Air NZ reports interim profit, maintains interim dividend
Media release
27 February 2020
Air New Zealand reports interim profit
1
of $198 million
and maintains interim dividend
Air New Zealand has today announced earnings before other significant items and taxation of $198
million for the six-month period ended 31 December 2019, compared to $217 million in the prior
period, reflecting the slower demand growth environment, weakness in the global cargo market and
the ongoing unrest in Hong Kong. Earnings before taxation were $139 million and net profit after
taxation was $101 million.
Operating revenue growth of 3 percent was driven by solid demand across the airline’s Domestic and
Pacific Islands networks, as well as recently launched services into Asia and North America. This
helped to mitigate weaker cargo demand, increased competition on the Tasman and the impact of
disruptions in Hong Kong.
Operating costs increased 3.5 percent in the period, impacted by significant price increases in
domestic air navigation and landing charges, as well as a weaker New Zealand dollar. Maintenance
costs for third party contracts also increased, however this was more than offset by the related
revenues. Fuel costs increased 1.1 percent, as an improvement in the underlying fuel price was offset
by foreign exchange and fuel volumes resulting from growth in the International network.
Ownership costs increased by 7.1 percent, driven by the arrival of new, efficient aircraft including the
airline’s 14
th
Boeing 787-9 Dreamliner in a premium-heavy configuration.
Chairman Dame Therese Walsh says she is proud that management continues to execute the
strategy that was first communicated to the market in March 2019, whilst quickly adapting the
business to the evolving situation surrounding the Covid-19 outbreak.
“Our capacity discipline on existing routes, stimulation of leisure traffic with the domestic fare
restructure and entrance into attractive new international markets has driven good revenue
performance in the first half. Alongside our focus on profitable top-line growth, we are on track to
deliver the long-term sustainable cost savings target from our business review initiatives.
“While the Covid-19 situation is dynamic, we have taken immediate steps to mitigate the impact of
softer demand and I am confident that we have the ability to manage the expected short-term impacts
effectively,” she says.
The Board has declared a fully imputed interim dividend of 11.0 cents per share, in-line with the prior
period. The dividend will be paid on 25 March, to shareholders on record as at 13 March.
Chief Executive Officer Greg Foran acknowledged the Air New Zealand team and thanked them for
their contribution to the interim financial result.
“As I travel around the various parts of the business, it is clear that what makes Air New Zealand
stand out from its global competitors is the enthusiasm and dedication of our people. Their focus on
providing our customers with the best service will continue to be a key differentiator as we look to set
the airline up for future success.”
1 Represents earnings before other significant items and taxation. Other significant items of $59 million comprise of $46 million related to the
disestablishment of fair value aircraft hedges and reorganisation costs of $13 million
.
During his first 100 days, Mr Foran will undertake a diagnostic of the airline’s opportunities and risks.
This will provide the basis for determining potential changes to the future strategic direction of the
airline.
“Air New Zealand holds a special place in the hearts of New Zealanders and we take that
responsibility very seriously. As such, the diagnostic of the airline will look at how we can drive long-
term sustainable outcomes for our customers, our staff, the broader community and our
shareholders,” says Mr Foran.
Impact from the Covid-19 outbreak
As disclosed in its market announcement on 24 February, Air New Zealand has taken immediate
steps to mitigate the impact of demand weakness on some parts of the airline’s network following the
recent Covid-19 outbreak.
In addition to the temporary suspension of services into Shanghai and Seoul, the airline announced
that it would make further capacity reductions on other markets that are showing signs of weakness
following the outbreak. This includes services into Hong Kong and Japan, albeit to a lesser extent.
The reduction in services to Asia will result in approximately 17 percent less capacity across the
February to June period than the airline had initially planned.
“By proactively reducing these services we are better able to manage the cost implications of making
late changes to our network and can redirect our most efficient aircraft, the Boeing 787 Dreamliner,
to other parts of the network,” says Mr Foran.
