Zealand). Accordingly we do not express an audit opinion on the
condensed Group interim financial statements.
In addition to this review and the audit of the Group annual financial statements, we have carried out engagements in the areas of other
assurance and non-assurance services which are compatible with the independence requirements of the Auditor-General’s Auditing
Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance
Practitioners issued by the New Zealand Auditing and Assurance Standards Board. In addition to these engagements, principals and
employees of our firm deal with the Group on normal terms within the ordinary course of trading activities of the Group. These engagements
and trading activities have not impaired our independence as auditor of the Group. Other than this review, the audit of the Group annual
financial statements and these engagements and trading activities, we have no relationship with, or interests in, the Group.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed Group interim financial statements do not
present fairly, in all material respects, the financial position of the Group as at 31 December 2017 and of its financial performance and its cash
flows for the six months ended on that date in accordance with NZ IAS 34: Interim Financial Reporting and IAS 34: Interim Financial Reporting.
Peter Gulliver, Partner
for Deloitte Limited
On behalf of the Auditor-General
22 February 2018
Auckland, New Zealand
1415
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2017
Shareholder Enquiries
Shareholder Communication
Air New Zealand’s investor website www.airnzinvestor.co.nz
provides shareholders with information on monthly operating
statistics, financial results, stock exchange releases, corporate
governance, annual meetings, investor presentations, important
dates and contact details. Shareholders can also view webcasts
of key events from this site.
Shareholders who would like to receive electronic news updates
can register online at www.airnzinvestor.co.nz or email Investor
Relations directly on investor@airnz.co.nz.
Share Registrar
Link Market Services Limited
Level 11, Deloitte House
80 Queen Street, Auckland, 1010, New Zealand
PO Box 91976, Auckland 1142, New Zealand
Phone: (64 9) 375 5998 (New Zealand)
(61) 1300 554 474 (Australia)
Fax: (64 9) 375 5990
Email: enquiries@linkmarketservices.co.nz
Investor Relations
Private Bag 92007
Auckland 1142, New Zealand
Phone: 0800 22 22 18 (New Zealand)
(64 9) 336 2607 (Overseas)
Fax: (64 9) 336 2664
Email: investor@airnz.co.nz
Website: www.airnzinvestor.com
Air New Zealand Group
Discover a Better Way to Fly
with Air New Zealand
betterwaytofly.com
---
2018INTERIM RESULT
Forward looking statements
2
This presentation contains forward-looking statements. Forward-looking statements often include words
such as “anticipate", "expect", "intend", "plan", "believe”, “continue” or similar words in connection with
discussions of future operating or financial performance.
The forward-looking statements are based on management's and directors’ current expectations and
assumptions regarding Air New Zealand’s businesses and performance, the economy and other future
conditions, circumstances and results. As with any projection or forecast, forward-looking statements are
inherently susceptible to uncertainty and changes in circumstances. Air New Zealand’s actual results
may vary materially from those expressed or implied in its forward-looking statements.
The Company, its directors, employees and/or shareholders shall have no liability whatsoever to any
person for any loss arising from this presentation or any information supplied in connection with it.The
Company is under no obligation to update this presentation or the information contained in it after it has
been released.
Nothing in this presentation constitutes financial, legal, tax or other advice.
2018INTERIM RESULT
Christopher Luxon
Chief Executive Officer
2018INTERIM RESULT
•Operating revenue $2.7 billion, up 5.6%
•Earnings before taxation $323 million, down 7.4%
•Net profit after taxation $232 million, down 9.4%
•Operating cash flow $479 million, up 27%
4
Taxation
($91m)
Net profit
after
taxation
$232m
Earnings
before
taxation
$323m
Continuing to demonstrate strength and resilience
2018INTERIM RESULT
A high quality result after adjusting for prior
period gain and impact of fuel price
+27%
1
$72 million impact related to fuel price increase of 18 percent; details on fuel cost movement provided in supplementary slides.
1
($ millions)
5
2018INTERIM RESULT
6
Revenue
•Passenger revenue excluding FX up 6.0%; reported up 5.5%
–Strong demand up 2.7% oncapacity growth of 3.4%
–RASK excluding FX up 2.5%; reported up 2.0%
•Cargo revenue excluding FX up 10.7%; reported up 10.5%
Cost
•CASK
1
(excluding fuel price) flat
−CASK including impact of fuel price up 4.0%
•Efficiencies offsetthe impact of inflationary costs
•Fuel cost
1
up 21%
2
–Driven by average fuel price increase of 18% and additional volume
reflecting capacity growth
Strong revenue growth drove performance, supported
by stable unit costs (excluding fuel price)
1
Foreign exchange had a minor impact on CASK and fuel cost in the period.
2
Fuel cost movement details provided in supplementary slides.
2018INTERIM RESULT
RASK improvement across most markets in 1H
Sector
1H 2018 RASK performance
versus prior period
Domestic
(Jet & Regional)
Tasman
Pacific Islands
2
Asia
Americas/Europe
1
Year-on-year movement in RASK.
2
Pacific Islands includes Bali and Honolulu.
7
Momentum in Group RASK
1
(excl. FX)
(9.6%)
(9.5%)
(6.7%)
2.0%
2.1%
2.9%
Q1 2017
(Jul-Sep)
Q2 2017
(Oct-Dec)
Q3 2017
(Jan-Mar)
Q4 2017
(Apr-Jun)
Q1 2018
(Jul-Sep)
Q2 2018
(Oct-Dec)
2018INTERIM RESULT
Rob McDonald
Chief Financial Officer
2018INTERIM RESULT
Changes in profitability
9
~$22 million related to
increased capacity
1
Fuel cost movement details provided in supplementary slides.
2018INTERIM RESULT
10
•CASK increased 4.0%, driven by fuel price increases of 18%
−CASK (excluding fuel price) was flat
•$33 million of efficiencies from cost saving initiatives and economies of scale offset inflation
•FX movement had no net impact on CASK
* Operating expenditure per ASK.
CASK* excluding fuel price remained flat, as
efficiencies offset price increases
CASK (ex fuel price & FX)
flat
9.16
8.81
0.19
(0.18
)
0.34
7
8
9
10
DEC 2016
CASK
PRICEECONOMIES OF SCALE
AND EFFICIENCIES
FUEL PRICEDEC 2017
CASK
CASK (cents)
2018INTERIM RESULT
11
• Strong volume growth in the period related to:
–Improved loads on Tasman and Pacific Islands routes
–Increased capacity on Haneda Airport (Tokyo)
–Improved cargo capability out of Los Angeles
• Yield improvements driven by:
–Higher value product mix
Cargo momentum also robust
Volume
up 9.0%
Yield
up 1.7%
Revenue
up
10.7%*
* Reported Cargo revenue increased 10.5%, inclusive of foreign exchange impact.
2018INTERIM RESULT
12
• Operating cash flow $479 million, up 27%, reflecting:
−Increase in cash operating earnings
−Strong working capital cash flow as the business
grows
−Lower provisional taxes paid due to transitional
impact of legislative tax changes for engine
maintenance
• Cash on hand of $1.3 billion, down 2.1% from June
2017
Strong growth in operating cash flows
300
378
541
376
479
D ec
2013
D ec
2014
D ec
2015
D ec
2016
D ec
2017
Operating cash flow
($ millions)
2018INTERIM RESULT
13
• Target cash level re-examined
−Previously managed liquidity within $1.0 to $1.5
billion target
−Equated to a ratio of 20% to 30%; the reported
ratio included ~$150 million of restricted cash
−Divestment in Virgin Australia shareholding
requires smaller cash requirement
Targeting liquidity of $700m to $1b going forward
• New liquidity range of $700 million to $1 billion
−Transition to cash target will occur over time
−Primary mechanism to achieve cash target will be
purchasing aircraft
−No expected impact to gearing, as net debt level would
remain
−Liquidity ratio going forward will exclude restricted
cash. The new liquidity ratio will equate to 14% to 20%
Prior range:
20% to 30%
29.9%
29.2%
29.7%
36.0%
30.0%
0%
10%
20%
30%
40%
20132014201520162017
Financial year
Historical liquidity ratio
2018INTERIM RESULT
14
•Gearing was 52.4%, increasing 0.6 percentage
points from June 2017, driven by continued
investment in fleet
−Target gearing range is 45% to 55%
•Stable outlook Baa2rating from Moody’s
•Fully imputed interim dividend of 11.0 cents per
share, a 10% increase from prior period
Interim dividend increased 10%
4.5
6.5
10.010.0
11.0
Dec
2013
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Interim dividend declared
(cents per share)
2018INTERIM RESULT
15
•Forecast investment of ~$1.1 billion
1
in aircraft and associated
assets over the next 3.5 years
•Assumes NZD/USD = 0.72
•Targeting replacement of B777-200 fleet from 2022; aircraft
selection is in progress
–No assumptions on B777-200 replacement capital expenditure
are included in forecast
•In final stages of confirming a new operating lease agreement for
one Boeing 787-9 aircraft, bringing total forecast fleet to 14 by end
of 2020 financial year
1
Excludes orders of up to five A320/A321 NEOs with purchase substitution rights.
