Air New Zealand announces 2019 Interim Result

Half Year Results27 February 2019AIRIndustrials

Media release
28 February 2019

Air New Zealand announces interim profit of $211 million and
maintains interim dividend of 11.0 cents per share

Air New Zealand today announced earnings before taxation of $211 million for the six month period ended 31
December 2018, compared to $323 million in the prior period. Net profit after taxation was $152 million.

Shareholders of Air New Zealand will receive a fully imputed interim dividend of 11.0 cents per share, in-line
with the prior period. The dividend will be paid on 27 March, to shareholders on record as at 15 March.

Chairman Tony Carter thanked the team of over 12,000 Air New Zealanders for their hard work and customer
focus during a very challenging operational period for the airline.

Key drivers of the interim result included operating revenue growth of 7.1 percent, which was more than offset
by a 28 percent increase in fuel price and increased operational costs. Operating cash flow of $475 million
remained strong despite the headwinds faced over the period.

At a time when the New Zealand market has seen foreign competitors reduce capacity or exit services
completely, Air New Zealand continues to support strong market development activities to stimulate inbound
visitors to the country. Recent route launches to Chicago and Taipei have performed ahead of expectations,
and the airline recently launched a third daily service from Auckland to Singapore, in conjunction with its alliance
partner Singapore Airlines.

Looking ahead to the remainder of the year, Chief Executive Officer Christopher Luxon acknowledged the rate
of growth in the New Zealand market is slowing from previous years to be more in-line with other developed
markets. Accordingly, the airline will be reviewing its network, fleet and cost base to reflect the new environment.

“While we continue to expect solid growth across our key markets including domestic New Zealand, we cannot
ignore signals that the rate of growth has slowed somewhat from prior years. We pride ourselves at Air New
Zealand on being nimble and able to quickly adjust our business to reflect the changing macro environment and
this time is no different.”

The airline’s comprehensive review of its network, fleet and cost base is progressing well and an update is
expected by the end of next month.

Air New Zealand remains committed to its Pacific Rim strategy and connecting New Zealanders to each other
and the world. To support that commitment, earlier this week the airline announced it has reduced its lowest
fares across the domestic network.

Mr Luxon said “we are committed to ensuring that air travel is more affordable than ever for Kiwis, whether they
are flying from the main centres or from regional airports. With prices as low as $39, and with our unmatched
network of over 400 flights a day to 20 different destinations in New Zealand, there has never been a better time
to get out and explore this amazing country.”

Outlook

Air New Zealand issued a revised outlook for the 2019 financial year on 30 January, prompted by slower revenue
growth expectations in the second half of the year. The airline today reaffirms that outlook statement for the
financial year ending 30 June 2019.

Based upon current market conditions and assuming an average jet fuel price of US$75 per barrel for the second
half of the financial year, 2019 earnings before taxation is expected to be in the range of $340 million to $400
million.

Interim Financial Highlights

• Operating revenue of $2.9 billion, up 7.1%
• Earnings before taxation of $211 million, down 35%
• Net profit after taxation of $152 million, down 34%
• Operating cash flow of $475 million, down 0.8%
• Fully imputed interim dividend of 11.0 cents per share, consistent with prior period

Ends
Issued by Air New Zealand Public Affairs ph +64 21 747 320

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AIR NEW ZEALAND 2019INTERIM RESULT
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.
Forward-looking statements

AIR NEW ZEALAND 2019INTERIM RESULT
Forward-looking statements
3
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.
Business update
Christopher Luxon
Chief Executive Officer

AIR NEW ZEALAND 2019INTERIM RESULT
4
An agile culture, focused on quickly
adjusting to changing market dynamics
• Strong interim result despite significantly higher fuel prices and the
financial impact of schedule disruptions related to B787-9 engine
maintenance
• While revenue growth was robust in 1H, weaker than expected
forward bookings outlook in 2H suggest a shift in demand
dynamics
• Looking ahead, expect growth but at a slower level, as indicated in
revised 2019 earnings outlook
1
−Most visible in forward bookings for domestic leisure and inbound
tourism traffic
−Closely monitoring other channels and markets
• Comprehensive review of network, fleet and cost base progressing
well, with update expected by the end of next month
−Focus on return to earnings growth and ROIC improvement in the
lower revenue growth environment
1
As disclosed on 30 January 2019.

AIR NEW ZEALAND 2019INTERIM RESULT
5
Domestic revenue still growing but at a slower rate, following
12 months of high single-digit growth
•In the past 12 months, Domestic revenue
growth has been very strong
•This high rate of growth began to taper off in
December and January, along with softer
forward booking trends
•Growth still forecast across the remainder of
the financial year, albeit at a slower rate
•Position in our core domestic market remains
unmatched
−Market share position has improved in the past year
−World class regional network, flying to 20
destinations across the country
−Remain focused on stimulating profitable demand
8%
5%
3%
Approx 4%
Last 12 m onthsDec
2018
Jan
2019
Outlook
2H 2019
Domestic revenue growth
(year on year)

AIR NEW ZEALAND 2019INTERIM RESULT
6
AIR NEW ZEALAND 2019INTERIM RESULT
Utilising a variety of levers to respond to slower revenue
growth environment

AIR NEW ZEALAND 2019INTERIM RESULT
Maintaining our strategic focus and competitive advantage on
the Pacific Rim
Asia
Leveraging our competitive advantages
to connect New Zealanders with each
other and the world
• Grow our home market with unmatched
network and service offerings
• Explore profitable growth opportunities
• Increasing connection opportunities via
Auckland
• Leveraging strength from alliance
partnerships
7

AIR NEW ZEALAND 2019INTERIM RESULTAIR NEW ZEALAND 2019INTERIM RESULT
Financial review
Jeff McDowall
Chief Financial Officer

AIR NEW ZEALAND 2019INTERIM RESULT
9
Financial highlights of 1H 2019
•Operating revenue $2.9 billion, up 7.1%
•Earnings before taxation $211 million, down 35%
•Net profit after taxation $152 million, down 34%
•Operating cash flow $475 million, down 0.8%
$211m($59m)$152m
Earnings before
taxation
Ta xNet profit after
taxation
197
457
349
323
211
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Earnings before taxation
($ millions)

AIR NEW ZEALAND 2019INTERIM RESULT
323
(131)
211
192
DEC 2017
EARNINGS
BEFORE
TAXATION
IMPACT OF
FUEL PRICE
DEC 2017
COMPARABLE
EARNINGS
DEC 2018
EARNINGS
BEFORE
TAXATION
+9.9%
($ millions)
1
Robust earnings growth after adjusting for fuel price
headwind of $131 million
1
$131 million impact related to fuel price increase; details on fuel cost movement
provided in supplementary slides.
10
•Underlying performance relatively strong,
driven by revenue growth
•Net fuel price increased 28% for the period
−Driven by an average jet fuel price of US$87
per barrel compared to US$67 per barrel in
the prior period
−Partially offset by increased hedging gains of
$15 million
•This resulted in a net fuel price headwind of
$131 million for the six month period alone –
compared to a headwind of $135 million for
the full 2018 financial year.

AIR NEW ZEALAND 2019INTERIM RESULT
11
Revenue
•Passenger revenue excluding FX up 5.1%; reported up 6.5%
–Strong demand up 5.3% oncapacity growth of 4.3%
–RASK excluding FX up 0.8%; reported up 2.1%
•Cargo revenue excluding FX up
5.1%; reported up 8.1%
Cost
•CASK
1
increased slightly, up 1.6%
−Reported CASK including impact of fuel price up 9.5%
−Non-fuel price increases partially offset economies of scale and efficiencies
•Reported fuel cost up $179 million, 38%
2
driven by:
–Average fuel price increase (net of hedging benefits) of $131 million, up 28%
–Weaker NZD adversely impacted fuel cost by $40 million
–Additional volume reflects capacity growth, offset by new aircraft efficiencies
Benefits of strong revenue growth in 1H 2019 more
than offset by challenging cost environment
1
Excluding fuel price movement, FX and third party maintenance.
2
Fuel cost movement details provided in supplementary slides.

AIR NEW ZEALAND 2019INTERIM RESULT
• CASK*up 1.6%, as non-fuel price increases and the costs associated with providing greater
operational resilience more than offset economies of scale and efficiencies
−Reported CASK increased 9.5%, driven by fuel price increase of 28%
* Excluding fuel price movement, FX and third party maintenance.
** December 2017 comparative restated to reflect the adoption of NZ IFRS 15.
CASK* performance impacted by increased operational costs
12
10.04
9.17
(0.05)
0.20
0.05
0.59
0.08
7
8
9
10
11
DEC 2017
CASK
ECONOMIES
OF SCALE AND
EFFICIENCIES
PRICETHIRD PARTY
MAINTENANCE
FUEL PRICEFOREIGN
EXCHANGE
DEC 2018
CASK
CASK (cents)
CASK*
increases 1.6%
**

AIR NEW ZEALAND 2019INTERIM RESULT
6.5
10.010.0
11.011.0
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Interim dividend declared
(cents per share)
13
•Strong operating cash flow of $475 million, in-line with
prior period
−Strength in working capital cash flow and timing of tax payments
offset by reduced earnings
•Stable outlook Baa2rating from Moody’s
•Gearing of 56.4%, an increase of 4.0 percentage points
from June 2018, driven by continued investment in fleet
−Going forward we expect to return to target range of 45% to 55%
•Fully imputed interim dividend of 11.0cents per share,
consistent with the prior period
−Looking through short-term earnings volatility to provide
shareholders with a consistent and sustainable dividend
Robust operating cash flow and financial resilience in a
challenging environment
378
541
376
479
475
Dec
2014
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Operating cash flow
($ millions)

AIR NEW ZEALAND 2019INTERIM RESULT
Aircraftdelivery schedule(as at 31 December 2018)
Number in
existing fleet
Number
on order
DeliveryDates (financial year)
2H 2019202020212022
Owned fleet on order
Airbus A320/A321 NEOs
112**54-3
ATR72-600
218 26--
Operating leased aircraft
Boeing 787-9
11-1--
Airbus A320/A321 NEOs
2321--
14
• Forecast investment of $1.2billion in aircraft and
associated assets through to 2022
• Assumes NZD/USD =0.67
• No assumptions on B777-200 replacement capital
expenditure are included in current forecast
– Announcement expected in Q4 of current financial year
* Includes progress payments on aircraft.
** Does not reflect two additional A321 NEO aircraft on order for expected delivery in FY2024.
Current fleet programme will wind down after 18 months
0
200
400
600
800
1,000
20152016201720182019202020212022
$ millions
Actual and forecast aircraft capital
expenditure*

AIR NEW ZEALAND 2019INTERIM RESULT
540
560
580
600
620
640
660
$60$65$70$75$80$85$90
NZD Cost of Fuel (millions)
Singapore Jet (USD/barrel)
2H 2019 Fuel cost
1
sensitivity (inclusive of hedging)
Series1
15
1
Assumes an average jet fuel price of US$75 per barrel for the second half of the 2019 financial year and a NZD/USD rate of 0.67.
2
Assumes an average jet fuel price of US$81 per barrel for the full 2019 financial year.
Fuel cost outlook and sensitivities for the remainder of FY2019
470
517
987
649
~596
1
~1,245
2
0
200
400
600
800
1,000
1,200
1,400
1H2HFY
NZD millions
2019 Fuel cost outlook
20182019
2019E

AIR NEW ZEALAND 2019INTERIM RESULT
Outlook
Christopher Luxon
Chief Executive Officer

AIR NEW ZEALAND 2019INTERIM RESULT
17
Sector
1H 2019
capacity
2H 2019
capacity
2H Commentary
Full year
capacity
Previous
full year
capacity plan
1
Domestic+2.9%~+3%
•Trunk growth in 2H reflects increased services into
Dunedin and Queenstown
•Regional growth driven by additional services to
Palmerston North and Tauranga, as well as growth in
regional routes to/from Christchurch
~+3%+3% to +5%
Tasman &
Pacific
Islands
2
+7.9%~+4%
•Arrival of A321 NEO aircraft
•Additional Tasman frequency driving growth following
the end of the Virgin Australia alliance
•Rationalising Pacific Islands capacity growth on the
Honolulu, Denpasar and Apia routes
~+6%+7% to +9%
International
Long-haul
+2.7%~+4%
•Driven by new Taipei and Chicago routes
•Second bank of flying on Auckland – Singapore route
from the end of March 2019
•Offset by reduced flying to San Francisco and LA
~+4%+3% to +5%
Group+4.3%~+4%~+4%+4% to +6%
Moderated capacity growth in 2H to better reflect slower
rate of revenue growth
1
As disclosed at the 2018 Annual Results on 23 August 2018.
2
Pacific Islands includes Bali and Honolulu.

AIR NEW ZEALAND 2019INTERIM RESULT
18
2019 outlook provided on 30 January reaffirmed
Air New Zealand issued a revised outlook for the 2019 financial year on 30
January, prompted by slower revenue growth expectations in the second half of
the year. The airline reaffirms that outlook statement for the financial year
ending 30 June 2019.
Based upon current market conditions and assuming an average jet fuel price of
US$75 per barrel for the second half of the financial year, 2019 earnings
before taxation is expected to be in the range of $340 million to $400
million.

AIR NEW ZEALAND 2019INTERIM RESULT

AIR NEW ZEALAND 2019INTERIM RESULT
Supplementary
slides

AIR NEW ZEALAND 2019INTERIM RESULT
Changes in profitability waterfall
21
1
Excludes FX of $40 million. For further details refer to Fuel Cost Movement slide 23.
Additional commentary
•Labour costs increased faster
than capacity, driven by activity
and rate increases as well as
crew inefficiencies due to the
B787-9 engine issues, partially
offset by reduced incentive
payments
•Maintenance, aircraft operations
and passenger services costs
reflect 4.3% capacity growth,
pricing increases and third party
maintenance activity
•Sales and marketing increase
related to launching new
Chicago and Taipei routes and
higher commissions
•Ownership costs increased due
to new aircraft offset by lower
funding costs

AIR NEW ZEALAND 2019INTERIM RESULT
22
• Strong volume growth related to:
–Increased capacity across North America and the
Pacific Islands
–Continued strength from high density cargo loads from
Japan to the United States
–Stronger loads in Europe and Japan
–Offset by lower uplift across the Tasman
• Yield improvements driven by:
–Higher value product mix
Solid performance from the cargo business with higher
volumes and yield
Revenue
up 5.1%*
Yield
up 1.3%
Volume
up 3.8%
* Reported Cargo revenue increased 8.1%, inclusive of foreign exchange impact.

AIR NEW ZEALAND 2019INTERIM RESULT
23
Increase in
jet fuel price
US$67 to US$87
per barrel
Dec 2018
hedge gain of
$24m
vs
Dec 2017
hedge
gain of $9m
$131 million
effective increase
in net fuel price
28%
Fuel cost movement in the period
470
8
146
(15)
40
649
0
200
400
600
800
DEC 2017
FUEL COST
VOLUMEUNDERLYING
PRICE
NET HEDGING
BENEFIT
FX
MOVEMENTS
DEC 2018
FUEL COST
$ millions

AIR NEW ZEALAND 2019INTERIM RESULT
24
Fuel hedging
• 80% of estimated volumes hedged in 2H
2019
1
• 51% of 1H 2020
1
estimated volumes
currently hedged
• Jet-Brent Crack Spreads entered into in
1H 2019
1
to manage volatility of the
spread between Singapore Jet and Brent
Crude prices
Hedging update
Foreign exchangehedging
• 2H 2019
1
hedges for US$501 million at a
NZD/USD rate of 0.69
• 2020
1
hedges for US$448 million at a
NZD/USD rate of 0.68
1
Refers to Air New Zealand’s financial year rather than a calendar year.

