Air New Zealand Business Review Update

Stock exchange listings: New Zealand (NZX: AIR) / Australia (ASX: AIZ) / ADR (OTC: ANZLY)


MARKET ANNOUNCEMENT

Air New Zealand postal address: Private Bag 92007, Auckland, 1142, New Zealand
Investor Relations email: investor@airnz.co.nz
Investor website: www.airnewzealand.co.nz/investor


28 March 2019
Air New Zealand Business Review Update

Air New Zealand has today announced the outcome of the business review that was announced
to the market on 30 January 2019. Attached to this market disclosure are the related media
release and investor presentation.

A conference call for investors and analysts will be hosted by Christopher Luxon (Chief
Executive Officer) and Jeff McDowall (Chief Financial Officer) today at 1:00pm NZDT and
can be accessed in the following ways:

• Live via webcast. To register for the webcast, please click here
.

• Live via telephone (for “listen-only” participants and those who would like to ask a question):

Conference ID: 761189
New Zealand Toll Free: 0800 453 055
NZ Local (Auckland): 09 929 1687
NZ Local (Wellington): 04 974 7738
NZ Local (Christchurch): 03 974 2632
Australia Toll Free: 1 800 558 698
Alternate Australia Toll Free: 1 800 809 971
Australia Local: 02 9007 3187
United States: (855) 881 1339
United Kingdom: 0800 051 8245
China Wide: 4001 200 659
Hong Kong: 800 966 806
Japan: 0053 116 1281
Singapore: 800 101 2785

• A replay via webcast will be accessible later in the day through the Investor Centre section
of Air New Zealand's website:
https://www.airnewzealand.co.nz/investor-centre


Please contact Leila Peters via email at leila.peters@airnz.co.nz or +64 9 336 2607 if you have
any questions.


Ends.

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Media release
28 March 2019

Air New Zealand Business Review Update

Air New Zealand has unveiled a series of initiatives to improve its financial performance and
customer experience over the next two years.

Chief Executive Officer Christopher Luxon says the outcome of the review, which followed the
airline’s revised profit guidance for the 2019 financial year, will positively impact revenue
growth, capital efficiency, operating costs and the customer travel experience into 2020 and
beyond.

“The actions we are announcing today are focused on re-aligning our business to ensure a
return to earnings growth in the lower growth environment. Air New Zealand is experienced at
adapting to changing macro environments, and the actions outlined in the business review
today will ensure the business is more dynamic, increasingly competitive and financially
resilient for the future.

“I want to be clear that although there will be changes to our business, Air New Zealand has
always and will always keep the customer at the core of everything we do. As such we have
some exciting developments in the customer space to announce in the coming weeks and
months, and we remain unequivocally committed to creating an exceptional travel experience
that is the envy of airlines around the world,” says Mr Luxon.

The key outcomes of the review are:

Optimising network to maximise and diversify revenue

Air New Zealand is focused on continuously optimising its route network to ensure that the
right aircraft are flying on the right routes, at the right times. Changes to the network include:

• Planning for network growth of 3% to 5%, on average, over the next three years,
revised from 5% to 7% to reflect a slower demand growth environment.

• Network growth focused on stimulating tourism to, from and within New Zealand, by
tapping into new markets of demand with the launch of additional destinations and
increased frequencies across the network, including:

• The launch of new direct services between Auckland and Seoul from late
November 2019.

• Increased frequency on Auckland-Taipei services from November 2019 and
Auckland-Chicago services from December 2019.

• Amending the timing of the Auckland-Hong Kong service to free up one aircraft from
late October 2019.

• A moderate rate of growth is expected across the existing route network.


Increasing capital efficiency through retiming of fleet orders

• Aircraft capital expenditures of approximately $750 million will be deferred to ensure
capacity growth better reflects the slower demand growth environment, including:

• Deferring by one year the delivery of three A321NEO aircraft planned to operate
on the domestic network.

• Deferring by two years the delivery of one A320NEO aircraft designated for trans-
Tasman services.