2
Includes progress payments on aircraft.
3
In final stages of confirming lease for delivery in 2020 financial year.
Aircraftdelivery schedule (as at 31 December 2017)
Number in
existing fleet
Number
on order
DeliveryDates (financial year)
2H 2018201920202021
Owned fleet on order
Boeing 787-9
111-1--
Airbus A320/A321 NEOs
1
-8-62-
ATR72-500/600
2612246-
Operating leased aircraft
Boeing 787-9
3
-2-11-
Airbus A320/A321 NEOs
-5-41-
Fleet update
0
200
400
600
800
1,000
2015201620172018201920202021
$ millions
Actual and forecast aircraft capital
expenditure
2
Forecast
Actual
1
2018INTERIM RESULT
16
1
Assumes average jet fuel price of US$75 per barrel for the second half of the 2018 financial year and a NZD/USD rate of 0.72.
Fuel cost outlook and sensitivities for 2H 2018
390
437
827
470
~505
1
~975
1
0
200
400
600
800
1,000
1H2HFY
NZD millions
2018 Fuel cost outlook
20172018
2018E
2H 2018 Fuel cost sensitivity (inclusive of hedging)
400
425
450
475
500
525
550
575
600
$65$70$75$80$85
NZD Cost of Fuel (millions)
Singapore jet fuel (US$ per barrel)
2018INTERIM RESULT
Christopher Luxon
Chief Executive Officer
2018INTERIM RESULT
Continued strength in short-haul markets driving
targeted growth opportunities in 2H 2018
•Positive market dynamics following competitor
exit from AKL-SYD
•Additional competitor capacity reductions in
Melbourne and Brisbane in 2H expected to
drive continued strength
Targeted capacity growth in 2H
Wide-body flying on key routes driving
increased premium seats
TRANS-TASMAN
•Strong outbound New Zealand leisure traffic expected
to continue
•Competitor capacity changes create varying dynamics
Ramp up of capacity in 2H driven by better utilisation
of B787 Dreamliner aircraft during seasonal low period
Increased wide-body flying on Samoa and Fiji
PACIFIC ISLANDS
•Underlying demand remains strong driven by
tourism and positive economic climate
•Regional pullback from competitor over peak
season
Trunk growth in 2H driven by additional services
into Queenstown, Dunedin and Christchurch
Regional routes growing slightly ahead of trunk,
notably Napier and Nelson
DOMESTIC
•Denotes observation on market conditions.
Denotes Air New Zealand actions.
18
2018INTERIM RESULT
Focused on strengthening and diversifying international
long-haul demand
•Singapore popular gateway serving South East Asia,
Europe and India for both outbound and inbound traffic
•Chinese carrier capacity lapping, with capacity
adjustments in low season.
Growing Singapore with 3
rd
daily service commencing
Oct 2018 with alliance partner Singapore Airlines
Commencing new Taipei direct service in Nov 2018,
aligned with Pacific Rim strategy
ASIA (ex: Japan)
•Improving demand as Kaikoura
earthquake in Nov 2016 laps
Full year impact of new Haneda service to
complement Narita and boost connectivity
from within Japan
JAPAN
•Competitor capacity reduced during off-peak season
Newly configured B787-9 with increased premium
seats launched on Houston in Dec 2017
Additional frequency during peak and extending
season to Vancouver in 2H
NORTH AMERICA
Additional frequencies over peak and
shoulder months
Leveraging Australian traffic via Auckland
SOUTH AMERICA
•Denotes observation on market conditions.
•New route.
Denotes Air New Zealand actions.
19
2018INTERIM RESULT
20
Sector
1H 2018
capacity
2H 2018
capacity
2H Commentary
Full year
capacity
Domestic+5.2%~+6%
•Trunk growth in 2H driven by additional services into
Queenstown, Dunedin and Christchurch
•Regional routes growing slightly ahead of trunk, notably
Napier and Nelson
~+6%
Tasman &
Pacific Islands
+4.6%~+14%
•Growth through up-gauge and increased fleet utilisation
•Trans-Tasman ~7%, driven by competitive capacity
changes
•Pacific Islands ~30% driven by longer sector flying and
selected up-gauge
~+9%
International
Long-haul
+2.3%~+5%
•Driven by Haneda flying in off-peak
•Increased peak season flying for Vancouver and
Buenos Aires
~+4%
Group+3.4%~+8%~+5%
Targeted capacity growth ramps up in 2H, driven by
improved asset utilisation
2018INTERIM RESULT
21
Reaffirming 2018 outlook despite jet fuel increase
Looking to the remainder of the year,
we are optimistic about the overall market dynamics.
Based upon the current market conditions and
despite the increased price of jet fuel, the Company is still
expecting2018 earnings before taxation to exceed the prior year.
2018INTERIM RESULT
2018INTERIM RESULT
Supplementary
slides
2018INTERIM RESULT
390
7
66
6
1
470
0
100
200
300
400
500
DEC 2016
FUEL CO ST
VOLUMEUNDERLYING
PRICE
NET HEDGING
IMPACT
FX
MOVEMENTS
DEC 2017
FUEL CO ST
$ millions
Fuel cost movement in the period
24
Increase in
jet fuel price
US$57 to US$67
per barrel
Dec 2016 hedge
gain of $15M
vs
Dec 2017 hedge
gain of $9M
Effective
increase in
net fuel price
18%
2018INTERIM RESULT
25
Fuel hedging
•70% of estimated volumes hedged in 2H 2018
–Protection against adverse spikes in fuel
–Allows for pricing participation should oil prices fall
•35% of 1H 2019 estimated volumes currently
hedged
–Reflects backwardation of Brent forward curve
Foreign exchange hedging
•2H 2018 hedges for US$447 million at a
NZD/USD rate of 0.716
•2019 hedges for US$372 million at a
NZD/USD rate of 0.716
Hedging update
0%
10%
20%
30%
40%
50%
60%
70%
80%
$30
$35
$40
$45
$50
$55
$60
$65
$70
FY18 Q3
Jan - Mar
FY18 Q4
Apr - Jun
FY19 Q1
Jul - Sep
FY19 Q2
Oct - Dec
Hedged % of estimated jet fuel consumption
US$ per barrel
Fuel hedge position
(as at 14 February 2018)
Hedge percentageBrent Collar CeilingBrent Collar Floor
2018INTERIM RESULT
26
* Comparative is for 30 June 2017.
** Dividends are fully imputed.
Dec 2017
$M
Dec 2016
$M
Movement
$M
Movement
%
Operating revenue 2,7292,5841455.6%
Earnings before taxation323349(26)(7%)
Net profit after taxation 232256(24)(9%)
Operating cash flow 479376103 27%
Cash position*1,3401,369(29)(2%)
Gearing*52.4%51.8%(0.6 pts)
Ordinary dividends declared**11.0 cps10.0 cps10.0%
Financial overview
2018INTERIM RESULT
27
* Calculation based on numbers before rounding.