The airline has also noted signs of weaker demand on the Tasman, as well parts of the Domestic
network, such as Queenstown and Christchurch which are primarily leisure-based destinations that
are popular with international visitors. As such, earlier this week the airline announced targeted
capacity reductions on certain Tasman and Domestic services to ensure the appropriate level of
capacity in this changing demand environment.
The airline will be increasing its market development investment to help drive additional demand,
specifically across its Domestic and Tasman markets.
Mr Foran says that the recent challenges presented by the Covid-19 outbreak show the resiliency of
the airline and its ability to respond quickly to changing market conditions.
“Air New Zealanders from across the business have been working around the clock to manage the
impact of the Covid-19 outbreak on our operations. Our business is resilient, and we have
demonstrated the ability time and again to respond quickly to changing market conditions. We have
a highly capable and experienced senior leadership team who have dealt with challenges such as
this before and I am confident that we will effectively navigate our way through this,” says Mr Foran.
Outlook
While the situation is uncertain, based on current assumptions of lower demand as well as the benefit
of the announced capacity reductions and lower jet fuel prices, the airline currently expects a net
negative impact to earnings in the range of $35 million to $75 million as a result of Covid-19.
At the midpoint of the estimated range above, which is approximately $55 million, the airline is
targeting earnings before other significant items and taxation to be in a range of approximately $300
million to $350 million
2
.
The airline will provide an update to this guidance should the current assumptions materially change.
2
Assuming jet fuel prices remain at US$65 per barrel for the remainder of the year and excludes the impact of the NZ IFRS 16.
Interim Financial Highlights
• Operating revenue of $3.0 billion
• Earnings before other significant items and taxation
3
of $198 million
• Earnings before taxation of $139 million
• Net profit after taxation of $101 million
• Reported operating cash flow of $534 million (or $423 million excluding the impact of the new
leasing standard, NZ IFRS 16)
• 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
3. Earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding items
which due to their size or nature warrant separate disclosure to assist with understanding the underlying financial performance of the Group. Earnings
before other significant items and taxation is reported within the Group’s condensed interim financial statements which was subject to review by the
external auditors. Further details are contained within Note 3 of the Group’s condensed interim financial statements
---
AIR NEW ZEALAND 2020INTERIM RESULT
AIR NEW ZEALAND 2020INTERIM 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 2020INTERIM RESULT
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.
Forward-looking statements
Changes in accounting treatment
Throughout this presentation and all related commentary, prior period comparative figures have been
restated, where applicable, to reflect the retrospective disestablishment of fair value aircraft hedges
following clarifications on the treatment of these hedges by the International Financial Reporting
Interpretations Committee during the 2020 interim reporting period.
The Group’s adoption of the new leasing standard (NZ IFRS 16) effective 1 July 2019, has also impacted
the way in which the Group presents lease costs and other associated balances in the income
statement, balance sheet and statement of cash flows. Prior year comparatives have not been restated,
in accordance with the transition provisions of the new standard.
For further information, please refer to Note 8 of the Group’s 2020 Interim Financial Statements.
AIR NEW ZEALAND 2020INTERIM RESULT
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AIR NEW ZEALAND 2020INTERIM RESULT
6
• Changes in network strategy outlined last March are performing well
−Solid revenue performance in 1H, driven by growth into new markets and strong demand in the
Domestic and Pacific Islands markets
−Overall revenue performance impacted by further decline in the global cargo market
• Underlying unit cost improvement in 1H reflects successful implementation of business
transformation activities
−Remaining cost initiatives on track to be delivered in the next 18 months
−Overall cost performance impacted by maintenance costs, increased domestic air navigation
and landing charges, a weaker New Zealand dollar, and higher ownership costs
−Fuel costs in-line with expectations
• Well placed to navigate short-term demand impact of the recent Covid-19 outbreak
1H 2020 result reflects delivery of our strategy amidst a mixed
economic environment
AIR NEW ZEALAND 2020INTERIM RESULT
7
Good performance from recently launched
growth markets across Asia and the US
A321 NEO’s on the Tasman and Pacific
Islands network provide ~30% more
seats, at the same fuel cost per trip
Strong demand across the Domestic and
Pacific Islands networks
Our network responses to the lower demand growth environment
helped drive improved revenue outcomes in the first half
Attractive new
markets
1
Upgauge
aircraft
2
Moderate growth
on existing routes
3
Previously communicated drivers of network
growth:
AIR NEW ZEALAND 2020INTERIM RESULT
8
Our cost reduction initiatives previously outlined in March last year
remain on track
Cost programme targets
1
Removal of inefficiencies associated
with the Rolls-Royce engine issues
2
~5% reduction in overheads through
reprioritisation, process efficiencies
and automation
3
A targeted review of the operations
cost base
What we said in March
2019
On track to achieve or
exceed?