• Deferring by at least four years the delivery of two long-haul aircraft as part of a
widebody fleet programme to replace the airline’s B777-200 fleet, thereby
decreasing the level of capital expenditure expected in the 2020-2023 financial
years.

• No change is planned for the delivery date of the airline’s 14
th
B787-9 aircraft, which
will be leased from October 2019.

• As part of the airline’s focus on fleet flexibility, the new widebody fleet replacement
programme will include provisions that allow for an acceleration of growth, should
market conditions change.


Improving efficiencies across the cost base

The airline is focused on improving its operational cost base to set the airline up for success
in the current lower revenue growth environment.

• In addition to the ongoing cost saving initiatives of more than $50 million per annum,
which have enabled Air New Zealand to largely offset inflation over the past three
years, the airline will embark on a two-year cost reduction programme.

• This programme is designed to deliver more than $60 million in additional savings on
an annualised basis, and will be formed around three key pillars:

• Removal of inefficiencies incurred in the 2019 financial year to mitigate network and
passenger disruption related to the global Rolls-Royce engine issues.

• A reduction in overhead costs by approximately 5%, which will be delivered through
a combination of reprioritisation of spend, process efficiencies and automation.

• A targeted review of the operations cost base.

Continuing to invest in the customer travel experience

Air New Zealand remains committed to elevating the customer travel experience, with a
number of enhancements planned over the next two years. The airline will soon begin
revealing a series of exciting new developments across its in-flight and on-the-ground product
offerings, including:

• The progressive introduction of an enhanced Business Premier experience on the long-
haul fleet from the end of calendar 2019.

• A new, more spacious, Economy product offering on the long-haul fleet from mid-
calendar 2020.

• Free Wi-Fi offered on all enabled international aircraft from today.

• The upgrade of 9 lounges across the network over the next two years for approximately
$50 million, as part of the airline’s previously disclosed lounge upgrade programme.

Mr Luxon is confident in the airline’s ability to successfully adjust its operations to reflect
changing market conditions.

“Our confidence in Air New Zealand’s long-term strategy, customer proposition and financial
performance remains strong. The steps we are taking today will provide a strong foundation
for future earnings growth. We are deferring aircraft deliveries and related capital expenditures,
adjusting our capacity growth plans and driving sustainable efficiencies throughout our cost
base to better reflect the slower demand growth we are seeing in the market.”

Chairman Tony Carter says the Board fully supports the recommendations of the review and
the management team’s ability to deliver stronger results for the airline’s staff, customers and
shareholders.

“Both management and the Board have proven their ability to re-position the airline for success
across different external environments, and this time is no different,” says Mr Carter.

Mr Luxon says the airline sees strong potential to grow revenue and profitability by tapping into
new markets, even in a lower demand growth environment.

“We continue to see exciting growth opportunities that enhance our Pacific Rim strategy,
including entering new markets such as Seoul.”

Mr Luxon says a key focus for Air New Zealand is ensuring that each of its international aircraft
are directed at strongly profitable routes.

“On this basis we are putting extra effort into lifting the performance of some routes that we
feel are not meeting their potential, while refocusing our assets on those routes which are
performing ahead of expectations. Our number one priority is optimising our network mix to
maximise profitable growth. Therefore, it is terrific to be able to announce today that we will be
increasing frequency into Taipei and Chicago. Frequency on both routes will increase to up to
five services per week from December 2019. I’m also excited to announce that we will start
flying from Auckland to Seoul up to five days a week from late November 2019.”

Mr Luxon says the deferral of delivery times for the four A320/A321 NEOs and two widebody
aircraft will have a positive impact on the airline’s free cash flow and return on invested capital.
The new delivery schedule reflects changes made to the airline’s network to improve its
profitability and will better support a lower rate of growth for the coming years. The airline also
maintains flexibility to adjust its fleet orders in the future should demand levels increase.

“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 in this lower demand growth
environment.”

In addition to offering customers exciting new destinations and modern aircraft, the airline has
a series of product innovations in its pipeline that will further enhance the customer travel
experience in-flight and on-the-ground.

Mr Luxon says that Air New Zealand will begin fitting an enhanced version of its existing
Business Premier seat to its widebody fleet towards the end of the 2019 calendar year and the
rollout is expected to be completed by December 2020.