Dec 2017Dec 2016Movement*
Passengers carried (‘000s)8,5308,0865.5%
Available seat kilometres (ASKs, millions)22,13821,4093.4%
Revenue passenger kilometres (RPKs, millions)18,27417,7902.7%
Load factor82.5%83.1%(0.6 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
10.610.32.0%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
10.610.32.5%
Group performance metrics
2018INTERIM RESULT
28
Domestic
Dec 2017Dec 2016Movement*
Passengers carried (‘000s)5,5645,2076.9%
Available seat kilometres (ASKs, millions)3,4913,3195.2%
Revenue passenger kilometres (RPKs, millions)2,8512,6497.6%
Load factor81.7%79.8%1.9 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
21.620.74.4%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
21.620.74.4%
* Calculation based on numbers before rounding.
2018INTERIM RESULT
29
* Calculation based on numbers before rounding.
1
Pacific Islands including Bali and Hawaii.
Tasman & Pacific Islands
1
Dec 2017Dec 2016Movement*
Passengers carried (‘000s)1,9381,8534.6%
Available seat kilometres (ASKs, millions)6,5536,2654.6%
Revenue passenger kilometres (RPKs, millions)5,3855,1045.5%
Load factor82.2%81.5%0.7 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
10.09.46.1%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
9.99.45.9%
2018INTERIM RESULT
30
* Calculation based on numbers before rounding.
International
Dec 2017Dec 2016Movement*
Passengers carried (‘000s)1,0281,0260.2%
Available seat kilometres (ASKs, millions)12,09411,8252.3%
Revenue passenger kilometres (RPKs, millions)10,03810,0370.0%
Load factor83.0%84.9%(1.9 pts)
Passengerrevenue per ASKs as reported
(RASK, cents)
7.78.0(3.3%)
Passenger revenue per ASKs, excluding FX
(RASK, cents)
7.88.0(2.0%)
2018INTERIM RESULT
31
Projected aircraft in service and fleet age
2018201920202021
Boeing 777-300ER7777
Boeing 777-200ER8888
Boeing 787-9*11131414
Airbus A32030222020
Airbus A320/A321 NEO-101313
ATR72-60019232929
ATR72-50085--
Bombardier Q30023232323
Total Fleet106111114114
* Currently finalising lease agreement for delivery of a Boeing 787-9
aircraft in the 2020 financial year.
2018INTERIM RESULT
Glossary of terms
32
Available Seat Kilometres (ASKs)Number of seats operated multiplied by the distance flown (capacity)
Cost/ASK (CASK)Operatingexpenses divided by the total ASK for the period
GearingNet Debt / (NetDebt + Equity); Net Debt includes capitalised aircraft operating leases
Liquidity Ratio
Total cash (comprising Bank and short-term deposits, interest-bearing assets and non-interest bearing assets as
at the end of the financial period divided by total operating revenue for that financial period
Net Debt
Interest-bearing liabilities, less bank and short-term deposits, net open derivatives held in relation to interest-
bearing liabilities, interest-bearing assets and non-interest bearing assets, plus net aircraft operating lease
commitments for the next twelve months multiplied by a factor of seven
Passenger Load FactorRPKs as a percentage of ASKs
PassengerRevenue/ASK (RASK)Passenger revenuefor the period divided by the total ASK for the period
Revenue Passenger Kilometres
(RPKs)
Number of revenue passengers carried multiplied by the distance flown (demand)
Yield (referring to Cargo)Cargo revenue for the period divided by freight tonne kilometres
The following non-GAAP measures are not audited: CASK, Gearing, Net Debt, RASK, and Yield.Amounts used within the calculationsare derived from the condensed
Group interim financial statements where possible. The interim financial statements are subject to review by the Group’s external auditors. The non-GAAP measures are
used by management and the Board of Directors to assess the underlying financial performance of the Group in order to make decisions around the allocation of resources.
---
Name of Listed Issuer:
Reporting Period6 months to 31 December 2017
Previous Reporting Period6 months to 31 December 2016
Amount $NZ'mPercentage change
Revenue from ordinary activities (including finance income)2,747 5.3%
Profit from ordinary activities after tax attributable to security holders232 (9.4)%
Net profit attributable to security holders232 (9.4)%
Dividend
(NZ cents)
Interim dividend*11.0 4.28
Details of interim dividend
Record Date for Interim Dividend
9-Mar-18
Payment Date for Interim Dividend
16-Mar-18
* Interim dividend was declared on 21 February 2018.
Results for announcement to the market
Amount per security Imputed amount per
security
AIR NEW ZEALAND LIMITED
Air New Zealand Limited
Preliminary Half Year Results
22 February 2018
CONTENTS
NZX Appendix 1, pursuant to NZX Listing Rule 10.3.1
NZX Appendix 7
Air New Zealand Limited
NZX Preliminary Interim Report
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2017 (referred to in this report as the "current half year")
2.1 Details of the reporting period and the previous corresponding period
2.2 Information prescribed by NZX
Refer to "Results for announcement to the market".
(a) A Statement of Financial Performance
Refer to the Interim Financial Statements.
(b) A Statement of Financial Position
Refer to the Interim Financial Statements.
(c) A Statement of Cash Flows
Refer to the Interim Financial Statements.
$NZ'm*
NZ cents
per share
Distributions recognised
Final dividend for 2017 financial year on Ordinary Shares12411.0
Distributions paid
Final dividend for 2017 financial year on Ordinary Shares13011.0
(f) Net tangible assets per security with the comparative figure for the previous corresponding period
CurrentPrevious
Half YearCorresponding
(NZ Cents Per Share)Half Year
Ordinary Shares175169
This report is for the half year ended 31 December 2017 and should be read in conjunction with the most recent annual
financial report. Comparatives are in respect of the half year ended 31 December 2016.
2.3 The following information, which must be presented in whatever way the Issuer considers is the most clear and
helpful to users, e.g. combined with notes to the financial statements or set out separately.
(d) Details of individual and total dividends or distributions and dividend or distribution payments. The details must
include the date on which each dividend or distribution is payable and (if known) the amount per security of foreign
sourced dividends or distributions.
(e) Details of any dividend or distribution reinvestment plans in operation and the last date for the receipt of an
election notice for participation in any dividend or distribution reinvestment plan.
A final dividend in respect of the 2017 financial year of 11.0 cents per Ordinary Share was paid on 18 September 2017.
Imputation credits were attached and supplementary dividends paid to non-resident shareholders.
On 21 February 2018, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on
16 March 2018 to registered shareholders at 9 March 2018. The total dividend payable will be $124 million. Imputation
credits will be attached and supplementary dividends paid to non-resident shareholders. The dividend has not been
recognised in the December 2017 interim financial statements.
*The difference between distributions recognised and paid relates to supplementary dividends.
The dividend reinvestment plan is currently suspended.
Page 1
Air New Zealand Limited
NZX Preliminary Interim Report
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2017 (referred to in this report as the "current half year")
(g) Details of entities over which control has been gained or lost during the period
Date of control
11Ants Analytics Group Limited29-Sep-17
(h) Details of associates and joint ventures:
Parts (i) to (iii)
Name
$NZ'm$NZ'm
Associate
Christchurch Engine Centre (CEC)*49%49%
15 10
Joint Venture
ANZGT Field Services LLC51%51%- -
11Ants Analytics Group Limited**N/A50%- -
*The CEC is operated in partnership with Pratt and Whitney.
3.1 Basis of preparation
3.2 Accounting policies
Refer to Note 1 of the Interim Financial Statements.
3.3 Changes in accounting policies
3.4 Audit Review Report
A copy of the review report is attached at the back of the Interim Financial Statements.
3.5 Additional information
Not applicable.
This half year report was approved by the Board of Directors on 22 February 2018.
Tony Carter
Chairman
Entity Name
There have not been any accounting policy changes during the period.
This report has been compiled in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GAAP").
NZ GAAP consists of New Zealand equivalents to International Financial Reporting Standards ("NZ IFRS") and other
applicable financial reporting standards as appropriate to profit-oriented entities.
Contributions to Net
Profit
Previous
Corresponding
Half Year
Contributions to Net
Profit
Current Half Year
% Held
Previous
Corresponding
Half Year
% Held
Current
Half Year
Entities over which control has been gained
**The Group gained control of 11Ants Analytics Group Limited on 29 September 2017, therefore the contribution to
profit for the current half year is to the period to 29 September 2017.