AmountTiming
1
AmountTiming
~$20
million
All 2020
On track to deliver planned
savings despite additional
TEN maintenance backlog
~$20
million
Split
evenly
2020 and
2021
On track
~$20
million
Split
evenly
2020 and
2021
On track to achieve target,
with timing skewed to 2021
1
Refers to Air New Zealand’s financial year.
AIR NEW ZEALAND 2020INTERIM RESULT
9
1H 2020 financial highlights
•Operating revenue $3.0 billion, up 3.0%
•Earnings before other significant items and
taxation $198 million, down 8.8%
•Earnings before taxation $139 million
•Net profit after taxation $101 million, down 33%
•Reported operating cash flow of $534 million
($38m)
Taxation
$101m
Net profit
after taxation
$198m
Earnings before
other significant
items and
taxation
($59m)
Other significant
items
1
$139m
Earnings before
taxation
1
Refer to slide 31 for further details on other significant items.
464
331
327
217
198
0
50
100
150
200
250
300
350
400
450
500
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Earnings before other significant items and taxation
($ million)
AIR NEW ZEALAND 2020INTERIM RESULT
AIR NEW ZEALAND 2020INTERIM RESULT
11
Revenue
•Passenger revenue excluding FX up 2.8%; reported up 3.2%
–Strong demand up 4.0% oncapacity growth of 2.8%
–RASK excluding FX down 0.1%; reported up 0.3%
•Cargo revenue excluding FX down 9.4%; reported down 8.5%
Cost
•CASK
*
improvement of 0.5%
−Reported CASK including fuel, FX and maintenance for third parties up 0.7%
−Economies of scale and efficiencies of $59 million more than offset the impact of
non-fuel price changes
•Reported fuel cost increased $7 million, 1.1%driven by:
–Average fuel price decrease (net of hedging) of $28 million, down 4.3%
1
–Weaker New Zealand dollar adversely impacted fuel cost by $20 million
–Increased volumes from capacity growth drove $15 million of additional cost
Solid revenue growth and CASK
*
improvement offset by a weaker
New Zealand dollar
*
Excluding fuel price movement, FX and maintenance for third parties.
1
Fuel cost movement details provided in supplementary slides.
AIR NEW ZEALAND 2020INTERIM RESULT
12
1
For further details refer to Fuel Cost Movement slide 26.
Additional commentary
•Labour cost increase of 1.3%,
below capacity growth of 2.8%
and driven by reduced incentive
payments as well as impact of
cost initiatives outlined in
business review
•Maintenance, aircraft operations
and passenger services costs
reflect 2.8% capacity growth and
additional maintenance activity
for third parties, as well as an
increase in domestic air
navigation and landing charges
•Ownership cost increase driven
by new aircraft deliveries
Changes in profitability
AIR NEW ZEALAND 2020INTERIM RESULT
1H 2020 Passenger revenue performance by market
13
1
Pacific Islands includes Bali and Honolulu.