AIR NEW ZEALAND 2019INTERIM RESULT
25
* Comparative is for 30 June 2018.
** Dividends are fully imputed.
Dec 2018
$M
Dec 2017
$M
Movement
$M
Movement
%
Operating revenue 2,9272,7321957.1%
Earnings before taxation211323(112)(35%)
Net profit after taxation 152232(80)(34%)
Operating cash flow 475479(4)(1%)
Cash position*1,2171,343(126)(9%)
Gearing*56.4%52.4%(4.0 pts)
Ordinary dividends declared**11.0 cps11.0 cps-
Financial overview

AIR NEW ZEALAND 2019INTERIM RESULT
26
* Calculation based on numbers before rounding.
Dec 2018Dec 2017Movement*
Passengers carried (‘000s)8,8958,5304.3%
Available seat kilometres (ASKs, millions)23,08422,1384.3%
Revenue passenger kilometres (RPKs, millions)19,24418,2745.3%
Load factor83.4%82.5%0.9 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
10.810.62.1%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
10.710.60.8%
Group performance metrics

AIR NEW ZEALAND 2019INTERIM RESULT
27
Dec 2018Dec 2017Movement*
Passengers carried (‘000s)5,7555,5643.4%
Available seat kilometres (ASKs, millions)3,5913,4912.9%
Revenue passenger kilometres (RPKs, millions)2,9702,8514.2%
Load factor82.7%81.7%1.0 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
22.521.64.1%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
22.421.63.7%
* Calculation based on numbers before rounding.
Domestic

AIR NEW ZEALAND 2019INTERIM RESULT
28
1
Pacific Islands including Bali and Hawaii.
* Calculation based on numbers before rounding.
Dec 2018Dec 2017Movement*
Passengers carried (‘000s)2,0741,9387.0%
Available seat kilometres (ASKs, millions)7,0726,5537.9%
Revenue passenger kilometres (RPKs, millions)5,8325,3858.3%
Load factor82.5%82.2%0.3 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
9.910.0(1.4%)
Passenger revenue per ASKs, excluding FX
(RASK, cents)
9.810.0(2.0%)
Tasman & Pacific Islands
1

AIR NEW ZEALAND 2019INTERIM RESULT
29
* Calculation based on numbers before rounding.
Dec 2018Dec 2017Movement*
Passengers carried (‘000s)1,0661,0283.7%
Available seat kilometres (ASKs, millions)12,42112,0942.7%
Revenue passenger kilometres (RPKs, millions)10,44210,0384.0%
Load factor84.1%83.0%1.1 pts
Passengerrevenue per ASKs as reported
(RASK, cents)
8.07.73.1%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
7.87.70.6%
International

AIR NEW ZEALAND 2019INTERIM RESULT
30
Projected aircraft in service and fleet age
*
Excludes short-term leases which provide cover for the Boeing 787-9 engine issues.
2019202020212022
Boeing 777-300ER
7777
Boeing 777-200ER8888
Boeing 787-913141414
Airbus A32025191916
Airbus A320/A321 NEO10151518
ATR72-60023292929
ATR72-5006---
Bombardier Q30023232323
Total Fleet115115115115
*
*
9.1
7.8
7.5
7.0
7.5
6.9
6.6
7.6
8.2
201420152016201720182019202020212022
Aircraft fleet age in years
(seat weighted)
HistoricalForecast

AIR NEW ZEALAND 2019INTERIM RESULT
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
Net Debt
Interest-bearing liabilities, less bank and short-term deposits, net open derivatives held in relation to interest-
bearing liabilities and interest-bearing assets, plus net aircraft operating lease commitments for the next twelve
months multiplied by a factor of seven (excluding short-term leaseswhich provide cover for Boeing 787-9 engine
issues)
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 calculations are 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.
Glossary of key terms
31

AIR NEW ZEALAND 2019INTERIM RESULT
Resources
Contact information
Email: investor@airnz.co.nz
Share registrar: enquiries@linkmarketservices.com
Investor website:www.airnewzealand.co.nz/investor-centre
Monthly traffic updates: www.airnewzealand.co.nz/monthly-operating-data
Quarterly fuel hedging disclosure: www.airnewzealand.co.nz/fuel-hedging-announcements
Corporate governance: www.airnewzealand.co.nz/corporate-governance
Sustainability: https://www.airnewzealand.co.nz/sustainability
Find more information about Air New Zealand
32

AIR NEW ZEALAND 2019INTERIM RESULT

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INTERIM
FINANCIAL

REPORT
2019

2
AIR NEW ZEALAND GROUP
Letter from the Chairman and
Chief Executive Officer
Air New Zealand has today announced
earnings before taxation for the first
six months of the 2019 financial year
of $211 million. Whilst this represents
a 35 percent decrease compared with
the prior period result of $323 million,
it is a solid performance given the
external challenges that have impacted
the airline in the past six months.
Although operating revenue performed
strongly, increasing 7.1 percent to $2.9
billion, this growth was more than offset
by operational cost headwinds. Fuel
prices increased by 28 percent, or $131
million, as macroeconomic volatility
impacted the commodity markets,
including jet fuel prices which represent
the airline’s second largest cost.
Additionally, our network saw further
disruption in the first half of the 2019
financial year as a result of not being able
to operate an optimal network schedule
while we await the return of the remaining
Rolls-Royce Trent 1000 engines which
operate on our Boeing 787-9 fleet.
While the Trent 1000 engine issues are
not within our direct control, how we
choose to respond certainly is. In this
context, we could not be prouder of the
way our people have gone above and
beyond to mitigate the impact of the
network disruption on our customers.
This shows how crucial our culture is to
the organisation. When you have people
who are engaged and focused on
delivering the best possible customer
experience no matter what challenges
arise, that is what drives customer
loyalty and a sustainable business.
Maintaining the interim dividend
The Board is pleased to declare a fully
imputed interim dividend of 11.0 cents
per share, consistent with the prior
period. This dividend reflects the Board’s
commitment to its distribution policy
that looks through short-term earnings
volatility to provide a consistent and
sustainable ordinary dividend.
The airline continues to maintain a
stable investment grade credit rating
from Moody’s of Baa2. Gearing was 56.4
percent, an increase from 52.4 percent
at the end of the 2018 financial year,
reflecting the investment in new aircraft
as the current fleet programme nears
its completion. Going forward we expect
gearing levels to return to our previously
communicated
target range. Operating
cash flow remained strong at $475
million,
in-line with last year, and cash on hand
was $1.2 billion.
New routes and fleet update
Turning to new and exciting changes for
our network, we recently launched direct
services to Taipei and Chicago which
have exceeded our expectations. Both
destinations are well suited to stimulate
additional tourism traffic to New Zealand,
as well as driving strong interest from
Kiwi travelers. We are also excited to
now be offering three daily services to
Singapore, in conjunction with our alliance
partner Singapore Airlines.
Demonstrating
resilience
Solid financial performance in
a challenging environment.
Operating
revenue growth of:
7.1
percent
Net profit
after taxation of:
$
152
million
Cash
on hand of:
$
1.2
billion
Interim dividend
declared of:
11.0
cents per share

3
Domestically, we will be trialling
a new jet service between Auckland
and Invercargill beginning in August.
This new service is another example
of our commitment to supercharge
New Zealand’s success in the regions.
The direct service will enable the
Southland region to attract more visitors
as well as improve connectivity for
business travelers.
In addition to this, we have recently
announced some incredible new fares
on our Domestic network, making
domestic travel more affordable than
ever. Our customers will now be able
to fly domestically for as low as $39
each way. We believe this will stimulate
domestic tourism and encourage both
New Zealanders and visitors alike to
see as much of this beautiful country
as they can.
Our expected aircraft capital expenditures
through to 2022 will be approximately
$1.2 billion, with a key component of that
investment being the Airbus A320/321
NEO aircraft. We recently received the
first four units of the larger Airbus A321
NEO, which are operating on the Tasman
and Pacific Islands routes and we will
be receiving further units across the
remainder of the financial year.
Looking ahead
As we look ahead to the remainder of the
year, we are starting to see a slower rate
of demand growth from previous years.
This will result in revenue growth and
profit that is lower than we had originally
anticipated, despite the fact that jet fuel
prices have decreased from the higher
levels we experienced in the first half of
the financial year.
Air New Zealand is known for being nimble
and able to quickly adjust our business to
reflect the changing macro environment.
It is one of the key competitive advantages
that sets us apart from other airlines.
Accordingly, we are undertaking a review
of our network, fleet and cost base to
ensure continued strong profitability
and financial resilience in the future. This
review will be comprehensive and is about
ensuring that we are well set up to execute
in this new, lower growth environment.
Outlook
Air New Zealand issued a revised outlook
for the 2019 financial year on 30 January,
prompted by slower revenue growth
expectations in the second half of the
year. The airline reaffirms that outlook
statement for the financial year ending
30 June 2019.
Based upon current market conditions
and assuming an average jet fuel price
of US$75 per barrel for the second half
of the financial year, 2019 earnings before
taxation is expected to be in the range
of $340 million to $400 million.
To n y C a r t e r
Chairman
Christopher Luxon
Chief Executive Officer
28 February 2019
Operating
revenue of:
$
2.9
billion
Earnings before
taxation of:
$
211
million
Operating
cash flow of:
$
475
million
2019 INTERIM FINANCIAL REPORT
Left to right
Tony Carter; Chairman
Christopher Luxon; Chief Executive Officer
Contents
Letter from the Chairman and Chief Executive Officer 2
Financial Commentary 4
Change in Profitability 6
Condensed Interim Financial Statements 7
Independent Review Report 15

Strong revenue performance in
the period was more than offset
by increased operational costs, in
particular fuel costs, which were
impacted by a 28 percent increase
in fuel price. Despite the challenging
operational environment, the Group
delivered earnings before taxation
for the first six months of the 2019
financial year of $211 million.
Revenue
Operating revenue for the period
increased 7.1 percent to $2.9 billion, an
increase of $195 million. Excluding the
impact of foreign exchange, operating
revenue increased 5.6 percent.
Passenger revenue increased by 6.5
percent to $2.5 billion, reflecting higher
capacity across the network as well
as unit revenue growth. Excluding the
impact of foreign exchange, passenger
revenue was up 5.1 percent.
Capacity (Available Seat Kilometres,
ASK) increased 4.3 percent this period,
driven by network wide growth. Demand
(Revenue Passenger Kilometres, RPK)
grew ahead of capacity at 5.3 percent,
resulting in an increased load factor of
83.4 percent for the period.
Passenger Revenue per Available Seat
Kilometre (RASK) improved 2.1 percent
as a result of pricing dynamics and
increased demand, particularly on
Domestic routes. Excluding the impact
of foreign exchange, RASK improved
0.8 percent.
International long-haul capacity grew
2.7 percent due to additional frequency to
Houston, and the commencement of new
services to Chicago and Taipei at the end
of the 2018 calendar year. Demand on
international long-haul routes increased
4.0 percent, with load factor increasing
1.1 percentage points to 84.1 percent.
International long-haul RASK increased
by 3.1 percent reflecting positive
pricing dynamics, improved demand
and strong performance on the new
routes. Excluding the impact of foreign
exchange, RASK increased 0.6 percent.
Short-haul capacity grew 6.2 percent,
driven by increased frequency to
Honolulu and Denpasar as well as
additional capacity on the Tasman
following the end of the alliance with
Virgin Australia. Increased frequency
on domestic main trunk routes such as
Auckland to Queenstown and Dunedin
also contributed to the growth. Demand
growth of 6.9 percent was slightly
ahead of capacity, with load factors
improving by 0.5 percentage points to
82.5 percent. Short-haul RASK grew
0.6 percent, or 0.1 percent excluding
the impact of foreign exchange, driven
largely by Domestic and Tasman
demand, partially offset by capacity
growth in the Pacific Islands.
Cargo revenue was $213 million, an
increase of $16 million or 8.1 percent.
Excluding the impact of foreign
exchange, cargo revenue was up
5.1 percent. This growth reflects
improved volumes of 3.8 percent and
a 1.3 percent increase in yield.
Contract services and other revenue was
$217 million, an increase of 14 percent,
due to higher third party maintenance
as well as additional ancillary revenue.
Expenses
Operating expenditure increased by
$287 million or 14 percent compared to
the prior period largely due to higher
fuel prices. Excluding the additional
$131 million related to increased fuel
prices, the impact of unfavourable
foreign exchange movements and third
party maintenance costs, operating
expenditure increased 6.4 percent on
a 4.3 percent increase in capacity.
4
AIR NEW ZEALAND GROUP
376
378
541
DEC
2015
DEC
2014
DEC
2016
479
DEC
2017
475
DEC
2018
Operating
cash flow
($ millions)
Financial Commentary
Interim
dividends
declared
(cents per share)
10.0
6.5
10.0
11.0
DEC
2018
DEC
2014
DEC
2015
DEC
2016
11.0
DEC
2017
Operating
revenue
($ billions)
2.6
2.4
2 .7
DEC
2015
DEC
2014
DEC
2016
2 .7
DEC
2017
2.9
DEC
2018
Financial Commentary

Costs per ASK (CASK) increased 9.5
percent, including fuel price increases,
foreign exchange and increased costs
related to third party maintenance
contracts. Excluding those items, CASK
grew 1.6 percent, as non-fuel price
increases and the costs associated
with providing greater operational
resilience were only marginally offset
by economies of scale and efficiencies.
Labour costs were $672 million, up
$37 million or 5.8 percent. Excluding
the impact of foreign exchange, labour
costs increased 5.7 percent. The higher
cost was driven by rate and activity
increases as well as crew inefficiencies
due to the Boeing 787-9 engine issues.
These increases were partially offset by
reduced incentive payments.
Fuel costs were $649 million, increasing
by $179 million or 38 percent. The
largest driver of this increase was
underlying fuel prices which were $146
million higher, however this was partially
offset by increased hedging benefits of
$15 million. This resulted in a net price
related increase of $131 million or 28
percent. In addition to this, a weaker
New Zealand Dollar resulted in a $40
million unfavourable movement from
foreign exchange. Volume growth
resulted in additional costs of $8 million
or 1.7 percent, reflecting capacity growth
offset by new aircraft efficiencies.
Aircraft operations, passenger services
and maintenance costs were $698
million, an increase of $83 million or
13 percent. This was driven by additional
capacity, price increases and costs
associated with providing greater
operational resilience.
In addition, higher jet fleet maintenance,
growth in the fleet and increased third
party maintenance activity drove higher
maintenance costs.
Sales and marketing and other expenses
increased by $26 million or 8.6 percent,
due to promotional activity for the
new international routes of Taipei and
Chicago, additional digital spend and
higher commission activity.
Ownership costs increased by $24 million
or 6.1 percent, reflecting an increase in
aircraft depreciation due to delivery of
new aircraft, offset by lower funding costs.
The impact of foreign exchange rate
changes on the revenue and cost
base in the period resulted in an
unfavourable foreign exchange
movement of $18 million. After taking
into account a $38 million favourable
movement in hedging, overall foreign
exchange had a net $20 million positive
impact on the Group result for the period.
Share of Earnings of Associates
Share of earnings of associates has
increased by $4 million to $19 million
for the period, reflecting further growth
in engine volumes from the Christchurch
Engine Centre.
Cash and Financial Position
Cash on hand at 31 December 2018 was
$1.2 billion, a decrease of $126 million from
30 June 2018, as strong operating cash
flow in the period was offset by investment
in aircraft and dividend payments.
Operating cash flows of $475 million
remained in-line with the prior period,
reflecting lower earnings offset by strong
working capital cash flow and the timing
of tax payments.
Net gearing, including capitalised
aircraft operating leases, increased
4.0 percentage points to 56.4 percent,
largely due to continued investment in
our fleet as we near the end of the fleet
replacement programme.
A fully imputed interim ordinary
dividend of 11.0 cents per share has
been declared, which is in-line with the
prior period and reflects the Board’s
commitment to provide a consistent and
sustainable ordinary dividend.
52019 INTERIM FINANCIAL REPORT
Dividend
Record date:
15 March
2019
Dividend
Payment date:
27 March
2019
Our first Airbus A321 NEO – ZK-NNA – is the first of 20 new Airbus NEO aircraft
(14 A321 NEOs and six A320 NEOs) to join our fleet.
The new Airbus A321 NEO has
214 seats – 46 more than our current
international A320 fleet.