Page 2
Air New Zealand Limited
NZX Preliminary Interim Report
APPENDIX 7 – NZSX Listing Rules
Number of pages including this one
(Please provide any other relevant
NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10.details on additional pages)
For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.
Full name
of Issue
r
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumberDate
Nature of event
BonusIf ticked,Rights Issue
Tick as appropriateIssuestate whether:Taxable/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
X
whether:
Interim
X
YearSpecialDRP Applies
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISIN
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISIN
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlement
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick if
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per securityPayment
(does not include any excluded income
Excluded income per security
(only applicable to listed PIEs)
SupplementaryAmount per security
Currencydividendin dollars and cents
details -
NZSX Listing Rule 7.12.7
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credit
issue state strike priceWithholdin
g Tax(Give details)
Foreign
FDP Credits
Withholdin
g Tax(Give details)
Timing
(Refer Appendix 8 in the NZSX Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quoting Rights:
Security Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
9 March 201816 March 2018
N/AN/A
N/A$0.007639$0.042778
$
NZ Dollars$0.019412
$123.5 million
Date Payable
16 March 2018
Enter N/A if not
applicable
NZAIRE0001S2
In dollars and cents
$0.110
64 21 046 846964 9 336 266721 022018
Ordinary Shares
EMAIL: announce@nzx.com
Notice of event affecting securities
Air New Zealand Limited
Karen ClaytonDirectors' Resolution
=== IR PAGE TRANSCRIPT: 2018 Interim results Analyst Call Transcript ===
Client Id: 77
THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
EVENT DATE/TIME: FEBRUARY 21, 2018 / 10:00PM GMT
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Client Id: 77
CORPORATE PARTICIPANTS
Christopher Mark Luxon Air New Zealand Limited - CEO
Jeff McDowall
Leila Peters Air New Zealand Limited - Head of IR
CONFERENCE CALL PARTICIPANTS
Andrew James Bowley Forsyth Barr Group Ltd., Research Division - Head of Research
Andrew Steele First NZ Capital Limited, Research Division - VP of Equity Research
Marcus Curley UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Nick Mar Macquarie Research - Analyst
Owen Birrell Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Wade Gardiner Deutsche Bank AG, Research Division - Research Analyst
PRESENTATION
Operator
Thank you for standing by, and welcome to Air New Zealand 2018 Interim Results Call. (Operator Instructions) And with that, I would now like to
turn the call over to Air New Zealand's Head of Investor Relations, Leila Peters. Please go ahead.
Leila Peters - Air New Zealand Limited - Head of IR
Thank you, and good morning, everyone. Today's call is being recorded and will be accessible for future playback on our Investor Center website,
which you can find at www.airnewzealand.co.nz/investor.
Also on the website, you can find our interim results presentation, financial report, media release and relevant stock exchange disclosures.
Speaking on the call today will be Chief Executive Officer, Christopher Luxon; and Chief Financial Officer, Jeff McDowall.
I would like to remind you that our comments today will include certain forward-looking statements regarding our future expectations, which may
differ from actual results. We ask that you read through the forward-looking cautionary statement provided on Slide 2 of the presentation.
And with that, I'll turn the call over to Christopher.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Well, thank you, Leila. Kia Ora, and good morning, everyone, and thanks for joining us on the call. Before we begin, I'd just really like to take a
moment to welcome and introduce our new CFO, Jeff McDowall. I'm sure many of you have gotten to know Jeff over the past few years, and some
of you will meet him soon, I'm sure. But it really is awesome to have him now in the role of Chief Financial Officer. He's a highly commercial leader
who's been with us at Air New Zealand now for 17 years and is already a tremendous value to our Executive team.
As I get into the result, I'm really pleased to report a very strong performance for the first 6 months of 2018. And before getting started, I would
like to extend my deepest thanks to all of our staff for their professionalism in dealing with what has been a number of rather extreme operational
events over the past few months.
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We've had some unprecedented weather events of late, which sadly are becoming the new normal, along with the fuel pipeline disruption and
the unscheduled maintenance on some of the Boeing 787s. And all of these events are outside of our control, but it's our people who have been
absolutely remarkable, I think, in dealing with each issue with the focus of doing what's right and best for our customers. And it's their agility of
that can do attitude and it's that resilience that, I think, is really setting us apart and drive such strong loyalty for our airline.
This morning, I'm going to give an update on what we are seeing in our market since we last reported in August, how that has tracked and what
our view is for the rest of the year. Equally as important is revenue to our performance as the focus on cost, and we had good results in that area
as well, which Jeff will discuss shortly. We'll also give an update on our capital program, key financial metrics and hedging. And finally, I'll provide
some comments on the full year outlook before opening the call up for questions.
In the Appendix of the presentation, there are a number of slides that we will not be specifically speaking to, which provide key financial and
operational details, and I do recommend that you take the time to review that information.
Now touching briefly on the financial highlights of the first 6 months. We recorded an interim result that continues to demonstrate the strength
and resilience of our business, with operating revenue of $2.7 billion, an increase of 5.6%. Earnings before taxation was $323 million, a decline of
7.4%. However, if we back out the $22 million gain in the prior period related to the divestment of our remaining shares in Virgin Australia, the
result would have been roughly the same. And as many of you know, during this period, we also experienced some disruption to our operations
following a temporary shutdown of refining New Zealand's pipeline into Auckland. That's had a small impact on our earnings of approximately $5
million related to our insurance deductible, and if this is adjusted, our underlying result would have been slightly ahead of the prior period. As
we've stated in December, the unscheduled engine maintenance with some of our Boeing 787-9 aircraft have not had a material impact on earnings
this period.
Moving on, net profit after taxation was $232 million. And operating cash flow was extremely strong at $479 million, an increase of 27%.
Going deeper into the earnings before taxation, we had an extremely high-quality result after adjusting for the Virgin Australia gain, which I already
discussed, as well as the $72 million impact from increased fuel prices. Looking at earnings on this comparable basis, we delivered a 27% increase,
which was driven by a very strong revenue performance. At the same time, the business successfully dealt with some significant operational
constraints, which I already mentioned. So overall, I am extremely proud of this result, and how it set us up for success for the rest of the year.
Moving on to the key drivers of the result, passenger revenue increased 6%, reflecting improved pricing dynamics as well as the stabilization of
competition in some of our long-haul markets. Demand was up 2.7% on capacity growth of 3.4%, and RASK increased 2.5% overall. Similar to
passenger revenues, our cargo business delivered positive yield and strong volumes, resulting in 10.7% increase in revenues. And supporting the
positive growth in our revenue base was another very solid unit cost performance. As Jeff will expand on shortly, our unit cost increased 4% in the
period driven solidly by fuel price increases of 18%. And if you exclude the impact of fuel prices, cost per ASK was flat as efficiencies achieved
throughout the cost base offset the impact on inflation. As we discussed at our Investor Day last year, our target is to offset inflation, but in the
next few years, we are aiming for mid-single-digit network growth on average. And that will help drive good economies of scale across our fixed
cost base, and we are confident we will continue to achieve good CASK improvement.
Now I would like to spend some time unpacking our revenue performance. Overall, I'm very pleased with the positive RASK momentum we saw
this period. Looking across all our markets, there are more revenue tailwinds than headwinds, and our team has been very focused on market
development to continue generating demand as well as delivering pricing actions to recover the increasing cost our business faces.
As the chart on the left shows the positive improvement in the fourth quarter of last year continued into the first half of this year, and we were able
to capitalize on short-haul demand, especially in markets where we enjoyed strong market share. This strength more than offset some of the
softness we experienced with some of our long-haul markets, which I'll get into next.
The table on the right summarizes the RASK performance in our key markets during the period. And starting with the domestic network, which
had the strongest growth in the period from a RASK perspective, we did see broad-based demand across both our jets and regional routes reflecting
strength in inbound tourism as well as continued strength in the New Zealand economy. About 3/4 of that growth was driven by longer seat to
3
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FEBRUARY 21, 2018 / 10:00PM, AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
Client Id: 77
flying to places like Queenstown and Dunedin. And additionally, we did not observe a slowdown in domestic demand during the election period,
which historically has been the case.