Tasman
Pacific
Islands
1
Asia
North
America
South
America
Europe
•Strong RASK growth due to capacity
rationalisation
•Some softness in Samoa following the
measles outbreak
•Robust revenue growth driven by new
services, as well Rugby World Cup
demand in Japan
•Softness in Hong Kong remains due to
ongoing unrest
•Market capacity remains high although
some signs of rationalisation towards the
end of 1H 2020
•Strong demand has driven improved RASK
•Domestic fare restructure has stimulated
additional leisure demand
•Robust Corporate sector demand
•Additional market capacity
•Weaker New Zealand dollar
impacted demand from
New Zealand to the US
•Steady performance
across peak season,
however economic
environment continues
to be challenging
•Performance
in-line with
expectations
AIR NEW ZEALAND 2020INTERIM RESULT
14
• Overall cargo decline of 9.4%*, excluding
FX, driven by:
– Load factor declines, particularly in North
America and Asia, partly due to declining
flow of goods between the US and China
– Moderation of capacity on some parts of the
network, partially offset by cargo capacity
into new routes
– Continued intense pricing competition on the
Tasman as market remains over supplied
Challenges in the global cargo market impacted 1H 2020
performance
Revenue
down
9.4%*
Yield
down
1.3%
Volume
down
8.1%
* Reported Cargo revenue decreased 8.5%, inclusive of foreign exchange impact.
AIR NEW ZEALAND 2020INTERIM RESULT
10.11
10.04
(0.26)
0.21
0.10
(0.12)
0.14
7
8
9
10
11
DEC 2018
CASK
ECONOMIES
OF SCALE AND
EFFICIENCIES
PRICETHIRD PARTY
MAINTENANCE
FUEL PRICEFOREIGN
EXCHANGE
DEC 2019
CASK
CASK (cents)
• CASK*improvement of 0.5%
−Reported CASK increased 0.7%, primarily due to increased costs associated with maintenance for
third parties, which is offset by a corresponding increase in operating revenue
−$59 million in efficiencies and economies of scale
* Excluding fuel price movement, FX and maintenance for third parties.
Strong focus on cost initiatives drove an underlying improvement in
1H 2020 CASK*
15
CASK*
decreased 0.5%
AIR NEW ZEALAND 2020INTERIM RESULT
16
•On a comparable basis
1
, operating cash flow has declined
11% to $423 million
−Includes one-off cash outflow of ~$55 million related to the pre-
purchase of certain engine parts
−Reported operating cash flow of $534 million
•Cash on hand of $1.0 billion, down 4.9% from June 2019
•Stable outlook Baa2rating from Moody’s
•Gearing of 54.3%
2
, an increase of 2.6 percentage points
from 1 July 2019, driven by continued investment in fleet
•Fully imputed interim dividend of 11.0 centsper share,
consistent with the prior period
10.010.0
11.011.011.0
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Dec
2019
Interim dividend declared
(cents per share)
Robust operating cash flow and financial resilience in a
challenging environment
541
376
479
475
534
Dec
2015
Dec
2016
Dec
2017
Dec
2018
Reported
Dec
2019
Operating cash flow
($ millions)
1
Operating cash flow on comparable basis excludes reclassifications arising under the new leasing standard, NZ IFRS 16.
2
Refer to slide 30 for further information on gearing movements. The net debt calculation has changed this year following the Group’s adoption of NZ IFRS 16 from 1 July 2019.
AIR NEW ZEALAND 2020INTERIM RESULT
0
200
400
600
800
1,000
201520162017201820192020202120222023
$ millions
ForecastActual
17
• Forecast investment of $1.5 billion in aircraft and
associated assets through to 2023, including the
first Boeing 787-10 aircraft
• Assumes NZD/USD = 0.65
• Timing of forecast expenditure has shifted with
the delay in the arrival of 4 domestic NEOs
**
* Includes progress payments on aircraft.