December 2017 earnings before taxation
Passenger capacity
$91m
- Capacity increased by 4.3 percent from growth across the network
including increased frequency on Honolulu and Houston as well as
the launch of new routes to Chicago and Taipei, and Domestic and
Tasman growth
Passenger RASK
$29m
- Revenue per Available Seat Kilometre (RASK) improved 0.8 percent
excluding FX driven by strong demand on the Domestic routes.
Loads increased by 0.9 percentage points to 83.4 percent
- Long-haul RASK increased by 0.6 percent excluding FX and loads
increased 1.1 percentage points to 84.1 percent
- Short-haul RASK was consistent with the prior year improving by
0.1 percent excluding FX and loads improved 0.5 percentage points
Cargo revenue
$10m
- Higher cargo revenue due to increased volumes of 3.8 percent and
yields of 1.3 percent
Contract services and other revenue
$23m
- Increase in third party maintenance and ancillary revenue
Labour
-$36m
- Increased activity arising from capacity growth, general rate increases
and crew inefficiencies offset by reduced incentive payments
Fuel
-$139m
- The average fuel price increased 28 percent compared to the prior year
(net of hedging benefits) resulting in $131 million of additional costs.
Volume growth increased fuel costs by 1.7 percent due to additional
capacity offset by fleet efficiencies arising from delivery of new aircraft
Maintenance
-$27m
- Increase in jet fleet maintenance, growth in fleet and third party
maintenance work
Aircraft operations and passenger services
-$45m
- Increased activity combined with higher prices
Sales and marketing and other expenses
-$22m
- Increased marketing spend on launch of new routes, higher commission
volumes due to increased activity and greater digital investment
Depreciation, lease and funding costs
-$20m
- Increase in depreciation reflecting new aircraft deliveries offset by
lower funding costs
Net impact of foreign exchange
movements
$20m
- Favourable impact of currency movements on revenue and foreign
exchange hedging gains offset by unfavourable impact on costs
Share of earnings of associates
$4m
- Improved earnings from Christchurch Engine Centre driven by
growth in engine volumes
December 2018 earnings before taxation
*The numbers referred to in the Financial Commentary on the previous page have not isolated the impact of foreign exchange.
Change in Profitability
6
AIR NEW ZEALAND GROUP
$323m
The key changes in profitability, after isolating the impact of foreign exchange
movements, are set out in the table below
*
:
$211m

NOTES
6 MONTHS TO
31 DEC 2018
$M
6 MONTHS TO
31 DEC 2017
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
2,497
213
92
125
2,345
197
83
107
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange gains/(losses)
Other expenses
32,927
(672)
(649)
(193)
(345)
(160)
(178)
29
(150)
2,732
(635)
(470)
(159)
(312)
(144)
(167)
(9)
(135)
(2,318)(2,031)
Operating Earnings (excluding items below)
Depreciation and amortisation
Rental and lease expenses
609
(278)
(122)
701
(258)
(116)
Earnings Before Finance Costs, Associates and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)2(a)
209
22
(39)
19
327
18
(37)
15
Earnings Before Taxation
Taxation expense
211
(59)
323
(91)
Net Profit Attributable to Shareholders of Parent Company152232
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)
13.5
13.4
11.0
169
20.7
20.4
11.0
175
Statement of Financial Performance (unaudited)
For the six months to 31 December 2018
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.
72019 INTERIM FINANCIAL REPORT

NOTES

SHARE
CAPITAL
$M

HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M

GENERAL
RESERVES
$M

TOTAL
EQUITY
$M
Balance as at 1 July 2018 2,226 66 (13) (103) 2 ,176
Net profit for the period
Other comprehensive income for the period
-
-
-
(122)
-
1
152
(4)
152
(125)
Total Comprehensive Income for the Period- (122)1 148 27
Transactions with Owners:
Equity-settled share-based payments
(net of taxation)
Equity settlements of long-term
incentive obligations
Dividends on Ordinary Shares

2(d)
7

6
(14)
-

-
-
-

-
-
-

-
-
(124)

6
(14)
(124)
Total Transactions with Owners (8) - - (124) (132)
Balance as at 31 December 20182(e) 2,218 (56) (12)(79) 2,071

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
(net of taxation)
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 2,223 52 (15)(137) 2,123
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.
9
Statement of Changes in Equity (unaudited)
For the six months to 31 December 2018
2019 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 2018
$M
30 JUN 2018
$M
Current Assets
Bank and short term deposits
Trade and other receivables
Inventories
Derivative financial assets
Income taxation
Other assets
1,217
560
84
69
-
50
1,343
576
75
187
4
68
Total Current Assets1,9802,253
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Investments in other entities
Derivative financial assets
Other assets

2(a)

2(b)
66
5,242
173
131
-
276
77
5,035
170
118
2
191
Total Non-Current Assets5,8885,593
Total Assets7, 8687, 8 4 6
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Derivative financial liabilities
Provisions
Income taxation
Other liabilities

2(c)

576
1,285
374
102
140
25
211

562
1,322
431
1
117
-
263
Total Current Liabilities2 ,7132,696
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Provisions
Other liabilities
Deferred taxation
2(c)
199
2,421
158
37
269
185
2,303
151
27
308
Total Non-Current Liabilities3,0842, 9 74
Total Liabilities5,7975,670
Net Assets2,0712,176
Equity
Share capital
Reserves
2(d)
2(e)
2,218
(147)
2,226
(50)
Total Equity2,0712,176

Tony Carter, CHAIRMAN Jan Dawson, DEPUTY CHAIRMAN
For and on behalf of the Board, 28 February 2019.
10
Statement of Financial Position (unaudited)
As at 31 December 2018
AIR NEW ZEALAND GROUP

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 2018
$M
6 MONTHS TO
31 DEC 2017
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest paid
Interest received

2,951
(2,451)
(10)
(36)
21
2,660
(2,116)
(52)
(32)
19
Net Cash Flow from Operating Activities475479
Cash Flows from Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for resale
Distribution from associates
Acquisition of property, plant and equipment and intangibles
Interest-bearing asset payments
5
7
(493)
(77)
20
7
(513)
(12)
Net Cash Flow from Investing Activities(558)(498)
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
263
(14)
(218)
56
(130)
307
(17)
(175)
5
(130)
Net Cash Flow from Financing Activities(43)(10)
Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
(126)
1,343
(29)
1,369
Cash and Cash Equivalents at the End of the Period1,2171,340
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
Other non-cash items

2(a)
152
278
(19)
3
10
232
258
(15)
14
5
Net working capital movements:
Assets
Revenue in advance
Liabilities
424
32
(23)
42
494
(105)
31
59
51(15)
Net Cash Flow from Operating Activities475479
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
11
Statement of Cash Flows (unaudited)
For the six months to 31 December 2018
2019 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 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.
The financial statements should be read in conjunction with the Annual Report for the year ended 30 June 2018.
Significant accounting policies
The accounting policies and computation methods used in the preparation of the financial statements are consistent with those used as at
30 June 2018 and 31 December 2017, except as noted below. Where necessary, comparative information has been reclassified to achieve
consistency in disclosure with the current period.
NZ IFRS 15 – Revenue from Contracts with Customers, which is effective for annual reporting periods commencing on or after 1 January
2018, was adopted with effect from 1 July 2018. This standard has an objective of a single revenue recognition model that applies to
revenue from contracts with customers in all industries. The standard has been applied on a fully retrospective basis resulting in a
restatement of the 31 December 2017 and 30 June 2018 results as if NZ IFRS 15 had applied during those periods. The impact for the six
months to 31 December 2018 is set out below. There was no net impact on earnings as a result of these changes.
- The timing of recognition of the consideration for certain ancillary services has changed to align with the principal performance
obligations associated with the services provided. The related revenue has been reclassified from ‘Other revenue’ to ‘Passenger
revenue’. The amount reclassified for the six months to 31 December 2018 was $15 million (31 December 2017: $15 million).
- The cost of procuring third party products or services to fulfil Airpoints redemptions has also been reclassified from ‘Sales and
marketing’ to offset against the related redemption revenue reported within ‘Passenger revenue’, as the Group is acting as agent. In the
six months to 31 December 2018, the amount reclassified was $8 million (31 December 2017: $7 million).
- Freight interline and trucking revenue is now presented on a gross basis rather than net of related costs where the Group is acting as
a principal. ‘Cargo’ revenue and ‘Aircraft operations’ have been grossed up by $13 million (31 December 2017: $10 million).
The Group previously adopted NZ IFRS 9 (2013) – Hedge Accounting with effect from 1 July 2014. NZ IFRS 9 (2014) – Financial Instruments,
which is effective for annual reporting periods commencing on or after 1 January 2018, was adopted with effect from 1 July 2018. It includes
a framework for classification and measurement of financial instruments and a single, forward-looking impairment model. This standard had
no impact on the financial statements.
NZ IFRS 16 – Leases becomes effective for annual reporting periods commencing on or after 1 January 2019 and has not yet been adopted.
This standard will significantly change the accounting treatment of leases by lessees. The current dual accounting model for lessees which
distinguishes between on balance sheet finance leases and off balance sheet operating leases, will no longer apply. Instead, there will be
a single, on balance sheet accounting model for all leases which is similar to current finance lease accounting. Lessor accounting remains
similar to current practice.
This standard will have a significant impact on the financial statements, for which the key changes are set out below:
- recognition of a right-of-use asset and lease liability for operating leases on the Statement of Financial Position;
- recognition of depreciation and interest expense instead of operating lease rental expense in the Statement of Financial Performance;
- classification of the principal portion of lease payments as ‘Financing activities’ within the Statement of Cash Flows with the interest
portion continuing to be presented within ‘Operating activities’; and
- additional foreign exchange exposure in respect of the retranslation of the additional United States Dollar (USD) denominated aircraft
operating lease liabilities recognised in the Statement of Financial Position.
In accordance with the transition provisions of NZ IFRS 16, comparatives will not be restated, with the cumulative effect being recognised
in opening retained earnings at the date of initial application of 1 July 2019. Right-of-use assets will be measured at 1 July 2019 at an
amount equal to the lease liability. Lease payments in respect of leases for which the lease term ends within 12 months of the date of initial
application, will be recognised as an expense over the lease term.
The implementation project for NZ IFRS 16 is well advanced. The impact of the changes on the financial statements is not yet able to be
reliably quantified due to variables such as foreign exchange and interest rates, which will not be known until 1 July 2019 and decision
points within lease portfolios which will be resolved over the period leading up to adoption. Changes in assumptions to any one of these
variables could be significant.
12
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2018
AIR NEW ZEALAND GROUP

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 $19 million (31 December 2017: $15 million).
Interest-bearing assets
(b) Non-current “Other assets” include interest-bearing assets of $258 million (30 June 2018: $182 million). Interest-bearing assets are
measured at amortised cost, using the effective interest method, less any impairment. The fair value of interest-bearing assets as at
31 December 2018 was $236 million (30 June 2018: $182 million) and are subject to fixed and floating interest rates. Fixed interest rates
in the six months to 31 December 2018 were 3.1%.
Interest-bearing liabilities
(c) Interest-bearing liabilities of $2,795 million (30 June 2018: $2,734 million) are recognised initially at fair value and subsequently measured
at amortised cost. The fair value of interest-bearing liabilities as at 31 December 2018 is $2,831 million (30 June 2018: $2,709 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 2018 (six months to 31 December 2017: 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 3.1% in the six
months to 31 December 2018 (six months to 31 December 2017: 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 2018 the Group funded the purchase on-market of 4,463,819 shares for $14 million
(31 December 2017: 4,932,709 shares for $17 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 2018, $32 million of losses (30 June 2018: $70 million of gains) were held in the cash flow hedge reserve and
$24 million of losses (30 June 2018: $4 million of losses) were held in the costs of hedging reserve. These reserves are combined within
the Statement of Changes 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.
Geographical
An analysis of revenue by geographical region of original sale is provided below.

6 MONTHS TO
31 DEC 2018
$M
6 MONTHS TO
31 DEC 2017
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
United Kingdom and Europe
Asia
America
1,787
364
136
251
389
1,675
353
131
232
341
Total Operating Revenue2,9272,732
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.
13
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2018
2019 INTERIM FINANCIAL REPORT

4. Capital Commitments

31 DEC 2018
$M
30 JUN 2018
$M
Aircraft and engines
Other assets
1,214
29
1,526
4
1,2431,530
Commitments as at reporting date include ten Airbus A321 NEOs and four Airbus A320 NEOs (delivery from 2019 to 2024 financial years)
and eight ATR72-600s (delivery from 2019 to 2021 financial years).
5. Operating Lease Commitments

31 DEC 2018
$M
30 JUN 2018
$M
Aircraft Leases Payable*
Not later than 1 year**
Later than 1 year and not later than 5 years
Later than 5 years
205
456
189
194
489
224
850907
Property Leases Payable
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
49
143
91
50
144
100
283294
*Includes lease commitments for three 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 2020 financial year.
**Aircraft leases payable less than 1 year includes $11 million of commitments for short-term leases which provide cover for Boeing 787-9
engine issues (30 June 2018: $18 million).
Subject to negotiation, certain aircraft operating leases give the Group the right to renew the lease.
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.
Outstanding letters of credit and performance bonds total $33 million (30 June 2018: $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 $187 million (30 June 2018: $158 million).
7. Dividends
On 28 February 2019, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on 27 March 2019
to registered shareholders at 15 March 2019. 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 2018 interim
financial statements.
A interim dividend in respect of the 2018 financial year of 11.0 cents per Ordinary Share was paid on 16 March 2018. Imputation credits were
attached and supplementary dividends paid to non-resident shareholders.
A final dividend in respect of the 2018 financial year of 11.0 cents per Ordinary Share was paid on 19 September 2018 (2017 financial year:
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.
14
Condensed Notes to the Financial Statements (unaudited)
As at 31 December 2018
AIR NEW ZEALAND GROUP

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 2018, 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 statement 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 2018 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
28 February 2019
Auckland, New Zealand
15
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 Centre
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 –
ATW Eco Airline of the Year
Air New Zealand has been crowned ATW Eco Airline of the Year
for 2019 and winner of the Passenger Experience Achievement award
in recognition of our innovative Economy Skycouch
™
at the recent
Air Transport World Airline Industry Awards.
airnewzealand.co.nz

---

Name of Listed Issuer:
Reporting Period6 months to 31 December 2018
Previous Reporting Period6 months to 31 December 2017
Amount $NZ'mPercentage change
Revenue from ordinary activities (including finance income)2,949 7.2%
Profit from ordinary activities after tax attributable to security holders152 (34.5)%
Net profit attributable to security holders152 (34.5)%
Dividend
(NZ cents)
Interim dividend*
11.04.28
Details of interim dividend
Record Date for Interim Dividend
15-Mar-19
Payment Date for Interim Dividend
27-Mar-19
* Interim dividend was declared on 28 February 2019.
Results for announcement to the market
Amount per security Imputed amount per
security
AIR NEW ZEALAND LIMITE
D

Air New Zealand Limited
Preliminary Half Year Results
28 February 2019
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 2018 (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 2018 financial year on Ordinary Shares12411.0
Distributions paid
Final dividend for 2018 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 Shares169175
The dividend reinvestment plan is currently suspended.
This report is for the half year ended 31 December 2018 and should be read in conjunction with the most recent annual
financial report. Comparatives are in respect of the half year ended 31 December 2017.
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.
*The difference between distributions recognised and paid relates to supplementary dividends.
On 28 February 2019, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on
27 March 2019 to registered shareholders at 15 March 2019. 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 2018 interim financial statements.
A interim dividend in respect of the 2018 financial year of 11.0 cents per Ordinary Share was paid on 16 March 2018.
Imputation credits were attached and supplementary dividends paid to non-resident shareholders.
A final dividend in respect of the 2018 financial year of 11.0 cents per Ordinary Share was paid on 19 September 2018
(2017 financial year: 11.0 cents per Ordinary Share was paid on 18 September 2017). Imputation credits were attached and
supplementary dividends paid to non-resident shareholders.
Page 1
Air New Zealand Limited
NZX Preliminary Interim Report

PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2018 (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
Nil
(h) Details of associates and joint ventures:
Parts (i) to (iii)
Name
$NZ'm$NZ'm
Associate
Christchurch Engine Centre (CEC)*49%49%
19 15
Joint Venture
ANZGT Field Services LLC51%51%- -
*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 28 February 2019.
Tony Carter
Chairman
Refer to Note 1 of the Interim Financial Statements.
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
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 RightsSecurity Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
15 March 201927 March 2019
N/AN/A
N/A$0.007639$0.042778
NZ Dollars$0.019412
$123.5 million
Date Payable
27 March 2019
Enter N/A if not
applicable
NZAIRE0001S2
In dollars and cents
$0.110
64 21 046 846964 9 336 266728022019
Ordinary Shares
EMAIL: announce@nzx.com
Notice of event affecting securities
Air New Zealand Limited
Karen ClaytonDirectors' Resolution

=== AIR IR PAGE TRANSCRIPT: 2019 Business Review Update Transcript ===

Air NZ Business Review Update
28 March 2019

Page 1 of 18
Start of Transcript
Operator: Welcome to the Air New Zealand 2019 Business Review Update Call. During the
presentation your phone lines will be placed on a listen only mode until the question and
answer session. If you wish to ask a question please refrain from asking until that time.
With that, I will turn the call over to Air New Zealand's Head of Investor Relations, Leila
Peters. Please go ahead.
Leila Peters: Good afternoon everyone and thank you very much for joining us today at
short notice. Today's call is being recorded and will be accessible for future playbacks on
our investor centre website which you can find at
www.airnewzealand.co.nz/investorcentre. On the website you can also find a copy of the
investor presentation that we will be referencing today.
Speaking on the call 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.
Christopher and Jeff will provide a brief update on the business review that was discussed
at the interim results in February. Those of you on the call will then have the opportunity
to ask any questions you may have. I will now turn the call over to Christopher.
Christopher Luxon: Well thank you Leila, kia ora and good afternoon everyone and I want
to say also thanks for joining us on today's call. As Leila mentioned, the purpose of the
call is really to provide you with an update on the outcome of the business review that Air
New Zealand has undertaken.
Just to recap, in late January this year we communicated to the market that we were
observing a slowdown in the rate of demand growth as we looked at our revenue
performance for December as well as our forward booking outlook for the remainder of the
financial year. We reiterated that view as we announced our interim results in February
with a further months’ worth of data supporting the slowdown that we had identified
earlier in the year.
As I mentioned back then we were seeing a slowdown primarily in the domestic leisure
customer segment and to a lesser extent in the inbound tourism growth into New Zealand.
That slowdown prompted us to notify the market of a revised guidance outlook on 30

Air NZ Business Review Update
28 March 2019

Page 2 of 18
January and at that time we also communicated that a comprehensive business review of
our network, our fleet and our costs base was underway.
Now the purpose of the review has been to determine what action and adjustments are
needed to ensure that Air New Zealand maintains its financial resilience and positions itself
for a return to earnings growth in this much lower demand growth environment.
I have to say our confidence in Air New Zealand's long-term strategy, customer proposition
and financial performance remains very strong. The steps we're announcing today are
really focused on realigning our business to ensure we maintain a strong foundation for
future earnings growth. We will be adjusting the pace of our capacity growth plan to
optimise out network, securing aircraft delivery and related capital expenditures and
driving sustainable efficiencies through our costs base to better reflect the slower demand
growth that we see in the market.
At the same time we remain very committed to improving the customer travel experience
and we will be investing in some exciting innovations across our product offering over the
next few years. That's important because that helps support our revenue premium.
I'll start off I guess by discussing the adjustments we are making to our network growth
assumptions over the medium term. Firstly, let me say, we expect that our rate of
network growth will moderate from previous forecasts to about 3% to 5% on average over
the next three years. While that level of growth is still actually quite good it is a bit slower
than previous estimates obviously at 5% to 7% and reflects the slower rate of demand
growth that we are seeing.
We still however see good opportunity to grow revenue and profitability by tapping into
new markets and creating new demand even in the slower demand growth environment.
One such market is Seoul where we've actually commenced direct services of up to five
times per week in the peak from Auckland beginning in late November this year.
Inbound leisure demand from South Korea is very strong. It is New Zealand's third largest
Asian market with close to 90,000 visitors from the country arriving in New Zealand in
2018. At the same time we also have 40,000 Koreans based in New Zealand who travel
there to visit friends and family.
It is a market that we are fairly familiar with. We have previously operated in the region
and we still actually maintain a sales presence in country. It really is our intention to
further stimulate this inbound growth while also growing demand for outbound travel from

Air NZ Business Review Update
28 March 2019

Page 3 of 18
New Zealand to South Korea.
As a result of entering Seoul and also the annualization impact of a Chicago to Taipei route
launched this year, as well as the additional frequency on those sectors that we have
announced today, our initial estimate of capacity growth for the next financial year will
likely be closer to 5% than 3%. The growth rate for the following two years is likely to be
lower than that.
For our existing route network we are focused on lifting the performance of some routes
that we feel are not meeting their full potential while also refocusing our assets on those
routes which are performing ahead of our expectations. Our number one priority is to
optimise our network mix to maximise profitable revenue growth. To be very clear, all of
our routes, as I've spoken about before, are profitable, however we feel that the relative
performance of some routes can be improved with increased focus on market
development.
There are also some markets we will be looking to lift demand into New Zealand and as an
example of this we will be increasing frequency into Taipei and Chicago. Both of these
routes have been performing ahead of their business case and we will be increasing
frequency, up to five services per week from December this year.
Other routes may see some schedule adjustments to ensure we are optimising our
aircrafts as efficiency as possible and a good example of that is our Auckland to Hong Kong
service which is currently an overnight flight and to increase utilisation of our widebody
aircraft we will be looking to retime that service to a daytime flight from October 2019.
That will effectively free up one aircraft for additional flying by reducing the amount of
time the aircraft spends on the ground in Hong Kong. Jeff will get into the details of our
fleet plans very shortly.
Then when it comes to our existing markets to better balance the level of total capacity we
will be moderating the level of growth for our existing routes with the focus there on RASK
strength in a more constrained capacity environment. The combination of growth from
new markets and RASK improvement on our existing network will help drive and improve
revenue outlook. Of course our fleet plan is linked to our networks and as a result of
revised expectations to our capacity growth over the next few years we have adjusted our
fleet plans.
With that in mind I will now pass you over to Jeff to discuss some of the details around the
fleet plan.

Air NZ Business Review Update
28 March 2019

Page 4 of 18
Jeff McDowall: Thanks very much Christopher and kia ora to everyone on the call. As
Christopher mentioned, to better align with our current growth expectations we have made
adjustments throughout the network that will allow for better utilisation of our fleet. We
have also moderated growth in the areas where we feel that makes sense. As a
consequence of these actions we have deferred the delivery dates of some of our narrow
body aircraft that are currently on order and we will also defer the delivery of some
widebody aircraft that will form part of the 777-200 fleet replacement program.
As illustrated on the slide in total we will be deferring the delivery of six aircrafts over a
number of years representing a total deferral on CapEx of approximately $750 million.
This in effect increases capital efficiency and resets our fleet plan to better match capacity
expectations in light of the lower demand growth environment.
Domestically the three A321 NEO aircraft, new aircraft, originally intended for delivery next
year will now be received a year later towards the end of our 2021 financial year. This will
allow our domestic jet fleet plan to better match the lower rate of demand that we are
seeing in that market. With that deferral we would expect the domestic network capacity
to grown on average in the low single digit range over the next few years.
We have also deferred one of our A320 NEO aircraft for the Trans-Tasman and Pacific
Islands markets by approximately two years to better reflect anticipated capacity growth in
these markets. As we come off the back of two years with a very significant additional
capacity in both of these regions.
Then as we get into the widebody fleet, some of the network changes that Christopher ha s
just referred to, such as the retiming of our Hong Kong flights and the lower level of
expected growth, will enable us to effectively free up aircraft over the next few years. As
a consequence of that we will require fewer replacement aircraft for the 777-200 in our
2023 financial year when we originally anticipated.
Just to avoid confusion, I can confirm that we haven't yet selected the replacement aircraft
or engine at this time. That decision is expected in the next few months. However, based
on the slower demand growth so far we are expecting in our network we are comfortable
that the total number of aircrafts required in the 2023 financial year will be less than we
originally planned.
Essentially, we will be taking two of the planned deliveries out of financial year 2023 and
moving them to the end of the program in financial year 2027 and 2028. As a result of
that shift we would expect a significant portion of CapEx in the 2020 to 2023 financial

Air NZ Business Review Update
28 March 2019

Page 5 of 18
years, including the pre-delivery payment for widebody replacement will be shifted off to
the right.
As a result of these deferrals we have illustrated the changes to our committed CapEx
through the 2023 financial year on slide 7. The smoother CapEx profile that you see in the
revised chart on the right-hand side of that slide reflects the committed CapEx for the
deferral of the four NEO aircrafts that I discussed on the previous slide. This CapEx chart
does not include any pre-delivery payments that we would expect to incur once we select
the widebody replacements for the 777-200 aircraft later this year and this only shows
committed CapEx. However, given the deferral of the first units of that program that level
of pre-delivery payments will be lower than our previous expectations.
Moving now onto costs. As I talked about in our interim results call in February our non-
fuel cost performance in the first half of the year was adversely impacted by inefficiencies
around the network schedule, as well as timing related to the setup of new routes and
getting the NEO aircraft into service. We are dissatisfied with this performance and
recognise that while some of the additional costs are temporary, given the disruptions
associated with the Rolls Royce engine issue, other parts of our costs base need to be
reconsidered given the slower pace of capacity growth we are now expecting over the
medium term.
With that we are implementing a two-year cost reduction program that will leverage the
good work our teams continue to perform with regard to the daily culture of cost savings
and efficiency and will also drive more than $60 million in additional annualised cost
savings across a number of areas.
That program will be formed around three key pillars. Firstly, we are looking to remove
the inefficiencies that were incurred this financial year to mitigate the network disruptions
resulting from the Rolls Royce engine issue. As we mentioned on the interim results call
there has been a significant amount of indirect costs spread through our costs base
associated with things like making changes to aircraft type late in the planning cycle which
is really inefficient from a costs perspective. We are actively holding additional staff to
make our schedule more resilient. We expect inefficiencies like this to be largely removed
from our cost base by the first quarter of financial year 2020.
Secondly, we will target a sustainable reduction in overhead costs of approximately 5%
which will be achieved through a range of initiatives. To give you some examples, we are
looking at reprioritisation of spend, process efficiencies to drive further improvements and

Air NZ Business Review Update
28 March 2019

Page 6 of 18
utilisation of automation to improve productivity in some areas, just to name a few.
Thirdly, we will be undertaking a targeted review of the operation costs base to ensure the
airline is set up for success in the lower growth environment. This will involve some supply
chain consolidation as well as improved labour utilisation and optimisation of our facilities.
All together we feel that these actions will right size our costs base to the appropriate level
given the rate of growth we expect over the medium term.
With that I will hand it back over to Christopher.
Christopher Luxon: Well thanks Jeff and I am going to comment very briefly on our
continued commitment to ensuring that our customers have the best travel experience
possible today and into the future. Over the coming weeks and months we will actually be
announcing a series of new developments with our in the air product offering across the
widebody fleet. I don't really want to go into too much detail around that today but we are
very excited about these investments which do go hand and hand with our continued
efforts to enhance the airport and inside the lounge experience for our customers.
Fundamentally we recognise that our customers are crucial to our success. In a world of
rapidly changing expectations we need to constantly keep stepping up our game in
delivering an exceptional travel experience and that is why we want to be really clear with
you today that the business review and the resulting actions and outcomes will not have
any implications on the customer travel experience. We remain really committed to
investing in our product and our brands, whether that be in terms of our superior customer
service and I think our incredible people, our fleet proposition and our ability to keep
customers connected throughout their journey.
Now all of the initiatives that we have spoken about resulting from the business review will
commence immediately. However, we do not expect there to be a material financial
impact in the current financial year, rather these actions will set the airline up well for
earnings growth in the coming years.
For the 2019 financial year our outlook remains unchanged from what we announced at
our interim results at the end of February and that is that we expect earnings before
taxation to be in the range of $340 million to $400 million. That assumes an average jet
fuel price of $75 per barrel. Just as a reminder, our interim results material covered a
good breakdown of how changes in the fuel price might impact our fuel cost given our
hedging portfolio and we do recommend that you refer back to that material if you need
further information about it.

Air NZ Business Review Update
28 March 2019

Page 7 of 18
Putting it all together, many of you will be familiar with the image I've got on this slide
which is what I like to call the virtuous circle. This is something that we talk a lot about
internally, particularly as we travel all around the business and discuss our performance
and strategy with the many different teams that work at Air New Zealand.
We spend a lot of time ensuring that everyone here is really aligned on how we can
continue to ensure a sustainable business commercially for today and for the long term.
We need to ensure fundamentally that we have a really positively charged model of
profitable and disciplined growth, as well a reasonable and sustainable costs control. That
of course enables strong profits which also drives sustainable shareholder returns to many
of you as investors.
However, we are not only focused on shareholder returns, but also on reinvesting those
funds back into the business to ensure that we can propel that flywheel further with more
growth, a strong culture and a superior customer experience.
I guess in summary and just in wrapping up, I hope you feel as I do that this I think has
been a very intelligent and a very smart response to a lower growth environment that
we're now facing. There's four key actions. We've optimised our network firstly to
maximise our profitable revenue.
We have deferred $750 million worth of CapEx to match the growth that we're seeing and
also to protect our cash flow and our dividends.
Thirdly we've got a good cost focus and a smart one I think to ensure that we're right sized
for the new lower growth revenue environment. Importantly we're continuing the
investment in the customer experience to fundamentally support the revenue premium
that we enjoy.
So I just want to say thank you for listening. We know you'll have some questions. So
operator please feel free to open up the lines.
Operator: Thank you. If you wish to ask a question please press star one on your
telephone and wait for your name to be announced. If you wish to cancel your request
please press star two. If you are on a speaker phone please pick up the handset to ask
your question. Your first question comes from Andy Bowley from Forsyth Barr. Please go
ahead.
Andy Bowley: (Forsyth Barr, Analyst) Thanks operator. Good afternoon Christopher and
Jeff. I've got a couple of questions here particularly around the growth backdrop and

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outlook. The first question is around the demand outlook from today. It doesn't look as
bad as perhaps we all feared back in late January when you came out with the warning. I
say that on two counts; one that the January and February operating stats look pretty
good. I'm estimating revenue growth at 7% or thereabouts in both months.
Secondly the capacity growth outlook for next year, i.e., fiscal 2020 you're suggesting now
it's closer to 5% within that range. Now that tells me that demand doesn't look that bad
from where we stand today. So can you talk about where you are now from a forward-look
point of view and how that may differ in terms of your broader view on demand from late
January?
Christopher Luxon: Hi Andy. How are you? Good to hear from you. Look I think the reality
for us since we revised our forecast I think we feel very much that our revenue and
forward bookings have been tracking pretty much in line with that. We've had a bit of a
different March naturally in regard to the tragic event in Christchurch. We estimate that
that will have an impact to us of around about $5 million in March.
Of course the thing that we're watching there and monitoring quite closely is what does
inbound tourism demand from Asia look like in particular to New Zealand. I have to say
that this point - appreciate it might still be early days - but from what we've seen from
past events that they're largely tracking as normal for us. We've actually had very little
impact and visibility to any slow-down from those markets. So long may that continue.
Then obviously two or three weeks ago we launched our new domestic fare restructure.
What I'd say is that's doing what it's intended to do which is really to stimulate the regions
and particularly those domestic leisure travellers that are much more price sensitive. So
it's still early days but we're really encouraged by how that's gone on.
So yes, I hear what you're saying. I think yes for us we just think that as we look forward
it's very much in line with our expectations.
Jeff McDowall: Andy it’s Jeff here, I totally agree with Christopher. The only thing I'd add
when you were talking about the outlook going a bit further out and looking like 5% for
next year. What you're seeing there is something of a shift in impetus from us to focusing
on new markets for growth while moderating capacity in our existing markets.
So the bulk of the growth that you see next year will be coming from things like Korea that
was announced today, from additional frequency on Chicago and Taipei where although
those are existing routes we can see the potential to unlock a lot of new demand by