The Trans-Tasman market saw a significant turnaround compared to the prior period, with revenue improvement outpacing the increase in capacity.
And the key driver of the improvement was the rationalization of competitive capacity on the Auckland and Sydney route, which we were able to
leverage due to our strong market share on the Tasman. Beyond the Sydney route, we also saw good demand for point-to-point traffic across our
Tasman network as tourism between Australia and New Zealand continues to be strong at about 4%.
Turning to the Pacific Islands, which is a good performer for us based on the strong New Zealand outbound traffic. In the first half of the year, we
saw positive RASK as we grew those routes by 11%, which was an excellent result.
Now moving on to the long-haul network. Each of our Asian markets had different dynamics this period. Shanghai and Hong Kong experienced
some softness as we continue to let the entry of new competition from Chinese carriers, which commenced in November of 2016. As I mentioned
back in August, our focus is to strategically develop the Japan market further with the launch of their Haneda service in July 2017. This new route
resulted in significant capacity growth for the period and will be working to capture demand to match the capacity over the next 12 to 18 months.
And lastly, our Singapore route experienced strong connecting traffic coming from India and Southeast Asia, which was more than offset by the
impact of increased competition on traffic to and from Europe. Overall, our Asian routes saw a slight decline in RASK as a result of the various
dynamics I just described.
And turning to the Americas and Europe, which experienced a minor decline in RASK in the period due to a mixed environment across these
markets, we saw improvement in the Americas with the stabilization of competitor capacity in the U.S., and strong performance in our Vancouver
and Buenos Aires routes drove positive RASK. Our London route, however, came under pressure due to increased competition on the transatlantic
but continues to be a strong and profitable performer for us.
Now I'll turn it over to Jeff to go through the details of the results.
Jeff McDowall
Thanks very much, Christopher. Kia Ora, and good morning, everyone. This is my first results call as Chief Financial Officer and has to say I feel really
privileged to be in this role at such an exciting time.
Now I'd like to walk through the key movements, which affected our performance during the period. To better understand the dynamics of each
components, we've isolated the impact of foreign exchange.
Starting with revenue. There was an increase of $157 million, which is driven by improvement across the board. Capacity growth of $70 million
and passenger RASK improvement of $64 million were also boosted by $23 million contribution from cargo and other revenue.
Labor cost increased by $12 million due to a combination of activity from capacity growth and rate increases, which were partially offset by improved
productivity. On capacity growth of 3.4%, our total labor cost increased by only 1.9%, and our headcount increased by less than 0.5 percentage
point, which is an excellent result.
Fuel cost increased $79 million or 20%. The average price of fuel increased by 18% or $72 million. Increased fuel consumption also impacted the
fuel spend, with volume up 1.8% or $7 million. This reflects capacity growth, which was partially offset by fleet efficiencies.
Maintenance, aircraft operations and passenger service costs increased by $44 million. Approximately half of this was associated with the additional
capacity. Maintenance expenditure increases were driven by high engine costs and fleet growth. As we have communicated in prior results calls,
maintenance cost can be lumpy and do not follow a linear relationship to capacity growth in the same way as some of our other variable cost items.
4
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FEBRUARY 21, 2018 / 10:00PM, AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
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Sales, marketing and other expenses increased by $7 million related to increased Loyalty Programme activity, commission volumes and property
costs, which were partially offset by lower advertising costs.
Ownership costs increased by $11 million, driven by increased depreciation from new aircraft, higher digital investment and lounge refurbishments.
Share of Associates consist of earnings from our investment in the Christchurch Engine Centre, which increased $5 million due to an increased
volume of engine work compared with the prior period.
The impact of foreign exchange rate changes on the revenue and cost base in the period resulted in a nonfavorable foreign exchange movement
of $18 million. After taking into account of $5 million improvement in hedging, overall foreign exchange had a net $13 million negative impact on
the growth results.
Lastly, a decrease of $22 million was related to a prior period gain from the divestment of Virgin Australia. The net result of all these movements
is an incremental decrease in earnings before taxation of $26 million.
Going a bit deeper into our operating costs. Reported CASK increased 4%, which includes the impact of an 18% increase in fuel price. When looking
at underlying CASK adjusted for the impact of fuel, our unit cost performance was flat as $33 million of cost efficiencies related to the benefits of
fleet simplification, economies of scale and other cost-saving initiatives offset the impact of inflation. Foreign exchange did not have an impact on
CASK during the period.
As Christopher mentioned earlier, our CASK performance is impacted by the pace at which we grow the business. For those of you who heard our
last Investor Day presentation, what that means is that as we grow capacity in the mid-single digit range, we not only start to offset our inflationary
costs but we also get good economies of scale across the fixed costs in our business. Therefore, as we look forward to the rest of this year and we
ramp up our growth in certain markets, you can expect to see a better pace of CASK improvement for the full year.
Turning to cargo, which also delivered strong revenue improvement in this period. Cargo revenue increased 10.7%, driven by very strong volume
growth of 9% as well as yield growth of 1.7%. The volume growth was driven by improved flights on the Tasman and Pacific Island routes, the
commencement of our Haneda service and improved run rate conditions at the Los Angeles airport. We've also delivered good yield growth, driven
by improved product mix.
We generated significant operating cash flows of $479 million in this period, which is an increase of 27%. The increase reflected strong cash operating
earnings and an increase in working capital cash flow. Additionally, in the period, we had lower provisional tax payments related to a transitional
tax change on the treatment of engine maintenance. The reduction in cash taxes reflects a catch-up as our legislative tax role change went into
effect. We ended the period with net cash on hand of $1.3 billion, a decrease of $29 million compared to the balance of the end of the last financial
year.
I'd like to briefly now discuss our view on liquidity, which reflects an update to what has previously been communicated to our shareholders.
Historically, we've targeted liquidity to be in the range of $1 billion to $1.5 billion. This equated to ratio of approximately 20% to 30%, and that
ratio included restricted cash. This level is higher than our operations require but was viewed as prudent while we hold an equity investment in
Virgin Australia. With the sale of that remaining investment and the review of our liquidity requirement, the board has approved a new target range
of $700 million to $1 billion. We will transition to this new level over time. Currently, our plan to start reducing the cash level will be primarily
through the purchasing of aircraft. While that will not have any impact on our gearing as the net debt level will stay the same, it will increase the
proportion of our unencumbered aircraft. Finally, the way we characterize our liquidity ratio will be slightly amended going forward as it will exclude
restricted cash. The new ratio will approximately equate to 14% to 20%. This will be reflected when we report our annual results for the year in
August.
Our gearing at the end of the period was 52.4%, a small increase of 0.6 percentage points from last June. This increase was due to the purchase of
new aircraft and is well within our target range of 45% to 55%.
5
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FEBRUARY 21, 2018 / 10:00PM, AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
Client Id: 77
We continue to maintain the credit rating of BAA2 from Moody's with a stable outlook, which places us amongst the highest-rated airlines globally.
As a result of a positive medium-term outlook, the airline's financial strength and the capital commitments we have over the next few years, as
well as the current trading environment, the board was pleased to announce a fully imputed interim dividend of $0.11 per share, which is a 10%
increase from the prior period and represents the highest ordinary interim dividend in the company's history.
Moving on to our fleet update. During the first half of 2018, we received delivery of 2 newly configured Dreamliners and 2 ATR turboprops. On the
chart on Slide 15, you can see the phasing of our forecast aircraft capital expenditures through to 2021, which totals approximately $1.1 billion.
This figure does not include any assumptions on CapEx related to the Boeing 777-200 replacement program as the aircraft selection is currently
in progress.
Just touching briefly on operating leases. We are in the final stages of confirming a new lease agreement for an additional Boeing 787-9 aircraft,
which will join the fleet in the 2020 financial
year. This is reflected in the table at the bottom of the slide and will bring the total 787 fleet to 14. With the addition of this wide-body aircraft, we
will have a sufficient number of fleet to deliver on our target of mid-single digit capacity growth across our long-haul network until we enter into
the Boeing 777-200 replacement, which will start from around 2022.