“We have undertaken considerable customer research and testing over the past 12 months to
come up with enhancements to the existing award-winning seat as well as a new food,
beverage and service offering that reflects the essence of who we are as a nation. We are
confident our Business Premier customers will love their Air New Zealand experience more
than ever.”

A new, more spacious Economy cabin product is expected to be in service on long-haul aircraft
by mid calendar 2020 as well.

“Air New Zealand’s customers are at the core of our business success and we are acutely
aware that in a world of rapidly changing expectations we need to be surprising and delighting
them more than ever, whether it be at home here in New Zealand or in the international markets
where we operate,” Mr Luxon says.


Ends

Issued by Air New Zealand Communications.

Email: media@airnz.co.nz
│ Phone: +64 21 747 320 │ Twitter: @AirNZMedia


About Star Alliance:

The Star Alliance network was established in 1997 as the first truly global airline alliance to offer worldwide reach, recognition and
seamless service to the international traveller. Its acceptance by the market has been recognized by numerous awards, including the
Air Transport World Market Leadership Award and Best Airline Alliance by both Business Traveller Magazine and Skytrax. The
member airlines are: Adria Airways, Aegean Airlines, Air Canada, Air China, Air India, Air New Zealand, ANA, Asiana Airlines, Austrian,
Avianca, Avianca Brasil, Brussels Airlines, Copa Airlines, Croatia Airlines, EGYPTAIR, Ethiopian Airlines, EVA Air, LOT Polish Airlines,
Lufthansa, Scandinavian Airlines, Shenzhen Airlines, Singapore Airlines, South African Airways, SWISS, TAP Air Portugal, THAI,
Turkish Airlines and United. Overall, the Star Alliance network currently offers more than 18,800 daily flights to over 1,300 airports
in 193 countries. Further connecting flights are offered by Star Alliance Connecting Partner, Juneyao Airlines.

For more information about Air New Zealand visit www.airnewzealand.com
and for more information about Star Alliance visit
www.staralliance.com and/or follow Star Alliance on Facebook, Twitter, Youtube, LinkedIn or Instagram.

Star Alliance Press Office: Tel: +49 69 96375 183 or email: mediarelations@staralliance.com

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AIR NEW ZEALAND 2019INTERIM RESULT
28 MARCH 2019

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
Overview
As disclosed in market updates on 30 January and at the 2019 Interim Results
on 28 February:
• Slower levels of growth were observed in the December 2018 revenue numbers that
came through in January.
• The forward bookings outlook at this time also suggested a slower rate of demand
growth than previously observed.
• These changes were primarily seen in the domestic leisure customer segment and
there was also some impact related to slowing inbound tourism to New Zealand.
• On the basis of the slower growth environment, a review of our network, fleet and cost
base commenced in late January, focused on actions that will ensure the airline’s long-
term financial success in the lower growth environment.
3

AIR NEW ZEALAND 2019INTERIM RESULT
Clear strategy in place to drive earnings growth and improved ROIC in
changing demand environment
4
Cost
• Launch of a two-year cost reduction
programme
• Expecting to achieve an additional
~$60 million in annualised savings
over this period
• Focused on both operational and
overhead costs
Network
• Revised medium term growth to
3% to 5% (from 5% to 7%)
• Focused on optimising network to
maximise and diversify revenue
• Stimulate new demand
• A moderate rate of growth expected
on existing routes
Customer
• Progressive roll-out of enhanced
seats across multiple cabins
• New in-flight soft products including
free Wi-Fi onboard enabled
international flights
• Upgraded lounge facilities across
the network
Fleet
• Adjust aircraft deliveries to reflect
slower growth environment
• Fleet deferrals of ~$750 million
• Smoother capex profile in 2020-
2022 period

AIR NEW ZEALAND 2019INTERIM RESULT
5
Optimising our network to maximise and diversify revenue
6.6%
11.5%
6.3%
5.0%
~4%
20152016201720182019E2020E-2022E
Group capacity growth
(Historical and current targets)
Average of
~+3% to +5%
• Planning for network growth of 3% to
5%, on average, over the medium-term
−Revised from 5% to 7%
*
• Growth focused on stimulating new
demand for New Zealand market
−Launch of new direct services between
Auckland and Seoul from late November
2019
−Increased frequency on existing Taipei and
Chicago routes from November and
December 2019 respectively
−Amending timing of Auckland-Hong Kong
service to free up one aircraft
from late October 2019
• Moderate growth expected
across existing route network
* As disclosed at Air New Zealand’s 2018 Investor Day on 14 June 2018.