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increasing the frequency of the Christchurch Singapore routes.
Even in domestic although it's a mature market we are seeing pockets of new demand that
we can tap into. A great example of that is the flights that we're about to operate from
Invercargill to Auckland. So when we look at domestic growth it's going to be quite stable
on existing markets. But it's routes like Invercargill – Auckland, Dunedin-Auckland actually
which we grew quite a bit last year will carry on.
So the impetus we've seen is quite a considerably moderated growth rate on core markets
but in that lower environment getting revenue growth through new markets and new
demand.
Andy Bowley: (Forsyth Barr, Analyst) I'm kind of reluctant to draw you into the monthly
stats. But if I think about them, you know March being a challenged month, April should be
a bit better I'd imagine in light of the fact that you've got a combination of school holidays
and Easter and Anzac Day all within a couple of weeks. Are we expecting the April through
June period at a step down from what we've seen thus far in the second half?
Jeff McDowall: Yes, so March and April will be choppy as you point out. Tasman Pacific
Islands market for example will perform very strongly in April with having that week of
Anzac Day and Easter Monday in the same week. Conversely domestic will be much more
leisure oriented in that week. So [unclear] lower. You’ve effectively got lots of moving
parts. So it will be hard to draw a trend as you go through January, February, March, April.
Even January, February is a bit different because Chinese New Year was earlier this year.
So you'll get a clearer idea as you get to May and June. I guess the only - I can't get into
specific details but what I would say just to reinforce what Christopher said is the forecast
that we provided was the basis for our earnings outlook in January. If we were to do it
today our view on revenue would be almost exactly the same as it was back then.
Andy Bowley: (Forsyth Barr, Analyst) Okay, fair enough, thank you. So then - lastly from
me - in terms of the capacity growth outlook from next year, 3% to 5%, I recognise you
referenced particularly in fiscal 2020 that we will see some new routes come through or
expansion of those new routes come through. What kind of capacity expansion can we see
in domestic and short haul?
Jeff McDowall: For domestic it will be lower - low single digits. I guess what I was alluding
to earlier, that will be lower even than that on the core markets. It will be things like
Auckland Invercargill, the full year effect of growing Auckland Dunedin, some high growth

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markets like Tauranga which is doing really well from Auckland down into Wellington.
It’ll be those things, the underlying growth will be very low - not negative. It will be
growing a little bit but it will be very low.
Again the trans-Tasman the things that you will still see there is the induction of the A321.
So there will be two things really driving Tasman growth. It will be the A321s and there
will be the full year effect of a couple of sectors that we started to operate following the
termination of the Virgin alliance being Wellington Brisbane and Brisbane Queenstown. But
other than that the core future will be quite stable.
Andy Bowley: (Forsyth Barr, Analyst) Okay, that's great. Thanks guys.
Operator: Thank you. Your next question comes from Andrew Steele from First NZ Capital.
Please go ahead.
Andrew Steele: (First NZ Capital, Analyst) Good afternoon. The first one from me is on the
cost out program. I was wondering if you could just call out how much of it relates - of the
$60 million relates - to the Rolls Royce inefficiencies.
Jeff McDowall: Yes, Jeff, that $60 million can be spread roughly evenly across the three
buckets that we indicated, so a third, third and a third.
Andrew Steele: (First NZ Capital, Analyst) Okay, then just in - how should we think about
the phasing of the profile. You've highlighted that the Rolls Royce should be very much in
the - FY20 year. How do we think about the balance of that $60 million being phased over
FY20 and FY21?
Jeff McDowall: Yes, that's right. We're taking steps now to get the Rolls Royce inefficiency
costs out of the business. So the goal is that once we get to the next financial year we're
kind of hitting it at a full run rate. For the other two buckets, that's broadly evenly
distributed between the two years.
Andrew Steele: (First NZ Capital, Analyst) Okay, that's great. Just on the aircraft deferrals,
I would have thought that this will trigger some level of cost escalation or price escalation
in the contracts with the suppliers. Is this correct? Could you give us some sort of
indication as to the potential quantum of this in maybe percentage terms and any potential
offsets?
Jeff McDowall: So you're right. There is an escalation component to aircraft purchase
deals. But essentially the escalation is a CPI inflation adjustment. Although the cost will

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escalate in real terms the costs are very, very - the escalation in real terms is very, very
small.
Andrew Steele: (First NZ Capital, Analyst) That makes sense.
Christopher Luxon: Much less than you'd think Andrew.
Andrew Steele: (First NZ Capital, Analyst) Okay, thanks for that. Just one final one from
me. You called out whilst all the routes are profitable there are some that I guess in a
relative sense require increased market development. Could you just highlight a couple of
these routes which you are looking to invest more from a market development perspective
and in particular what new actions you're taking to stimulate demand which you weren't
previously in these markets?
Christopher Luxon: Yes, I won't go into specific routes for obvious reasons. But suffice to
say we've got a pretty developed market development playbook where we actually go back
talking about the product, the price, the place, the kind of distribution we want to go
through, the key messages that we're pushing. Clearly on the back of Christchurch we're
working very, very closely with Tourism New Zealand to keep building destination
attractiveness for New Zealand in general. But we will keep going through.
For example as we go into a market like Chicago we've got a lot of Americans there and
the key barrier that we've got to communicate is firstly that we're in the market, secondly
tell them about New Zealand. It might sound like it's a really basic thing but actually a lot
of people don't know where we are in the world. Just doing some education on what's
actually here.
Then overcoming the biggest barrier they have as a potential visitor to New Zealand which
is the perception that it's 41 hours away. So it's that sort of very technical marketing that
is really around dealing with the triggers and the barriers that have got a potential
traveller making New Zealand their next trip rather than putting it on their bucket list of
one of four or five places to go to.
So just to give you a feel for it. Even yesterday we had a joint board meeting with Tourism
New Zealand and Air New Zealand. It's something that we do on a very regular basis just
to make sure that all of our promotional money offshore coupled with theirs is very much
joined up, working in synergy, in joint venture, really promoting New Zealand and our
placement. So I know that's not specifics but I hope it gives you a bit of a flavour of it.
Andrew Steele: (First NZ Capital, Analyst) That’s great. That's all from me. Thank you very

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much.
Christopher Luxon: Thanks Andrew.
Operator: Thank you. Your next question comes from Wade Gardiner from Craigs
Investment Partners. Please go ahead.
Wade Gardiner: (Craigs Investment Partners, Analyst) Hi guys. Just a couple of questions
from me. First of all can you just confirm with the 777-200 replacement program, so the
timing of the exit of the 777-200s is not being pushed out any further. So we're still
looking at around FY23 there. You've deferred two aircraft you say from, say FY22, FY23
into more like FY27, FY28. But will we - how big was that replacement program anyway? I
mean if it was more than two aircraft are we still going to get some in around FY24, FY25?
That's the first question. I'll come to the others in a second.
Jeff McDowell: So there's eight aircraft in the 777-200 fleet at the moment. So the plan
was to replace them one for one with the exit dates of the old aircraft coinciding with the
entry dates of new ones. With the changes we're making to our network we don’t have to
have such a tight correlation between the exit and entry date.
So there will be periods where the fleet count goes down slightly as the 777-200s go out a
little earlier than - at least on the first replacements. The order size likely to be similar,
likely to still be eight aircraft but the timing a little different.
Wade Gardiner: (Craigs Investment Partners, Analyst) Okay. You mentioned the economy
product, more spacious on the long haul. Is there any impact there in terms of capacity or
is that just - are we talking seat design rather than number of seats?
Christopher Luxon: Well, we will talk a little bit more about that in coming months. But in
essence, Wade, where that’s coming from is a recognition that we are after premium
travellers and visitors in all three cabins, ultimately. When we talk to our customers, we a
recognising that an economy product with enhanced space and leg room is something that
would be desired by quite a few of our customers. That’s the sort of product that we’re
starting to think about and put together now. What I’d say is, as of yet, unsure of the
direct capacity seat implications of that but not likely to be huge.
Wade Gardiner: (Craigs Investment Partners, Analyst) In - just in terms the of roll-out of
the new Business Premier product, starting from the end of calendar 2019, how long will
that go for? What should we assume in terms of the CapEx on that?

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Christopher Luxon: Yes, so, really again, that’s coming out of the Hangar 22 exercise and
that’s taking the existing seat and reinventing it so that we can create more storage and
more space. It kicks off at the end of this year and will be completed by December 2020.
Over the course of the year, we should be able to roll that across our fleet.
Wade Gardiner: (Craigs Investment Partners, Analyst) And CapEx up?
Christopher Luxon: Yes...
Leila Peters: It’s quite nominal.
Christopher Luxon: It’s quite small, quite nominal and nothing that you should be
concerned about.
Leila Peters: Sorry Wade, just to be clear, this is a bit separate from the overarching
Hangar 22 new Business Class seat of the future works that we are still currently working
towards. This is a tweak of enhancement in the current Business Class seat that you see in
all of our widebody fleet. I just don’t want you to confuse...
Wade Gardiner: (Craigs Investment Partners, Analyst) Oh, okay. So, this isn’t the - oh,
okay, right.
[Over speaking]
Christopher Luxon: [Unclear] from today till 2022, end of 2023 when the new aircraft start
flooding through, we want to make sure that we have a contemporary product that
actually supports the revenue premium.
Wade Gardiner: (Craigs Investment Partners, Analyst) Right and then from about ’23
onwards, when we start getting in new aircraft, we might have a whole new product all
together?
[Over speaking]
Christopher Luxon: ... brand new introduction of everything which we’ll then roll-out
everywhere again.
Wade Gardiner: (Craigs Investment Partners, Analyst) Okay.
Operator: Thank you. Your next question comes from Owen Birrell from Goldman Sachs.
Please go ahead.
Owen Birrell: (Goldman Sachs, Analyst) Hi guys, I just wanted to drill down into the cost
base savings a little bit further. In addition to the $50 million of savings that you’re

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targeting every year anyway, you’re targeting another $60 million so we’re talking about
$110 million over all in terms of cost savings that you should expect for the next however
many years. Is that correct?
Christopher Luxon: Sort of. So, it’s $50 million every year, which will be - which potentially
is initiated around offsetting the costs of inflation and so it will be $50 million in 2020 and
then in 2021 and ’22 and then so on. The $60 million that we’ve talked about, that’s more
of a one-off kind of structurally lowering of the cost base and we’re expecting that to take
two years to be fully identified and implemented. It sort of supplements, if you like, the
$50 million that occurs every year.
Owen Birrell: (Goldman Sachs, Analyst) Okay, so, yes, an annualised $50 million over the
next two years. You talked about here the removal of the inefficiency incurred with the
Rolls-Royce engine issues, is that different to the $30 million to $40 million that you’ve
previously guided to in terms of additional costs? Is that in addition to that cost coming
out?
Jeff McDowall: Yes, the - so, the $30 million to $40 million we guided to was the costs we
could directly identify at the time and would be able to then track which included things
like the costs of additional lease aircrafts at the time, the cost of sub-optimal aircraft
appointments around the network as we had 787s unavailable and had some leased
aircrafts in there. We have sort of mitigated that quite a bit and that’s the reason why
we’re no longer calling it out in our guidance. Although - because of the confidentiality of
the arrangements we have with Rolls, we’re not being precise about the extent to which
we’ve mitigated it, but it’s around half of that $30 million to $40 million.
So, that’s a direct - but the amount that we’re talking about at the moment being a third
of that $50 million series of cost initiatives is in addition to that.
Owen Birrell: (Goldman Sachs, Analyst) Okay. Can I ask with the overhead cost reduction
of around about that 5%, so essentially, you’re talking to a $20 million saving. Are you
able to tell us which, I guess, categories that’s coming out of in terms of that cost - those
cost buckets?
Christopher Luxon: It - well it’s across our support functions and although there’s more
work to do, specifically where the costs will be and what the line items will be, the biggest
proportion of it, I would think, would be in the labour lines in our support functions.
Jeff McDowell: It’ll be in the labour lines, be some [end] package of services, some other

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aircraft operations et cetera. But yes, that’s what I think will be as well.
Owen Birrell: (Goldman Sachs, Analyst) Okay. In the end slide there you’ve talked about a
bit more automation, have you got a sense of what the CapEx associated with that will be?
Christopher Luxon: No, short answer. We have a team working with us at the moment,
actually, to start doing some prototypes and start implementing automation in some
specific processes. But equally importantly, develop an internal team that have the
capability to then carry that forward. So, the CapEx proportion of that is quite low.
Owen Birrell: (Goldman Sachs, Analyst) Just finally, talking about that last category, that
targeted review of the operations cost base. Is that essentially just the ongoing savings
initiatives that you’re targeting each year that’s bringing a large number of those forward?
Christopher Luxon: No, it’s in addition to those. It’s a more specific thing that we’re
targeting around rationalisations, around labour utilisation around the use of facilities. So,
that’s on top of the kind of normal cost efficiencies.
Owen Birrell: (Goldman Sachs, Analyst) That’s great. That’s all the questions from me.
Thank you.
Christopher Luxon: Thanks Owen.
Operator: Thank you. Your next question comes from Marcus Curley from UBS Investment
Bank. Please go ahead.
Marcus Curley: (UBS Investment Bank, Analyst) Good afternoon team. Just a few from me.
Just starting with Korea. Is there any ideas around partnerships or - yes, with this route,
are you planning on going it alone?
Christopher Luxon: Yes, so, I mean, to be honest, Marcus, Korea we actually are really
excited about because, as I said, there’s 90,000 inbound tourists, there’s 40,000 here on
the ground. To give you a feel for it, about 80% inbound and predominantly about 48%
comes on direct competitive services today and 52% of that traffic comes through other
ports. So, there’s a really big opportunity for more capacity in that market from a market
[distributing] point of view. We have initiated conversations with our Star Alliance friend
Asiana. We’ve already met with them, obviously, and we’ll announce more about that in
due course. But yes, that is part of our thinking of our thinking at this point.
Marcus Curley: (UBS Investment Bank, Analyst) You mentioned five services in the peak
season, likely to be less than the off season?