Many of you would have read about the issues we faced in December last year with the Rolls-Royce Trent 1000 engines on our Boeing 787-9 aircraft.
We have had several aircraft undergoing unplanned maintenance over the summer as a result of those issues, and unfortunately, our customers
were impacted by disruptions to our services. While I cannot comment on that commercial arrangements, I will say that we've been working closely
with Rolls-Royce and are very satisfied with their responsiveness to the issue. This new generation aircraft is a key enabler for Air New Zealand both
in opening new routes and in competing on our existing routes. From a commercial and customer perspective, we're extremely happy with the
performance of the Dreamliner.
Turning finally to fuel and our outlook for the remainder of the year based on our hedging profile. To be hopeful, we've provided an outlook of
estimated fuel costs for the second half of the year with an assumption of average jet fuel at USD 75 a barrel. Based on the makeup of our hedges,
we've also had provided an approximation of how moves, up or down, in the fuel price would impact our fuel cost for the second half of the year.
The hedges that we do have are all on the money, therefore the variations that you see in the chart reflects the impact of fuel price on our unhedged
volumes. At USD 75 for jet fuel per barrel, our fuel cost in the second half will be approximately NZD 505 million, which will bring our full year fuel
cost to around NZD 975 million. As Christopher mentioned earlier, we will continue to drive price actions to offset the increased cost related to the
current fuel price environment.
Now let me turn the call back to Christopher to discuss the outlook for the rest of the year.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Well thanks, Jeff, and turning to Slide 18. I'll briefly provide our view of current market dynamics for the remainder of this year.
Looking at our short-haul markets, we continue to see really good underlying demand across the domestic, Trans-Tasman and Pacific Islands. On
domestic routes, the strong economic climate and continued tourism growth are expected to drive continued demand for travel on the trunk and
regional routes. And we are confident that with our market share, our Loyalty Programme and our unmatched network, we will capture more than
our fair share of that growth. Capacity increases on the domestic jet routes in the second half will be driven by additional services to Queenstown
as well as Christchurch and Dunedin.
Now on the regional network, we are starting to really see the benefits of the investments we have made over the past 3 years in terms of larger
aircraft and increased marketing and sponsorship we have undertaken to help promote the regions. While we saw our competitor reduced capacity
over the peak summer season, we continue to see opportunity to grow further. We're targeting approximately 7% growth on our regional network
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in the second half. And in the second half, we will still expect year-on-year improvement on RASK, albeit at slightly lower levels than we saw in the
first half due to the increased capacity growth.
Now moving to the Pacific Islands, which we considered to be an extension of our domestic market and is proven to be an incredibly popular
destination for Kiwis. We had updated several of these destinations to the Boeing 787s and increased frequency on a number of routes, resulting
in 11% capacity growth in the first half, which was very closely matched by 10% demand growth. That is a truly phenomenal result. And in the
second half of the year, we'll be ramping up capacity in the off-peak season, which gives us good utilization of our aircraft. Much of this growth
will be driven by increased frequency to Honolulu, which continues to be a very popular destination for New Zealanders. And another key contributor
to the capacity growth is increasing wide-body flying to Samoa, reflecting the increasing customer demand as we continue to develop that market
as well. As a result of this considerable growth going into Pacific Islands, we expect to see some softness in RASK, which will impact short-haul in
the second half, but this is all very profitable flying.
Shifting to the Trans-Tasman market, we expect the improved revenue dynamics we saw in the first half to continue as we progress through the
remainder of the year. The rationalization and competitive capacity that we saw on the Auckland-Sydney route in July will expand to include net
capacity reductions from Auckland to Melbourne and Brisbane beginning next month. We have increased our frequency on these routes, which
are performing well and are generating good revenue growth. And also increasing our wide-body capacity on Adelaide is also generating solid
demand, particularly for the premium cabins.
Now turning to international long-haul. We expect to see higher revenue growth on a full year basis, supported by strength in the Americas markets.
Turning first to North America, we expect stabilization of the U.S. market and strength in Vancouver to deliver good revenue growth in the second
half of this year. In December, we began flying our newly configured moving 787-9 aircraft with increased premium seat on our Houston route.
We also announced increases for our Vancouver route with the extension of our peak season as well as additional frequencies during the shoulder
season. Customer demand for both routes continues to be very strong.
Buenos Aires continues to perform very well as our South American sales region continues to deliver double-digit revenue growth as market
development activities gain traction, with added services are the summer and shoulder season to support this increasing demand. And this route
has also benefited from our Better Way to Fly campaign, which is focused on targeting Australians traveling via Auckland for long-haul trips to
both North and South America.
Now turning to Asia, the capacity growth for this year remains focused on Japan with the launch of our Haneda service into Tokyo. As I said back
in August, we are strategically growing the Japan market and recognize that it will take some time for demand to grow into the capacity growth.
In the second half of the year, our Haneda services seem to benefit from improved flight timings, which are generating improved demand, so we
do expect a stronger performance relative to the first half. Our Shanghai and Hong Kong routes are seeing improvement as we let the competitive
capacity that entered the market last year. And our Singapore route is performing well, particularly with traffic to and from Southeast Asia or India.
You would have seen our announcement earlier this year that we will commence a third daily service in October 2018, which will be the first
schedule jointly operated by ourselves and our airlines partners, Singapore Airlines. This third flight will enable our alliance to be a larger player in
the fast-growing Southeast Asian markets. And finally, while it won't impact 2018, we are nonetheless very excited today to announce a new direct
service to Taipei commencing in November of this year. New Zealand saw approximately 36,000 visitors arrived from Taiwan last year who currently
utilized indirect options to get here, and we feel that this direct route will encourage even more tourism growth. This route serves to further grow
and diversify our Asian network, which is a critical part of our Pacific Rim growth strategy.
So overall, we're looking across our international markets. The Americas are doing better. Europe continues to be challenging, and Japan capacity
will drive some RASK pressure across Asia with the rest of that region showing good signs of stabilization.
Moving on to Slide 20, we've provided a breakdown of our estimated capacity plans for the second half and full year. I think the chart is really
straightforward, but it does show that we will be ramping up our capacity in the second half compared to the first half but still right within the
range that we communicated to you back in August. We anticipate capacity growth of approximately 8% in the second half, which would result
in about 5% growth at the group level for the full year, and I will highlight again that this capital-efficient growth with improved utilization of our
existing aircraft is all profitable.
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Turning now to the outlook for the year. As we look forward to the remainder of the year, we are optimistic about the overall market dynamics and
are focused on executing the plan we laid out for you in August. Based on current market conditions and despite the increased price of jet fuel, we
are still expecting 2018 earnings before taxation to exceed the prior year.
I got to say thank you for listening. And now operator, please open the line up for any questions.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) Your first question comes from Andrew Bowley from Forsyth Barr.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
I've got a couple of questions. The first 1 maybe -- congratulations on offsetting those fuel costs.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Thank you.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
So first question on revenue, second question on costs. You provided some helpful comments around the RASK directions, for the next 6 months
in each of the respective sectors there. But can we just step back? And I recognize you've given a fair bit of kind of granular detail around your
expectations on a kind of a market-by-market basis. But stepping back in terms of the broader competitive backdrop, you're accelerating capacity
growth through the second half. We've seen a general slowdown over the last couple of years in terms of competitive behavior, but now we're
starting to see some competitors increased capacity. Where do you see the market generally? And how do you see it playing out over the next 12
months or so?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, well, I mean the first thing, Andy, as we look out for the rest of the year is that we've got tremendous visibility over the cost side of the equation,
right? So we have 70% hedged for the next 6 months out to the end of the year. Our cost control initiatives are improving well. We know that we'll
see some improvement in CASK as result of the growth from the capacity that we've got on the top line. So tremendous clarity on the cost side.