AIR NEW ZEALAND 2019INTERIM RESULT
Increasing capital efficiency through retiming of fleet orders
2 units deferred – remaining aircraft
for widebody replacement programme
expected to be delivered from 2023
6

AIR NEW ZEALAND 2019INTERIM RESULT
7
What we said in February 2019*
Revised aircraft capex outlook**
* As disclosed in 2019 Interim Results as at 28 February 2019; assumes NZD/USD = 0.67.
** As disclosed in 28 March 2019 disclosure to NZX and ASX; assumes NZD/USD = 0.67.
Smoother aircraft capex resulting from deferral of NEO aircraft
0
200
400
600
800
1,000
20152016201720182019202020212022
$ millions
ActualInterim Results Forecast
0
200
400
600
800
1,000
20152016201720182019202020212022
$ millions
ActualRevised forecast
~$1.2 billion
aircraft capex
(excludes PDPs and
capex for widebody
replacement until
contract awarded)

AIR NEW ZEALAND 2019INTERIM RESULT
Two-year cost reduction programme targeting more than $60 million in
annualised savings, in addition to ongoing annual savings of $50 million
The cost reduction programme will be formed around three key pillars:
123
A targeted review of
the operations cost
base
~5% reduction in
overheads through
reprioritisation,
process efficiencies
and automation
Removal of
inefficiencies
associated with the
Rolls-Royce engine
issues
8

AIR NEW ZEALAND 2019INTERIM RESULT
Continuing to invest in the customer travel experience
• Committed to offering an innovative and
dynamic customer experience
• Will announce a series of exciting new
investments in the customer travel experience
including:
−The progressive introduction of an enhanced
Business Premier experience on the long-haul fleet
from the end of calendar 2019
−A new, more spacious Economy product offering
on some of our long-haul fleet from mid calendar
2020
• Free Wi-Fi will be available on all enabled
international aircraft
• In the process of upgrading 9 lounges across
the network for an estimated spend of $50
million
9

AIR NEW ZEALAND 2019INTERIM RESULT
2019 outlook reaffirmed
10
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 once again 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
Providing a strong foundation for future earnings growth
11

AIR NEW ZEALAND 2019INTERIM RESULT
Supplementary
slides

AIR NEW ZEALAND 2019INTERIM RESULT
Revised aircraft delivery schedule reflects NEO delay
1
Prior aircraft delivery schedule disclosed as at 28 February 2019.
2
As at 31 December 2018.
3
Does not reflect two additional A321NEO aircraft on order for expected delivery in FY2024.
Aircraftdelivery schedule
1
(as at 31 December 2018)
Number in
existing fleet
Number
on order
DeliveryDates (financial year)
2H 2019
2020
20212022
Owned fleet on order
Airbus A320/A321 NEOs
112
3
5
4
-3
ATR72-600
218 26--
Operating leased aircraft
Boeing 787-9
11-1--
Airbus A320/A321 NEOs
2321--
Revised aircraftdelivery schedule (reflecting fleet deferrals resulting from business review)
Number in
existing fleet
2
Number
on order
2
DeliveryDates (financial year)
2H 20192020
20212022
Owned fleet on order
Airbus A320/A321 NEOs
112
3
5-
34
ATR72-600
218 26--
Operating leased aircraft
Boeing 787-9
11-1--
Airbus A320/A321 NEOs
2311--
Prior delivery schedule
Current delivery
schedule
13

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
14
Find more information about Air New Zealand

AIR NEW ZEALAND 2019INTERIM RESULT

AIR NEW ZEALAND 2019INTERIM RESULT