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Christopher Luxon: Yes, we’re going to kick-off with three. We move to five in peak and
then I think we’ll either look at either coming back to four or three at that point.
Marcus Curley: (UBS Investment Bank, Analyst) Okay. Secondly, and I'm just putting two
things together here, but on the aircraft engine issue, am I right in sort of suggesting to
you that you’ve sort of got circa $20 million of directs costs still to come out next year and
now you’re adding another circa $20 million of indirect costs? So, on a sequential basis,
will this result in a $40 million improvement in costs for you once the engine issue is fixed?
Jeff McDowall: Well, it’s a little than that. It’s certainly the second $20 million you
mentioned, plus the proportion of the $30 million to $40 million we originally announced
that we haven’t been able to mitigate. Apologies for being vague about that. It’s got to do
with the arrangements that we have with Rolls-Royce. So, directionally you’re going the
right way, it’s just a smidge lower.
Marcus Curley: (UBS Investment Bank, Analyst) Okay. Then finally, you’re - obviously
some questions about the 777-200 replacement program, can I just draw you on how
many replacement aircrafts are you now expecting to be delivered in 2023? Obviously,
you’ve said that two were the third, I assume that there is still some coming in 2023?
Jeff Mcdowall: That’s right. The current plan would be one aircraft in 2023.
Marcus Curley: (UBS Investment Bank, Analyst) Okay. Thank you.
Christopher Luxon: Thanks Marcus.
Operator: Thank you. Your next question comes from Nick Mar from Macquarie. Please go
ahead.
Nick Mar: (Macquarie, Analyst) Hi Guys. You know who I am. Just a couple more on the
cost side. Was the kind of previous outlook you talked about forecast improvement hitting
kind of 1% to 2% per annum, are you guys still looking to achieve that? Or is flat then
new kind of outlook, given lower capacity growth?
Jeff McDowall: So, yes, Nick, our - look, our goal is to essentially restore the trend that we
talked about at the last investor day. So, as you saw at the half year ’19, creeping up a
bit. We’d expect to see that back out in FY20. We’re really - we’re not backing away from
the positioning that we described back at the last investor day. But what we would like is
when you look back on it a few years from now, you see some bumps as we go through
this period, but the trend is what we intended it to be

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Nick Mar: (Macquarie, Analyst) Yes, no that’s cool. Then just on some of the cost
improvements, are there any one-off costs around redundancy - and I think you were
expecting to go through as you work through that process?
Jeff McDowall: We wouldn’t have said that to be significant. There will be some - clearly,
we talked about labour costs as being one of the areas that we expect to be able to reduce
but the proportions that we’re talking about, relative to our - the size of our labour base,
are quite small. So, the vast bulk, we expect, of changes will be managed through
attrition.
Christopher Luxon : Yes, and to give you a feel for it Nick, I think attrition over the last few
years is pretty low in Air New Zealand, believe it or not. Everyone’s - somewhere between
5% to 9% in any given year. So, it gives us quite a lot of capacity through sinking and
other ways that - to go about this in a smart way without impacting culture too much.
Nick Mar: (Macquarie, Analyst) Yes, that makes sense. Then just lastly, obviously, there’s
no numbers out there for next year but in terms of what you’re putting in place, how much
does this go towards getting a - towards some of your target numbers around that 15%
mark?
Jeff McDowall: Yes, so no, as you say, we’re not in a position to provide guidance at 2020
year and will be, as you can imagine, a lot of factors will impact that. But these will impact
it positively and would - in a meaningful. We wouldn’t be doing them if we didn’t think they
were meaningful. We have - we’ve kind of done what we think we can and in terms of
providing you with specific guidance on that, in terms of the cost components and as well
the CapEx components. The revenue - obviously, the revenue result of the new route, the
capacity expansions and the other key components. But that being sort of route related,
we’re not in a position to go into that in detail. But we’re confident they’ll be successful
and they will provide a meaningful kind of tail wind, going for next year.
Nick Mar: (Macquarie, Analyst) Okay, thanks guys.
Christopher Luxon: Thanks Nick.
Operator: Thank you. There are no further questions at this time. I’ll now hand back to Mr
Luxon for closing remarks.
Christopher Luxon: Well, can I just say, thanks to everyone for listening on the call and
again, thank you for your time, interest and support of Air New Zealand. As you well know,
if you’d like to schedule a call with any of us or follow-up, then please direct those through

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our investor relations team with Kim and Leila would be awesome. Thanks so much to you
for your time. Have a great day.
End of Transcript

=== IR PAGE TRANSCRIPT: 2019 Interim results Analyst Call Transcript ===

Air New Zealand 2019 Interim Results
28 February 2019
Page 1 of 25
Start of Transcript
Operator: Welcome to Air New Zealand 2019 Interim Results call. During the presentation
your phone lines will be placed on listen-only until the question and answer session. If you
could please refrain from asking questions until that time.
With that I will turn the call over to Air New Zealand's Head of I nvestor Relations Leila
Peters.
Leila Peters: Thank you and good morning everyone. Today's all is being recorded and will
be accessible for future playback on our Investor Centre website, which you can find at
www.airnewzealand.co.nz/investor-centre.
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.
In addition, the Appendix of the presentation has a number of slides that we will not be
specifically speaking to which provide key financial and operational details. We recommend
that you take the time to review that information.
With that I will turn the call over to Christopher.
Christopher Luxon: Thank you Leila. Kia ora and good morning everyone, and thanks so
much for joining us on today's call .
Earlier this morning, as you’ve seen, we have released to the market our financial results
for the first half of 2 019 financial year. Those results were solid, with $211 million in
earnings before taxation achieved despite what I think is a very challenging operational
and cost environment.
We experienced strong demand levels across our network particularly in our domestic
market for the majority of the period. That demand, in conjunction with our targeted
capacity growth and pricing actions taken across parts of o ur network, drive high single-
digit revenue growth. Which helped partially offset the headwinds of f uel and higher

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operational costs.
However as we saw with the results of our December revenue and looked into the
remaining peak months of the year we identified softer levels of demand that indicated
revenue growth in the second half of this year will be slower than what we saw in the first
half.
Now the areas where the change in demand is most visible from a forward bookings
perspective is domestic leisure travel within New Zealand. Although we continue to see
robust demand for corporate and business traffic.
To a lesser extend we're also seeing some impact to our inbound long-haul network which
is seeing slowing rates of tourism growth compared to recent years. But to provide some
context, in the 2018 calendar year New Zealand inbound tourism growth was 3.5%, which
is in line with our own long-haul growth this year.
However it is much slower than the average visitor growth over the previous five years of
approximately 8%. We are closely monitoring our other markets and various distribution
channels for additional changes in demand. But we have not seen a notable shift.
As a result of the revised revenue forecast the updated earnings outlook provided at the
end of January was necessary. Although it is disappointing not to be able to deliver on the
financial commitment we made to our shareholders earlier this year.
Now in light of the demand levels we are observing I announced in late-January that the
airline has commenced a review to determine what adjustments need to be made across
our network, across our fleet, and ultimately our cost base.
It is clear that some aspects of our business that made sense in a high-growth
environment will need to be reconsidered and adjusted as we enter a period of lower
growth.
Now Air New Zealand has a rich history of being able to adapt quickly to changing market
dynamics. Whether that be natural disasters, significant shifts in the competitive
landscape, right through to demand slow-downs. This time will be no different.
Agility is really embedded in the DNA of this airline and its people. I think it is one of the
core competitive advantages we have as a smaller airline that enables us to effectively
compete with some of the largest airlines in the world.
Now the review is making good progress, but the work is ongoing. We expect to be in a

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position to provide an update in due course.
I am confident that the actions we are taking, along with the continued dedication and
focus of our phenomenal people, will support a return to earnings growth and ROIC
improvement in this lower revenue growth environment.
Now going into a bit more detail as to what we are seeing in the domestic market I though
it would make sense to provide some more context.
For the past year our domestic network has experienced average revenue growth of
around 8%. Over that period revenue has grown either as a result of high levels of
capacity growth, stronger yields, or a combination of the two.
Supporting that growth has been really robust underlying demand. As we mentioned on
our 2018 Annual Results call in August, that growth has come from a combination of
strong business travel, really good inbound tourism - which as you know results in
additional domestic travel once tourists arrive in New Zealand. Lastly domestic leisure
demand from New Zealanders choosing to travel throughout the country.
As I already mentioned, our December revenue results for the domestic segment came in
a bit softer than our expectations had been. As you can see in the chart on the right-hand
side of this slide, the January growth is also softer.
Now as we progress month to month through the end of the year I would expect to see
some variability in the rate of domestic revenue growth as it relates to the prior
comparable period.
But we believe the trend will continue to demonstrate low-to-mid single-digit revenue
growth. Which is a good result although it's much slower than the high single-digit growth
that we had previously been experiencing.
Even though we are expecting a slower rate of growth going forward it is important I think
to point out that our domestic network is extremely strong, with a market share position
that has grown in the past 12 months.
Over the years we have built up this business to have tremendous resilience, with
significant investments both on the ground and in the air. We will continue to do so now.
You will have seen that we announced earlier this year that we would be investing $60
million in our domestic and regional lounges throughout New Zealand over the next two
years. We have made some exciting progress on this, opening up our new Tauranga

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lounge in December.
We know there is huge demand for our lounges. It is that sort of investment that really
enhances our customer experience before they have even boarded the plane.
Now last June we held our Investor Day in an environment of rising fuel prices. I spoke
about the playbook that we follow and the levers we would pull in this part of the cycle.
Similarly we have a huge amount of institutional knowledge and we know what levers we
need to pull to address the slower growth environment we are seeing.
Now the first step is adjusting our supply to be more in line with demand. That is through
reductions in capacity growth across the network. We have made a series of changes to
our schedule, the net result of which has brought our capacity plan down to around 4%.
Compared to our original plan of 4% to 6% growth for the year.
The second step is transforming our domestic fare structure. You will have seen earlier this
week we announced the biggest overhaul of the Airline's domestic pricing structure in over
a decade.
We are now offering lower entry level fares, or lead-in fares as we call them, to make
domestic travel more affordable than ever. Our customers will now be able to find
domestic fares for as low as $39 each way.
We believe simplifying the fare structure will help stimulate domestic travel for New
Zealanders and international visitors. While this may result in some impacts to load factors
for average fares, we will continue to focus on maximising total revenue.
Finally, with the first two components right size we are working on driving increased
interest in travel and stimulating demand for a series of market development activities
which differ market to market.
This includes utilising our data analytics capability to driver more targeted offerings to our
customers. Increasing the update on our various ancillary product offerings, as well as
specific marketing campaigns aimed to stimulate new visitors to the country.
For example, we continue to partner with Tourism New Zealand to drive increased
awareness of New Zealand for international travellers in Asia over the low season, which is
going really well.
Then if I can I would like to remind you of our core purpose as an airline which continues
to be, to supercharge New Zealand's success. That is our mission, and that's what

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motivates me and my management team every day.
Part of that mission is to economically supercharge New Zealand by promoting tourism and
trade. We will continue to significantly contribute to these industries.
Our focus will be always on profitably connecting the world to New Zealand through our
Pacific Rim network, and connecting New Zealanders to each other through our powerful
domestic network.
Now our decision six or seven years ago to redesign our network around the growth
potential that we saw, and continue to see in our major long-haul markets, has stood us in
tremendously good stead through changing macro environments.
We are well positioned with increased scale across a diversified set of markets. Importantly
we have built skills and ability in each of those markets. We have also been able to partner
with other outstanding airlines to offer greater connectivity around the globe for New
Zealanders.
To put it simply, we have some tremendous competitive advantages. We will leverage
them to the best of our ability to continue driving value for our customers, our staff and
our shareholders.
Now I will hand over to Jeff who will discuss the details of the result.
Jeff McDowall: Thanks very much Christopher, and kia ora to everyone on the call. I'll
start by walking you through some of our key financial highlights for the [unclear] period.
Our operating revenues were $2.9 billion. That’s an increase of 7.1% on the prior period.
It's a strong result against the backdrop of some tough operational conditions that we
have faced so far this year as Christopher has already touched on.
We delivered earnings before taxation of $211 million. Although this is a decline of 35%
you will see shortly that this is largely the result of a significant increase in fuel prices.
Net profit after tax for the period was $152 million. We maintained a strong operating cash
flow of $475 million.
Now as mentioned earlier, revenue for the period was strong. That was driven by really
good levels of demand across the network, as well as the targeted capacity and pricing
actions that we have undertaken.
If we look at passenger revenue in particular we saw an underlying increase of 5.1%.
Reflecting higher capacity as well as unit revenue growth.

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Despite this earnings were hugely impacted by a $131 million headwind from increased
fuel prices. That $131 million net impact was driven by $146 million, or a 31% increase in
the average price of jet fuel from USD67 to USD87 per barrel. Which was then partially
offset by an additional $15 million in gains from our fuel hedging program.
To put the size of the fuel increase into context the net impact of $131 million for the first
six months of this financial year compares to a full year impact in 2018 of $135 million. So
we really have seen a significant jump this year.
So if we were to look at our 2019 versus 2018 first half earnings on a comparable fuel
basis we actually delivered a 10% increase in earnings.
There is a detailed waterfall in the Appendix which shows the breakdown of each
component contributing to the overall $179 million net increase in the fuel cost line in our
P&L. But you can see that it really is driven by those couple of points that I just
mentioned.
If we move now to Slide 11, this provides further details on both revenue and cost side of
our business. As I already mentioned, passenger revenue increased 5.1%. This reflects
increased demand as well as unit revenue growth, particularly on the North America and
domestic routes.
Demand was up 5.3% on capacity growth of 4.3%. Risk increase by 0.8%.
Our cargo business also delivered strong volume growth and good yields resulting in a
5.1% increase in revenues.
This growth is moderated somewhat compared to previous periods, including the
operational disruptions that we've experienced with our Trent 1000 engines. However, we
have still seen good volumes and revenue from North America, Europe and Japan, and
strong yields from an improved product mix.
Turning now to our operating costs CASK adjusted for the impact of fuel price, FX and
third-party maintenance, grew 1.6%. This growth reflected price increases and cost
incurred in the period to ensure greater operational resilience, which is partially offset by
economies of scale and deficiencies.
In the first half we saw lower economies of scale and efficiencies than we've reported in
the past, due to inefficiencies around our network schedule as well as timing related to
setting up new routes and the entry of newer aircraft into service. Looking forward, we
expect a stronger underlying CASK performance in the second half of the year.

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We've generated strong operating cashflows again in this period, of $475 million. We know
this is largely flat compared to the prior period, but reflects strong working capital cashflow
offset by lower earnings. The timing of tax payments also had a positive impact on
cashflow.
The airline continues to maintain a stable investment grade credit rating from Moody's of
Baa2. Gearing was 56.4%, slightly above the announced target range and an increase
from 52.4% at the end of the 2018 financial year, reflecting investment in our fleet as the
current fleet program nears completion.
Going forward, we expect gearing levels to return to our previously communicated target
range of 45% to 55%.
Finally, our strong balance sheet has helped us to deliver sustainable, ordinary dividends
to our shareholders. The Board was pleased to announce the fully imputed interim dividend
of $0.11 per share, reflecting the Board's commitment to its distribution policy. It looks
through short-term earnings volatility to provide a consistent and sustainable ordinary
dividend.
In the chart on slide 14, you can see the phasing of our updated aircraft capital
expenditures through to 2022, which total approximately $1.2 billion based on an
exchange rate of $0.67. The figure includes the commitments that we made last financial
year for the domestic A321 NEOs, but does not include any assumptions on CapEx rating
to the Boeing 777-200 replacement program, as aircraft selection is still in progress. As a
reminder, we are still expecting to announce our selection before the end of the current
financial year.
Turning finally to fuel and our outlook for the remainder of the financial year, based on our
hedging profile. To be helpful we've provided an outlook of estimated fuel costs for the
second half of the year, with some assumption of average jet fuel at US$75 per barrel.
Based on the make up of our hedges, we've also provided an approximation of how moves
up or down of fuel price would impact our fuel costs for the second half of the year.
At US$75 per barrel for jet fuel, our fuel costs in the second half would be approximately
NZ$596 million, which would bring our full-year fuel cost to approximately $1.2 billion.
Now let me turn the call back to Christopher to discuss the outlook for the rest of the year.
Christopher Luxon: Thanks Geoff, and turning to slide 17, I'll briefly provide some
perspective on expected capacity and revenue dynamics, looking out to the rest of the

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financial year.
As I spoke about earlier, we believe that there are signs of significant shift in demand and
we are now moving to a period of more moderated revenue growth from the high levels
that we've been experiencing over the last few years.
The table on this slide shows you our capacity growth for the first half, and where we see
further growth opportunities across the remainder of the financial year. You can see to the
far right the initial expectations that we had when we announced the 2018 annual results
in August last year. There's definitely been a shift in our expectations, so we want to be
really clear here. We believe that there are still growth opportunities for us to pursue, and
that this new environment brings us more in line with what our global peers are seeing in
their home markets.
Now, turning to the outlook for the remainder of the financial year, as indicated in late
January, we have started to see a slower rate of demand growth from previous years. This
in turn will result in revenue growth and profit that is lower than we had originally
anticipated at the beginning of the financial year. This is true, even though jet fuel prices
have come back a bit compared to what we experienced in the first half.
We do, however, continue to see demands and growth opportunities, and based on this
and current market conditions, we are reaffirming the full year guidance that we provided
to you at the end of January 2019. That is, assuming an average jet fuel price of $75 per
barrel for the second half of the financial year, 2019 earnings before taxation is expected
to be in the range of $340 million to $400 million. This assumes an average jet fuel price
of $81 per barrel for the 2019 financial year as a whole.
What we really want to communicate to you all today is that the airline is still
fundamentally strong, but the rate of growth in the New Zealand market is slowing
compared to previous years. That is in fact more in line with other developed markets,
such as the US.
We realise that we need to adapt and we need to use the agility that we as Air New
Zealand, pride ourselves on, to continue to supercharge New Zealand success, and to
provide the strongest possible return to our investors. Accordingly, we're in the process of
undertaking a review to ensure that our network, our fleet and our cost base are better
optimised to reflect the new environment that we are now operating in. We will be
updating you and the market on those plans in due course.