And to be honest, as we go through the revenue side, fairly decent visibility on revenue as well because we've had a very good peak summer
season, and we're obviously running the shot clock out towards the end of the year. So -- and we've got good visibility. So all those come down to
more upside on the revenue side and how well we can execute between now and the end of the year to impact enhancing profitability. So where
we are there is that, yes, you're right, we are putting a lot of capacity into the second half, almost 8% across the whole of the network. But we're
doing it in really places where we have real strength and that we are confident that we can drive profitable growth, maximize revenue, maximize
profitability. So if you take domestic New Zealand, it's incredibly strong, the underlying economics here in New Zealand. We've got big trunk growth
on Queenstown and even Christchurch. We've got good regional growth across New Zealand as well. I think almost 6%, 7% there as well to places
like Napier and Nelson. So those are logical places for us to back ourselves to be able to get closer revenue matching capacity as possible. Tasman-PI,
been a big success for us this year. We put double-digit capacity and then had double-digit revenue growth, and the same thing is happening in
the second half as we sort of do up-gauges. We certainly got -- on the Tasman, we've got a lot of list competitive dynamics happening there. Pacific
Islands, obviously, there's big investment and building out Honolulu up here and some other places as well. So net-net, if you talk to me a year ago
as you will remember, we were dealing with unprecedented levels of competition coming into the market. There will still be people coming in and
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out of the market, but Air New Zealand has proven that we can compete with much larger, more resourced airlines pretty well. And I think in
general, it's been quite rational behavior in all the market sales that we operate within. In regional New Zealand, we've seen our competitor pulled
back here. In the -- across the Tasman, you've seen one of our competitors come off completely. You've seen the American carriers pulled back
their services here. We've even seen some targeted, more rational behavior from the Chinese carriers and the Middle Eastern carriers starting to
get more that way.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
Great. And then the second question probably more in Jeff's camp here in the context of costs. And you referenced there, Christopher, that you've
got a lot of clarity on costs for the second half. Can I just ask the question around Jeff's comment around CASK improving through, or at least the
rate of improvement improving through the year? There's a bit of lumpiness, I guess, in the cost base to some extent, and maintenance cost is a
key component to that some -- at least through the first half and second half split in fiscal '17. How should we be thinking about that CASK in the
second half? Is it a sequential improvement on the first half? Or is it really just an improvement against the prior year?
Jeff McDowall
I guess the big thing, Andy, in the second half is that our capacity growth is quite a bit higher, 3.5% in the first half and around 8% in the second
half. So the economies of scale that we expect that to deliver will be -- well, you'll see flying through in the overall CASK number, and that's kind
of in line with the change in the picture that we talked about at the Investor Day back in June. So we expect to see quite significant -- quite a lot
stronger efficiencies in the second half as a consequence of that.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
But relative to first half or relative to second half last year?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Well, relative to the second half last year, but also a stronger rate of efficiency improvement than you saw in the first half.
Operator
Your next question comes from Andrew Steele from First NZ capital.
Andrew Steele - First NZ Capital Limited, Research Division - VP of Equity Research
I guess just to start with on cargo, the strong results from the first half, and pleasing to see ongoing sequential yield improvement. I was wondering
if you could provide color how you're thinking about both cargo, volumes and yields going into the second half.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes. So, Andrew, what we're sort of seeing is sort of overall very strong dynamics, which actually are quite aligned with what we're seeing in the
global cargo market, which has been strengthening over the year, and it's actually strong demand obviously for auto manufacturing goods globally.
So we -- the cargo growth is actually -- as you say, is a real highlight because the guys have worked incredibly hard to make sure that we can
participate in that global growth. We've done that pretty well. We've also seen really good strong domestic performance. So if I think about regional
markets like Nelson, for example, we take a lot of salmon out of Nelson and (inaudible) around the world. We've been able better support that
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cargo capacity with ATRs as we've increased our regional capacity and made that big $600 million investment in those new aircraft. So yes, I mean,
going forward, Andrew, I think we'll see positive dynamics underpinning cargo, which is really good.
Andrew Steele - First NZ Capital Limited, Research Division - VP of Equity Research
Okay. Great. And just in terms of, I guess, on the specific cost lines and in terms of, say, maintenance on per ASK basis. How should we be thinking
about that moving first half into second half? Is there any sort of particular maintenance phase we should aware of? And just how we -- should I
think about that in terms of year-on-year for the second half?
Jeff McDowall
Andrew, the trend will be similar in the second half as you saw in the first half. The first half was up a bit over last year, much of which relates to the
A320 engine maintenance, but the broad trend will be similar as we get through the second half of the year. There will be -- as also talking to Andy
about, the current scale we see in the second half will mean that the -- that would deliver better efficiency to offset that.
Operator
Your next question comes from Owen Bill (sic ) [Owen Birrell] from Goldman Sachs.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Just a couple of questions for me. Firstly, just looking at the Trans-Tasman. Can you give us a sense of where do you expect any sort of major change
in competition with the Qantas-Emirates partnership being approved?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Short answer, no. Obviously, the Tasman dynamics have actually improved when the competitor ex out of Auckland, Sydney and Melbourne,
Brisbane. So there has been some capacity -- rational capacity reductions on the Tasman. And as you know, it's a pretty tough battle to Tasman
over the last 7 years. Actually, we've got it through the history of it. But no, I don't see any change to that.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Excellent. And just on the domestic side -- I'm sorry, the international inbound. Has there been any noticeable disruption to, I guess, the inbound
from the tourist tax coming in?
Christopher Mark Luxon - Air New Zealand Limited - CEO
No. So we don't -- we actually haven't had a new tourist tax conversation in New Zealand about that ongoing there, but nothing has actually been
implemented. But no, tourism -- inbound tourism still remains very strong. It's grown at about 7% for the last 12 months. And at the same time,
what's been great is we've got Kiwis going abroad into the tune of -- they have grown about 9% in the last year as well. So no, I mean, we still
continue to see a very good inbound tourism growth, and we're importantly seeing Kiwis going abroad. So we feel fundamentally pretty confident
about the state of the economy and the underlying structural demand, which is good.
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Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
And just final one for me for probably Jeff, just in terms of your fuel hedging strategy. I'm guessing there's no change to the way that you guys
have been hedging historically under you, Jeff. Or are you looking to potentially take a bit more of an active position in fuel pricing going forward?
Jeff McDowall
Short answer is no. I think we've got a approach which -- and now gives us time -- it's designed through on giving us time to adjust rather than
taking a position on the particular direction that the fuel will go. As we look at the first half of FY '19, we hedged pretty much being in the middle
of our policy range, which has essentially crept up a bit from the pack that you have. It was 50% last week. And the report date is now a little bit
higher for the first quarter but pretty much right in the middle of our range.
Operator
Your next question comes from Wade Gardiner from Craigs Investment Partners.
Wade Gardiner - Deutsche Bank AG, Research Division - Research Analyst
Just looking at the -- some of the Appendixes. Can you give a bit of guidance around your FX exposure? You've hedged -- you've provided some
numbers there. What's the policy? Sorry, what's the total net exposure? And where do you sit relative to policy and the strategy? That's the first
question.
Jeff McDowall
As with fuel, pretty much in the middle of our strategy at the moment. The net -- it's a bit of a long story (inaudible). The net outbound exposure
to the U.S. dollar is $600 million, I think. So net shorts by about that amount. So if there is a unilateral move in the U.S. dollar, U.S. dollar gets weaker.
Our costs get lower, and so net were a beneficiary from that. If -- but if it's a unilateral movement in New Zealand dollar, it's a bit more of a nuanced
story because our revenue currencies can offset the impact of our costs imposed by the New Zealand dollar getting weaker.
Wade Gardiner - Deutsche Bank AG, Research Division - Research Analyst
So that's $600 million per half or per year?
Jeff McDowall
Per year.
Wade Gardiner - Deutsche Bank AG, Research Division - Research Analyst
Okay. Next question. Just in terms of what Emirates came out with the other day in terms of their Bali services that they're going to put on. Any
thoughts here as to how that's going to impact you? Did you have plans to increase at greater than 3 days a week? Or...
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Christopher Mark Luxon - Air New Zealand Limited - CEO
Look, I think it's still early days for us to work that through a model. The implications of that actually are very small part of our network. Not sure
what the Kiwis want to go to emphasize (inaudible) Dubai, Rome in terms of European traffic. But we'll have worked -- to work our way through
that. But yes, look, I mean, no, we haven't thought just about in a -- pretty small in the scheme of things.
Wade Gardiner - Deutsche Bank AG, Research Division - Research Analyst
And finally -- apologies if you did mention this. But with the engine issues on the 787s, can you give bit of colors to when you're expecting that to
be resolved and then to return to service?
Christopher Mark Luxon - Air New Zealand Limited - CEO
I think that'll be early mid-April, Wade. We've made great progress on that. We do have a great relationship with Rolls-Royce. We've been able to
-- we've got very high levels of technical capability relative to other airlines, and I think we've done -- absolutely a brilliant job on working our way
through that. And we'll be, I think, in great shape coming early mid-April.
Operator
Your next question comes from Marcus Curley from UBS Investment Bank.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Just a few. Just starting with staff, I suppose it's a pretty impressive result in terms of staff numbers in the half. You're effectively flat against all that
capacity growth or some capacity growth. Can you talk a little bit about the direction of staff numbers? And then also, secondly, yes, we're hearing
rumors around, I suppose, unions building up ahead of steam in terms of much greater settlement claims next time around. I just wondered whether
you can talk to that at all.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, I think, Marcus, Jeff can probably jump with more detail. But bottom line, we're expecting labor cost to grow at a slow rate than capacity. That's
natural as a business as got growth at the heart of it, which has been -- what you've been seeing in those numbers. Based on our guidance sort of
going forward, we actually expect very little to change relative to what we've seen in this first half. I'd say actually our union partners, we worked
incredibly hard as -- I know we've tried to explain this before, but we have worked incredibly hard with our unions, and we're finding them really,
really great to work with. We've been able to do most of our settling around 2%, and that's been really great. So there's a very good spirit of
partnership. We call that high-performance engagement. We are talking -- a lot of other corporates are looking at what we're doing there as we
try and strategically partner with union, and it's been working really well. So I'm really proud about the labor position, and -- but more importantly,
just way our people have responded from the tough stuff these last 6 months.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
And, Christopher, just in terms of timing there. Is -- I know you probably got regular renews on this. But would you -- when is the next big taste of
that relationship in terms of rollover contracts on the union side?
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Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, I mean, we have about 42, I think, different industrial contracts. And obviously, we have -- close to 75% of the staff are unionized. So to be
honest, Marcus, it's just constant rolling thunder in terms of -- last week, we ratified our deal with all our cabin crew in London. A few weeks earlier,
we ratified regional pilot deals at the announcement (inaudible). We just roll through. This is just normal for us. But there's no big set piece that --
we just -- it's just how we do business. It's sort of 365-day implement relations, really.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. Secondly, I just -- obviously, you mentioned your new routes still being profitable. Can you just talk a little bit about Tapei on that basis? I
suppose, first and foremost, frequency and support structures to ensure that, that is the case. Obviously, making new routes profitable (inaudible)
jet fuel is obviously quite a big hurdle.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, I mean, Taipei is something we've eventually looked at over the last year. We think it's a really good way of deepening up our position in Asia.
It's quite good because there's 36,000 visitors that come in from Taiwan each year to New Zealand, and there is a very big Taiwanese community
here that does a lot of visiting friends and relative as well as some commercial ties to Taiwan. So from an inbound/outbound point of view, it actually
is quite attractive. It's also a very wealthy if you think about it more like Tokyo, and we actually think that it went well. So it's an 11-hour flight. We're
going 4 to 5 times per week. And I think it's going to be really quite successful. And I think from an outbound New Zealand perspective, a lot to do
there, right? I mean, a great city, awesome food, great night life, great national parks, and we've obviously got the Dreamliners on the route. Yes,
we just go about the new markets. As I said, we look at a range of new markets every quarter. And this one, we've done all the analysis for and want
to launch it like we do Buenos Aires and Houston and set it up for success.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Is it a year-round daily service?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, it is. Yes, it is.
Jeff McDowall
Year-round that have 4 to 5 a week, Marcus.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. And have you got any alliance partners associated with it?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, so we have with EVA, who is obviously a very strong star partner in Taiwan as well. But not a deep alliance share, but obviously, a very strong
star partner.
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Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
But would you think about that on this route? Or is it not the way to be considering that?
Christopher Mark Luxon - Air New Zealand Limited - CEO
There is no reason to look at a revenue share or a deep alliance in that regard because you obviously don't have 2 airlines flying the same route so
-- where they can work together at both ends. But it's just -- it really will -- I mean EVA is a great star partner, a good friend of ours through star, and
that went well.
Leila Peters - Air New Zealand Limited - Head of IR
Marcus, it's Leila. It's similar to Japan where we worked closely with ANA, but we're the only direct -- we're the only carrier flying direct between
Tokyo and Osaka and Auckland, so no need for the revenue JV.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Sure. Okay. And then just finally, just with regard to aircraft orders. Obviously, flagged an extra 787. Could you talk a little bit about 2021? Obviously,
there's nothing in there at the moment. At what point is it -- is that locked down? I'm not quite sure what the lead time is on new aircraft at the
moment. But I just wanted to get some sort of clarity about the scope for 2021 just to actually see aircraft orders.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, Marcus, for the -- with the 14 787 in the fleet, and that will give us the capacity that we need to grow at the range we indicated back in June,
that sort of 5% to 7 range right until 2022. So yes, we may -- if market conditions support it, we may be able to grow faster than that if the opportunity
emerges. But for that approach, the 14 aircraft will get us there. The narrow-body fleet may need some unit growth as we grow that faster, but that
had a shorter lead time.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
And if you're going add aircraft orders, what sort of a lead time that you need to provide at the moment for short-haul aircraft?
Christopher Mark Luxon - Air New Zealand Limited - CEO
At least a year. But typically, typically it's 2 years.
Operator
Your next question comes from Nick Mar from Macquarie.
Nick Mar - Macquarie Research - Analyst
Much of the questions have been covered. I guess just at a very high level. How do you guys think about the business and the ROIC through the
levers like pricing power and kind of cost control as you move through the kind of different fuel environments?
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FEBRUARY 21, 2018 / 10:00PM, AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
Client Id: 77
Christopher Mark Luxon - Air New Zealand Limited - CEO
Well, I think as you've seen over the last few years, there's a lot -- we've become quite adept at adjusting the business to a pretty wide range of
commercial circumstances whether it's been fuel price or competition. So it's hard to be prescriptive about how we had pulled set levers at certain
circumstances, but we're really confident in our ability to adjust whether it's with capacity, whether it's with price, whether it's with the way we
execute the business, whether it's operationally to a wide range of circumstances. So yes, we continue to hold to the ROIC position that we described
to you back in June.
Nick Mar - Macquarie Research - Analyst
And I guess just on that for kind of the FY '19 if you are looking closer to $80 a barrel of fuel -- I'm sorry, for jet fuel? How do you guys kind of think
about that and feel about the ability to just maintain that through that environment?
Christopher Mark Luxon - Air New Zealand Limited - CEO
Yes, good question. We always -- someone always try to ask us the guidance on FY '19 at this point in the year. So I mean, like I say, we -- fuel would
be a headwind at that kind of cost. It has come back a little bit since it was $80, but we're really focused on executing '18 at the moment as we start
the pending process for '19. We'll again be looking to the levers that we have to adapt to that sort of environment. Fuel will be what it will be. The
important thing is that we are really nimble and adept to adjusting to this.
Operator
That does conclude our question-and-answer component of today's presentation. I'll now hand back to Mr. Luxon for closing remarks.
Christopher Mark Luxon - Air New Zealand Limited - CEO
Well, listen, guys, can I just say thank you to everyone for listening in on the call and just investing your time and interest in our story at Air New
Zealand. As per normal, I just would encourage any of you to schedule a call or a meeting or any follow-up questions you might have, please direct
them straight through to Leila and the Investor Relations team. And again, thanks again for your support. Really do appreciate it. And operator,
with that, conclude the call.
Operator
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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FEBRUARY 21, 2018 / 10:00PM, AIR.NZ - Half Year 2018 Air New Zealand Ltd Earnings Call
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