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So, can I say thank you so much for listening, and we know you'll have lots of questions,
so operator please open up the line for questions that you have.
Operator: Thank you. If you wish to ask a question, please press star-one on your
telephone and wait for your name to be announced. If you wish to cancel your request,
please press star-two. If you are on a speaker phone, please pick up the handset to ask
your question.
Your first question comes from Andy Bowley from Forsyth Barr. Please go ahead.
Andy Bowley: (Forsyth Barr, Analyst) Thanks moderator, and good morning Christopher,
Jeff and Leila. I've got a couple of questions, so I'll kick off firstly with the dividend.
Christopher, maybe you can speak on behalf of the Board here. I'm conscious that a
number of issues will impact your ability to sustain or even grow the current dividend.
We've got gearing now towards or above the top ends of the target band, we've got a
CapEx holiday in a couple of years for a couple of years. But can you talk about what you
would need to - or what would need to change for you, to require you to cut the dividend
relative to the current forward expectations that you have for the business?
Christopher Luxon: First of all, good morning Andy, good to hear from you. On the
dividend front, look, you've seen us maintain a stable dividend here. That's us, as we've
said before. We're looking through into the medium term, and we feel incredibly confident
with where we are as a business, and as a result, that's what we've - why we've reaffirmed
the dividend as where we are.
You know how we think about - I think we've been pretty transparent about how we think
about this, but I think we feel very confident going forward around our ability to pay the
dividend.
Jeff, would you have anything else to add?
Jeff McDowall: The only thing I'd say, Andy, is that as you have probably heard from our
remarks, we're not satisfied with the earnings, of where they are, so we're very focused on
earning - restoring earnings growth in the Company. So, yes on that basis and knowing
what our dividend policy is, we're very comfortable that the dividend's sustainable.
Leila Peters: Andy, it’s Leila, just a note, in the last 15 years there's only been two times
where we've cut the dividends, and that's been the Christchurch earthquake and the GFC.
So clearly, we're not forecasting anything like that looking forward, we're just looking at a
slower growth environment. We're still pretty strong. That's all I've got.

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Andy Bowley: (Forsyth Barr, Analyst) Great, thanks. So, the second question around the
cost base, unit cost growth in this period of 1.6%, that compares to what you talked about
at the investor day last year where you suggested you'd be able to negate unit cost
increases given economies of scale. I recognise that there hasn't been as much capacity
growth as maybe you would have expected, and there's been a fair bit of indirect cost
growth given the network disruption during the period, but were there any other cost base
issues at play in the first half, and what cost levers do you have in second half,
notwithstanding your comments Jeff, around being a better CASK outcome in the second
half relative to the first half?
Jeff McDowall: Hi, Andy. The main thing really is the operational difficulties that we've
faced in the past half year. As you said, the growth rate's down a little bit, but - that's a
contributor, but it's really the both direct and indirect consequences of the operating
environment that we've had. There's some direct costs associated with the Rolls Royce
issue that we talked about in the guidance in August. To a significant extent we've been
able to mitigate those. There are still quite significant indirect or hidden costs that are
spread throughout our both cost schemes and revenue line associated with, for example,
making changes in aircraft type late in the planning cycle, which is really inefficient.
Some of it's consequential. Some of it's actually proactive, where we've actively held more
staff, for example, so that we can make the schedule more resilient and provide our
customers with a better level of support when they're seeing disruption. All of those
impacts will start to ease as the Rolls Royce situation improves, which is now - which is
what we're now seeing. So, we're expecting that to be a better picture as we look forward.
Andy Bowley: (Forsyth Barr, Analyst) [Okay]
Christopher Luxon: Maybe if I can give you some confidence around that Andy, around the
Rolls Royce situation. Through this half that we're reporting on - we had up to five aircraft
on the ground. Currently, we have two aircraft on the ground. From 1 April, we expect that
to be one. By 1 September we expect to be fully resolved. So, we are expecting to start to
work our way through those additional and direct costs that were a part of the first half
result, as we go through the second half and certainly into 2020.
Andy Bowley: (Forsyth Barr, Analyst) In terms of your comment Jeff, that we'd see a
better CASK outcome through the second half, is that really a reflection just of Rolls Royce,
or are there any other issues at play? I guess you've got your broader cost and network
and fleet review ongoing, but I'd imagine the benefits of that will flow more through fiscal

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2020 than fiscal 2019 second half.
Jeff McDowall: Yes, that's right. Yes, the main difference in the second half will be the
easing of those operational disruption issues.
Andy Bowley: (Forsyth Barr, Analyst) Great, thank you.
Operator: Thank you. Your next question comes from Andrew Steele from First NZ Capital.
Please go ahead.
Andrew Steele: (First NZ Capital, Analyst) Good morning. Just the first one for me is on
the domestic slow-down. From your assessment, would you say this is largely a consumer
cycle-driven effect, or are there competitive or company-specific issues that are related to
that? I guess also, what are you seeing in the forward data which gives you confidence
that January is the low point for this growth profile?
Christopher Luxon: Yes, well firstly good morning. You are right. What we're seeing is -
and it's a difficult situation because we, as a business, are actually living in the future and
we are obviously seeing six months out, and we are, in fact, I think a leading indicator for
what's going on.
There's two big bits of it. We're seeing lower growth, driven firstly by lower levels of
inbound tourism. So, if you think about recent years, inbound tourism to New Zealand has
been growing around 8%. The last 12 months ending December, it's about 3.5%. That's
across the board. That clearly is linked to a global slow-down.
The second piece we're seeing is obviously domestic leisure travel. That manifests itself in
lower site visits to our sites, which typically tends to be leisure travellers, and even some
small, medium enterprises.
What I'd say is that our corporate and our government and our business traffic is holding
up incredibly well, and is in a good, stable position. What we're talking about here is
moving to a lower level of growth of around d4%, which is still pretty - fundamentally
pretty good levels of growth.
Certainly, as we came through at the end of the January, and we reviewed the close-out
period, and then we looked at our forward projections, we saw softness in that leisure
travel component. As we have gone through January, we're seeing some stabilisation of
that.
Andrew Steele: (First NZ Capital, Analyst) Okay, great. Thank you.

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Jeff McDowall: Can I add to that, Andrew, is that the booking trends that we've seen in the
past four weeks or so, since we updated the guidance, are very much in line with what we
expected when we provided that update. Yes, based on what we're seeing at the moment,
that would put us pretty much in the midpoint of the range that we talked about.
Christopher Luxon: The other thing Andrew, I know from some of the commentary is that
there's no doubt about it, this is a market issue. I can reassure you, we are not losing
market share to our competitor. In fact, we've gained market share over the last year. So
this is something happening, an underlying demand with leisure travellers.
Andrew Steele: (First NZ Capital, Analyst) That's great, thank you very much. Just the
next one from me is in terms of thinking about your previous guidance on the impact that
Rolls Royce has had on earnings.
How should we think about the normalisation of that impact looking forward into really, I
guess, the FY20 year given the updated demand profile and in particular, I guess, the
capacity changes that you've put through into the Tasman and Pacific Island markets?
Jeff McDowall: Just specifically in terms of the Rolls issue, Andrew, as you said, we
indicated the range of $30 million to $40 million in August. We now have been able to
mitigate that. So if you are thinking ahead to next year and just thinking of those direct
costs, I couldn’t give you a precise number but sort of in the low double digits. But that's
not the full story.
As I was talking to the other guys about, there is quite significant hidden costs as well
which are the key reason why our efficiencies are lower this half. So there's that direct cost
that goes away next year but there's also those indirect costs that go away next year.
Andrew Steele: (First NZ Capital, Analyst) Thank you.
Leila Peters: I didn’t understand the second part of your question related to the Tasman
capacity. Could you repeat that again?
Andrew Steele: (First NZ Capital, Analyst) I guess given that there's a reasonably material
shift in the Tasman and Pacific Island capacity guidance for this year, factoring in I guess
there's probably a lower run rate in that market going into '20, should we be thinking
about I guess a lower benefit from Rolls Royce normalisation going into '20 as well?
Jeff McDowall: That wouldn't be a significant driver for that market. A different point I'd
point out is that a lot of the growth that we're seeing in the fourth quarter and heading
into the first quarter of next year, is going to be the additional seats on the AC21s coming

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into the fleet which come in at a very low incremental cost.
Andrew Steele: (First NZ Capital, Analyst) Great. Just the last one from me is given the
change of capacity to Tasman and Pacific Island, can you just provide a few comments on
what you're seeing which has really driven that pull back?
Christopher Luxon: Yes, I mean maybe - I just take the Tasman, it's certainly a bit
[forcey] at the moment, but that's to be expected post the withdrawal of our alliance with
Virgin. But what I'd say to you is we still look at that dynamic and say that's a lot better
than when Emirates was in the market.
Certainly we've seen Virgin struggling big time in terms of adding lots of capacity, lowering
prices, have low levels of load factors. I think none of you have probably had a hamburger
served to you while you've been doing that. But on the Pacific Island, it's really been we've
put a lot of growth in over the recent 18 month period. It's just making sure we get that
moderated and right.
Leila Peters: Really just a lapping and moderation of the shoulder season capacity on the
Pacific Islands and the Tasman. The Tasman capacity, really, it's still an increase. I think
we're up 7% for a northern summer season. So it's still quite a lot. But in targeted areas
that play well to our strengths.
Andrew Steele: (First NZ Capital, Analyst) Great. That's all from me, thank you.
Operator: Thank you. Your next question comes from Owen Birrell from Goldman Sachs.
Please go ahead.
Owen Birrell: (Goldman Sachs, Analyst) Hey guys. Just a couple of questions from me. Just
drawing on that Tasman and Pacific Island capacity again. It's a big reduction in that
second half of '19. I'm wondering if you could split the difference between what you're
doing on the Tasman versus Pacific Island?
Christopher Luxon: Yes, sure. So the Tasman is still growing. The rate is 7% or 8% I think
in the second half of the year. As I was mentioning to Andrew, a big chunk of that comes
from the extra seats on the AC21. So that, as I said, comes at a really low cost. We're
actually seeing pretty healthy revenue growth against that capacity backdrop.
So you know, that's looking pretty good, notwithstanding the fact of the highly competitive
market. As Leila kind of eluded to, the Pacific Islands, we're actually reducing capacity year
over year. Having said that, we had extremely high capacity growth this time last year.

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We saw an opportunity with the part of the year that's typically off peak for the rest of our
network meant that we had aircraft available that we could deploy into the Pacific Islands
to build on the strong growth that we saw at a low incremental cost. We still see that
opportunity this year but we are dialling it back a bit. It was 20% to 30% growth this time
last year and we're just dialling that back a bit.
Owen Birrell: (Goldman Sachs, Analyst) So there's actually a contraction in the capacity
overall for the second half in the Pacific Islands? Well there has to be. I mean if...
[Over speaking]
Leila Peters: There's contraction in the longer sector Pacific Island market. So Hawaii and
Bali are clearly the longest sectors and that's where we put about that 20% to 25% growth
in last year. So that's where you're seeing the proportionality impact on Tasman and PI,
Owen. The other Pacific markets are growing, most of them. It's the mix factor of the
length.
Owen Birrell: (Goldman Sachs, Analyst) I was going to say is it because passenger demand
hasn’t grown in line with your expectations? Or are you removing capacity to improve
your RASK on those routes?
Jeff McDowall: Really removing capacity to better match supply and demand to ultimately
give a better RASK result.
Owen Birrell: (Goldman Sachs, Analyst) Can I ask also then I guess on other international
market, you're adding some new routes on those and sort of drawing on a couple of - I
think it was a San Francisco and LA routes. I'm just wondering what gives you confidence
that the new routes that you're putting on are going to be incrementally for the broader
international platform? Given that they are very new.
Jeff McDowall: We think both of them. But Taipei and Chicago that I think you're referring
to. We've seen both of them perform extremely well. Actually, better than we had
anticipated in our internal business cases for them. If you take Chicago - I mean Taipei
was always going to be incremental. We took very little traffic via other gateways in our
network from Taipei in the past.
So that is genuinely incremental traffic for us. I mean Chicago, there was always the
chance that some of that demand would come from our other gateways in the US, whether
it be particularly Houston and San Francisco. We're actually seeing that perform a lot
better than we thought from that perspective. We're seeing the vast bulk of the traffic

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originating in the US coming from the surrounds of Chicago itself without any connecting
flights. Which leads you to the view that that is us tapping into new pools of demand there
rather than stretching our existing demand base.
Owen Birrell: (Goldman Sachs, Analyst) Okay. Just one final question from me on the
relationship between how we should look at domestic growth versus international. I mean
obviously international is a big driver of the domestic market but do you have a rough rule
of thumb as how you look at that? You know, if international is growing at 5%, what
incrementally does that add to the domestic market?
Jeff McDowall: Ballpark, for international visitors coming from a long haul destination, i.e.
excluding Australia, there's roughly two domestic trips for every passenger. So you see
that flow straight through to our domestic business. So that gives you kind of a rough rule
of thumb.
You know, the guts of that is that as a consequence, 20% to 25% of our domestic
passengers have originated offshore. Whether they're directly connecting or they've
bought a ticket locally but are here on a vacation.
Owen Birrell: (Goldman Sachs, Analyst) That's good. That's useful. Thank you.
Operator: Thank you. Once again, if you wish to ask a question, please press star one on
your telephone and wait for your name to be announced. Your next question comes from
Wade Gardiner from Craigs Investment Partners. Please go ahead.
Wade Gardiner: (Craigs Investment Partners, Analyst) Hi guys. Going all the way back to
the very first question on the dividend. You know, you've got a target gearing of 45% to
55% and you're sitting at 56% at the moment. You're paying out sort of $250 million in
dividends per year. I've always assumed that as we head into the 777 replacement cycle
that you're going to want to get that gearing down towards the bottom end of that range.
Is that a fluid target? Given that if we have a protracted or a greater downturn here and
your earnings are potentially lower for longer, how comfortable are you that you can
continue to pay out that dividend? How flexible is that gearing target?
Jeff McDowall: We've always said that the gearing target is a target rather than a straight
jacket and we always expected at this point in time, which is the end of the peak CapEx
period, that it was going to be at the top of the range. In fact, two or three years ago, we
thought it would be past the top of the range.
So relative to what we expected, that’s pretty good. Having said that, financial resilience is

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always going to be our key number one priority when we start considering distributions.
But we look at that, we look at our resolve on improving earnings growth. We're very
comfortable with where the dividend policy sits and as you know, there's a significant
period of CapEx reduction coming up. So we're very confident about where that's sitting.
Wade Gardiner: (Craigs Investment Partners, Analyst) Okay. So if we did have a period of
lower earnings, you'd be quite happy for that - for gearing to come in in that upper band
as we go into that 777 replacement cycle, if that's what was needed?
Jeff McDowall: Look, you know, like I say, we're very resolved on not having a period of
lower earnings. But we certainly do want to make sure that we've got plenty of capacity to
get through that next CapEx cycle in good shape. But you know, the gearing range is not a
straight jacket. Financial resilience is always our core point. But we do still see potential
there. Particularly given our focus on restoring earnings growth.
One point I'd just illustrate, as you pointed out, the earnings at the half year was - sorry,
the gearing was 56.4%. There was a movement there, if you look at the movement from
where the gearing was six months ago to now, there was a movement there of just over a
percentage point which was driven by the fuel price at balance date being very low. It was
in the low 50s.
That meant that there was a change in our head reserves which reduced equity and
brought gearing back up a bit. That was purely to do with fuel being at a really low point at
that balance date.
[Over speaking]
Leila Peters: ...adjust it for that way, we'd be sort of just above 55%. So right in that
target range anyway.
Wade Gardiner: (Craigs Investment Partners, Analyst) Okay. Another question. Your first
half was done 35% and the guidance that you've given implies that the second half is
going to be down, you know, the midpoint, by a similar sort of level. Yet, when you
changed your guidance in January, from the discussions that we had at that point, it
seemed to me that you didn’t really see the fall off in demand until December.
So I was therefore expecting a first half that would be better and a second half would be -
the implied second half would be a lot weaker. Can you just give me a bit of colour in
trying to reconcile that sort of where you had your guidance prior to when you actually saw
the decline? Therefore why we should expect a second half that is a similar sort of down

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to the first half?
Jeff McDowall: I mean there's a bunch of moving parts there, Wade. So for example, as I
was saying earlier, we expect the operational costs disruption to be less impactful in the
second half. You'll see in the fuel analysis that the year over year fuel headwind’s lesser in
the second half. But the rate of revenue growth is lower as well.
So there's a number of moving parts that drive the relative performance of the two halves.
Leila Peters: Right. So stronger revenue in the first half offset by inefficiencies in the cost
space which Jeff has already spoken to you. In the second half, those costs inefficiencies
will alleviate. Fuel will alleviate on a year on year basis but revenue will come in a bit
softer. That's really what's driving the first half/second half mix there.
Wade Gardiner: (Craigs Investment Partners, Analyst) Okay, that's all from me.
Operator: Thank you. Your next question comes from Marcus Curley from UBS Investment
Bank. Please go ahead.
Marcus Curley: (UBS Investment Bank, Analyst) Good morning, team. Just a few from me.
I just wondered whether you're able to actually call out the magnitude of the, I suppose
improvement in the 787 disruption issue into the second half. Obviously, it underpins your
belief in improved cost performance. Could you give us any colour of what you think that is
in terms of number?
Jeff McDowall: I can't give you a precise number. I mean, one thing we've been focussed
on is that there is a slide in the pack that shows the efficiency year-over-year in the CASK
space and you compare that with that same slide from this point last year. The [unclear] a
big chunk of that is due to the operational cost disruptions that we're seeing. I know it's
not a precise answer, but that does give you a sense of the magnitude of the impact.
Marcus Curley: (UBS Investment Bank, Analyst) So you're confident these quite large
increases in aircraft operating costs and passenger costs relate to that issue as opposed to
other issues, which could be longer lasting?
Jeff McDowall: Yes. That is the biggest single driver that we can point to. There are a
couple of other things I was talking about earlier in the remarks which relate to things like
the one-off costs associated with the new routes that we entered in that period, one-off
costs associated with the entry of the A320neos for example, our A320neos. So those
contributed to the picture as well. So the operational efficiency is not the only thing, but
the predominant thing.

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Marcus Curley: (UBS Investment Bank, Analyst) Okay and then just a couple of questions
on airfares. Within your guidance it doesn't look like you're incorporating any yield impact
from the lower entry level fares on the domestic in the second half.
Jeff McDowall: Yes, so that is an accurate analysis Marcus. The - that set of fare changes is
really designed to stimulate leisure travel. So we are confident that that will be a positive
move for us from a revenue and commercial perspective and as well as stimulating leisure
travel, it also gives our revenue management team a better set of tools to use to manage
the performance of flights.
Marcus Curley: (UBS Investment Bank, Analyst) Okay and I just wondered if you could
comment on what you're seeing in airfares post the Chinese New Year on the Asian routes
and also more recently on the Tasman - it doesn't sound like you've seen any signs of the
economic slowdown impacting traffic post the peak season.
Jeff McDowall: From a time perspective, yes Chinese New Year was a couple of weeks
earlier this year. You saw the - so you see a little bit of the strength associated with it
come into January this year versus it all being in February last year. But to answer your
question about once you go through that peak period have we seen a softening in bookings
that's greater than we saw before. Not really. You would have heard a lot about tourism
from China being weaker.
If you - and we certainly do see that, but if you look at our Shanghai route, for example,
we do compete in a slightly different way than other airlines fly into China. We've got a
more premium niche that we target at the Shanghai end and we've got a much bigger
market share ex-New Zealand, which includes a good premium market share. So if you
look at the performance of our flights, we are seeing really strong performance in our
premium cabins.
We are seeing a little bit of softness in the economy cabin, which is consistent with what
we're seeing in in-bound tourism arrivals. But overall the flight is doing pretty well,
because we complete in a slightly different market than most of the carriers.
Marcus Curley: (UBS Investment Bank, Analyst) And on the Tasman. More recently, as we
enter the off season, any signs of weakness there?
Jeff McDowall: Well the growth rate is - has moderated a bit. We're seeing more
competitive intensity which Christopher referred to. But actually, despite all that, the
revenue growth we're seeing is quite solid. There is a - it's a little bit difficult to unwind

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because there is a lot of different dynamics going on. We've got some additional capacity,
so we're getting a bigger market share as a consequence of that.
We've got Virgin competing independently and having quite low factors and then you've
got what's going on with the underlying market demand the being the third factor that
impacts performance. But - so it's quite difficult to unwind each of those individually. You
saw inbound tourism from Australia is 1-ish% in the last month, so not that high. But the
sum of those three factors - and I think helped by our product proposition, the way we
compete with [unclear] service and low cost carriers and the capacity growth we're putting
in there, has actually given us a pretty good revenue result.
Marcus Curley: (UBS Investment Bank, Analyst) My question was on yields. Have you seen
airfares starting to fall or are they remaining up?
Jeff McDowall: They are not falling significantly. We focus more on RASK than yield, to be
honest, because we see yield and [low factors] as ingredients to the RASK outcome that
we're looking to maximise. When there is capacity up in the market, which is up a little bit,
3% I think, you wouldn't expect to see - you would be surprised to see flights flattening
and yields but it's nothing pronounced.
Leila Peters: And Marcus, this is a reminder. We'll be - we lapse through the Emirates' exit
from Melbourne and Brisbane right around now, March or so. So we would expect to see
some variability on the month to month offsets on there. But overall, Jeff’s comment it
holds completely true. It's quite resilient levels so far.
Christopher Luxon: Yes, you will see choppiness in the offsets with Chinese New Year being
a bit earlier, but also, we've got the period in April when Easter Monday and ANZAC Day
fall on the same week, which will drive a really strong period for demand in April, which
will bring some demand that was previously in March in to April. So you'll see some
volatility month-on-month there.
Marcus Curley: (UBS Investment Bank, Analyst) And then just on the labour costs. Could
you give us a breakdown in terms of what your wage freights are up verses stuff numbers
and what to expect going forward? Is there any initiatives to limit the growth in staff
numbers?
Jeff McDowall: If you look at the - where is the breakdown - page 21, I think, in the
supplementary slides, the labour cost is up $36 million for the half. If that had been driven
purely by rate increases and volume, it would have been up $42 million. So there were

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some efficiencies there.
That number understates the efficiencies, because we do see good economies of scale, for
example, albeit with lower growth in our overhead base, holding overheads cost while we
grow. Offset by those operational [disrupt] costs in labour costs that we talked about
before. As those roll out, we expect that efficiency picture to improve.
Marcus Curley: (UBS Investment Bank, Analyst) And what was the level of rate increases?
Leila Peters: 2-ish%.
Marcus Curley: (UBS Investment Bank, Analyst) And do you have to hand the level of the
number of people that have gone in, what the rate of increase of that is?
Christopher Luxon: Yes, we've had about a 6.3% increase in FTEs across the business. I
think it's an extra 690 people. A large part of that has been into cabin crew, airports and in
regional airlines as well.
Marcus Curley: (UBS Investment Bank, Analyst) So that's 6.3%?
Leila Peters: Yes, around that, exactly.
Christopher Luxon: Yes.
Marcus Curley: (UBS Investment Bank, Analyst) Is - that seems a fairly large number,
given what we've seen recently out of the business. So that was - do you think that there
is some step-ups, one-off step-ups in that? Or is that a bit of a catch up or how would you
think about the 6%?
Jeff McDowall: A lot of it is - well, a chunk of it - yes, [unclear] growth 4.3%. So to the
extent that it's higher than that. There is two main drivers. I think the bigger one is that
we have deliberately kept larger work groups to give us more flexibility as we've gone
through a period of scheduled disruption.
Typically we run a very disciplined focused rostering cost base, where we don't have a lot
of [fat] in the schedule, which is great for efficiency, but it means in a period of operational
uncertainty, it reduced our level of resilience and so we have added labour to improve
resilience, knowing that there is more operational uncertainty. Then there are some one-
offs associated with, for example, the AC-21 [Neo] entry.
Leila Peters: And we had something similar in, I believe, it was 2014 or 2015, with the
introduction of the Dreamliners market, where we had a little bit of a bubble that then
smoothed out as we got the aircraft into service and started operating.

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Marcus Curley: (UBS Investment Bank, Analyst) Okay and then finally from me, just the
timing on the 777-200 replacement. Is it still 2023 and beyond or is it possibly going to be
brought forward?
Christopher Luxon: No. The plant hasn't changed at this point. We are still looking at FY23,
so calendar late 2022 and we're looking - as we've indicated before, we're looking to make
an announcement this half of the year.
Marcus Curley: (UBS Investment Bank, Analyst) Okay, thank you.
Operator: Thank you. Your next question comes from Nick Mah from Macquarie Group.
Please go ahead.
Nick Mah: (Macquarie Group, Analyst) Hi guys, most of my questions have been asked,
just a couple of other ones. The Air Canada announcement today, what's your kind of
thoughts around that and plans around any kind of - or the level of JV on that route?
Christopher Luxon: Yes, so - from our point of view Nick, it's a positive thing. I think it will
stimulate a lot of traffic between Canada and New Zealand. We've obviously known Air
Canada for a long period of time. We've been aware of them and this intention. We've
singed an MOU with them to explore a JV. Obviously that will need regulatory blessing at
both ends of the market and we'll work our way through that in the coming months.
But I think if you think about North America and say an American entry, this is a very,
very different experience here. So we're very comfortable, very relaxed about that.
Nick Mah: (Macquarie Group, Analyst) And is the intention to take it all the way through to
a similar kind of revenue share, as you have with some of your other partners?
Christopher Luxon: That's what we'll try and work through in the coming months and
obviously have to work through with regulators as well.
Nick Mah: (Macquarie Group, Analyst) That's great and then just on the domestic pricing
restructure. How much of that was accelerated by the kind of slowdown you saw versus
something that you'd had in the works for a while? Then I guess what gives you
confidence in the new pricing being the right one? Obviously you have a lot of data there.
Can you talk about how you formulated those levels to balance [giving away] yield versus
demand?
Christopher Luxon: Yes, sure. Look, we - really it just came out of our responses. We
looked at our closing results and our forward projections at the end of January and really

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what this is designed is purely about simulating leisure travel. So it's all about lowering the
lead-in fares at our lowest - our fares that we have in the marketplace and we think
fundamentally that will stimulate travel.
If you think about it, there are - other sectors or other business often when they're faced
with lowering growth or lowering demand, they actually take their prices up and actually
end up getting into a negative cycle. We've learnt through the GFC, we've learnt from the
past, that we actually are better to [unclear] go out and actually simulate the market.
What I'd say already within the first days, is that we've seen a doubling of people onto our
website, so just to give you a feel for how well we think it is actually working.
So it's a very simple equation. We plan to simulate demand for leisure travellers and get
them moving. I think it seems to be working.
Nick Mah: (Macquarie Group, Analyst) Sure and those prices are - how different is the
overall optimisation equation from what you are doing previously, which is obviously every
single day you do similar things, but obviously the lead-in fares are slightly lower. Is it
drastically different overall?
Jeff McDowall: Well, as you say, the lead-in fares are lower, so that will give us the ability
to improve low factors and performance of the lower demand flights. There is also a more
sensible - it's all behind the scenes, but there is a more sensible set of [buy-ups], as you
go through the fare structure which, as Christopher was talking about, a lot of our demand
is from small, medium size enterprises.
So having moderate buy-ups allow us to cater to that group a bit more effectively with
more moderate fares. So it's just a better set of tools, more consistency to buy-ups to
maximise performance across the overall network.
Nick Mah: (Macquarie Group, Analyst) Great, thanks a lot.
Operator: Thank you. Your next question is a follow-up question from Owen Birrell from
Goldman Sachs. Please go ahead.
Owen Birrell: (Goldman Sachs, Analyst) I just wanted to I guess follow up on that
domestic fare pricing a little bit further. You’ve obviously lowered the domestic fares for
the lowest bucket of seats.
I'm just wondering is there any offsetting increase in the higher level buckets? [Plus] that
your RASK is probably less than...

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Christopher Luxon: No.
Owen Birrell: (Goldman Sachs, Analyst) No? Did you have any offset in CASK...
Christopher Luxon: I said no [too].
Owen Birrell: (Goldman Sachs, Analyst) ...coming through?
Jeff McDowall: Sorry, I missed the second part of the question. But sorry just for the first
part, the...
Owen Birrell: (Goldman Sachs, Analyst) I'm just wondering if there's any...
Christopher Luxon: ...the short answer is, no, we haven't increased there at the top end of
the scale. As I mentioned though, from the way we manage flights is using two price
components. One is the fares and the other is the revenue management system.
So the team will use the new set of fare structure to optimise performance, while making
sure we take full advantage of the ability to stimulate leisure demands.
Owen Birrell: (Goldman Sachs, Analyst) I was just going to maybe...
Christopher Luxon: Sorry, I missed the second, is around CASK?
Owen Birrell: (Goldman Sachs, Analyst) Yes, is there offset in CASK benefits coming
through such that your spread on each of those individual routes is actually fairly stable?
Christopher Luxon: I mean there's the opportunity to drive our load factors up a bit,
particularly on the lower demand flights. Middle of the day type flights, and get to a point
that the load factors are a bit more consistent across the day.
So it's not so much a CASK thing, but it's a cost per passenger thing if you know what I
mean.
Owen Birrell: (Goldman Sachs, Analyst) Yes.
Christopher Luxon: As we look forward we do have the benefit that will be provided next
year when the AC21 domestic aircraft start to come into the fleet.
Owen Birrell: (Goldman Sachs, Analyst) I note your domestic load factors are around
about sort of 83% at the moment. I mean that seems quite high for a network, from a
network perspective.
Some of these flights that you're discounting can you give us a sense of what your load
factors on those flights are at the moment?

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Christopher Luxon: Oh, it is quite variable. I mean to get an 83% load factor you’ve got
some 100s in there and some 55s in there. So it's - part of it is about consistency of load
factor, yes.
So there's quite a - I couldn’t give you precise numbers. I mean the range of load factors
is quite broad. Less broad than is has been, because we've over time become better and
better at managing that.
But I can tell you there's opportunities within individual flights to drive load factors up.
Owen Birrell: (Goldman Sachs, Analyst) Sure. So broadly we should see the domestic
network load factors improve on the back of this, RASK aside.
Christopher Luxon: Yes, that's right.
Owen Birrell: (Goldman Sachs, Analyst) Thank you.
Operator: Thank you. Your next question is a follow-up question from Andy Bowley from
Forsyth Barr. Please go ahead.
Andy Bowley: (Forsyth Barr, Analyst) Thanks. Hi again guys. So just another question
around the domestic leisure situation, and more broadly domestic travel. In New Zealand
we already have a very high propensity to fly.
I'm keen to hear your thoughts with regards to what kind of feeling is there to that
propensity to fly in terms of the modelling that you do? To what extent you do modelling
in terms of how much more we can fly each year? Because there's a limit to how much I
want to fly, and I'm sure that's the same for many people in New Zealand.
Christopher Luxon: Yes, I think, Andy, I mean it's an interesting part of this fare
restructure is also to actually attract some people who are actually currently driving. So
you can start to imagine that we are competing the customers who are driving to the
destinations they want to go to. So there will be market growth off the back of that as
well.
Andy Bowley: (Forsyth Barr, Analyst) So plenty of scope for further growth in propensity
to fly.
Christopher Luxon: Yes, I mean I think so. I think there's lots of opportunity to keep
growing the market, yes.
Andy Bowley: (Forsyth Barr, Analyst) Okay, thank you.
Operator: Thank you. There are no further questions at this time. I will now hand back for

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closing remarks.
Christopher Luxon: Well, can I just say to everyone on the call, thank you so much for
joining us this morning and giving us your time. Thanks again for the interest and for the
variety of questions.
If you are an investor or an analyst and you do want to schedule a call or a meeting, or
any follow-up questions that you may have, can I ask that you just direct those questions
through to Leila and our Investor Relations team. Certainly Jeff and I are happy to
participate with you and her as well.
If you’ve got a media-related question can I ask that you just fire those through to Marie
Hosking in the Communications team.
Thanks again, and thanks for your time. Have a great day.
End of Transcript

Air New Zealand Investor Update (Op Stats) – January 2019 Air NZ 2019 Interim Result – ASX Appendix 3A.1

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