** Two aircraft have been delayed from 2021 to 2022, and two from 2022 to 2023.
Fleet investment update
Aircraftdelivery schedule(as at 31 December 2019)
Number in
existing fleet
Number
on order
DeliveryDates (financial year)
2H 2020202120222023
Owned fleet on order
Boeing 787-10
-1***---1
Airbus A320/A321 NEOs
67***-142
ATR72-600
272 11--
Leased aircraft****
Airbus A320/A321 NEOs
5-----
Actual and forecast aircraft capital expenditure*
*** Does not reflect seven Boeing 787-10 and two A321 NEO aircraft on order for expected delivery from 2024.
**** Leased aircraft will be returned to the lessor at the end of the lease term.
AIR NEW ZEALAND 2020INTERIM RESULT
AIR NEW ZEALAND 2020INTERIM RESULT
19
We are adjusting our business to reflect demand softness across a
number of markets following the outbreak of Covid-19
AsiaTasman/Pacific Islands*Domestic
Demand
environment
- Softer inbound demand across Asia to
New Zealand
- Outbound demand to Asia
destinations has reduced substantially
- Cargo impact from reduced demand
and capacity reductions
- Weaker demand on Tasman routes
following China travel restrictions
- Pacific Islands demand remain solid
- Domestic network impacted from
Covid-19 related cancellations
(inbound travel with intra-New
Zealand itineraries)
Air New
Zealand
actions
- Total Asia capacity decline of ~17%
from Feb to Jun
- Temporary suspension of Shanghai
services from Jan through to late Mar
- Temporarily suspending Seoul
services from Mar to Jun
- Additional capacity adjustments
across Asia, primarily focused on
Hong Kong
- 3% targeted capacity reductions,
focused on services to Sydney,
Melbourne and Brisbane across Mar
to May
- Reallocated efficient Boeing 787-9
aircraft from lower demand Asia
routes to Honolulu and Bali
- Increasing market development
activities to stimulate demand
- Overall domestic capacity reductions
of ~2% from Mar to Apr
- Reductions focused on leisure
destinations of Christchurch and
Queenstown which have seen
greatest impact
- Increasing market development
activities to stimulate demand
*
Pacific Islands includes Bali and Honolulu.
AIR NEW ZEALAND 2020INTERIM RESULT
20
Sector
1H 2020
capacity
2H 2020
capacity
Full year
2020
capacity
Previous
2020 capacity
plan
1
Domestic(2.4%)(1%) - flat(1%) - (2%)(2%) - (3%)
Tasman &
Pacific Islands
2
+0.3%+0.5% - 1%flat - +1%+2% - 3%
International
Long-haul
+5.8%+2% - 3%+3% - 4%+7% - 8%
Group+2.8%+1% - 2%+1.5 - 2.5%+4% - 5%
Revised capacity outlook reflects actions taken to mitigate
impact of slower demand from Covid-19
1
Prior to the outbreak of Covid-19.
2
Pacific Islands includes Bali and Honolulu.
AIR NEW ZEALAND 2020INTERIM RESULT
540
560
580
600
620
$55$60$65$70$75
NZD Cost of Fuel (millions)
Singapore Jet (USD/barrel)
2H 2020 Fuel Cost
1
sensitivity (inclusive of hedging)
21
1
Assumes an average jet fuel price of US$65 per barrel for the second half of the 2020 financial year and a NZD/USD rate of 0.65.
2
Assumes an average jet fuel price of US$72 per barrel for the full 2020 financial year.
649
622
1,271
656
~590
~1,250
2
0
200
400
600
800
1,000
1,200
1,400
1H2HFY
NZD millions
2020 Fuel cost outlook
20192020
2020E
Fuel cost outlook and sensitivities for the remainder of 2020
AIR NEW ZEALAND 2020INTERIM RESULT
22
2020 Outlook
While the situation is uncertain, based on our current assumptions of lower demand
as well as the benefit of the announced capacity reductions and lower jet fuel
prices, the airline currently expects a net negative impact to earnings in the range
of $35 million to $75 million as a result of Covid-19.
At the midpoint of the estimated range above, which is approximately $55 million,
the airline is targeting earnings before other significant items and taxation to
be in a range of approximately $300 million to $350 million
1
.
The airline will provide an update to this guidance should the current assumptions
materially change.
1
Assuming jet fuel prices remain at US$65 per barrel for the remainder of the year and excludes the impact of NZ IFRS 16.
AIR NEW ZEALAND 2020INTERIM RESULT
AIR NEW ZEALAND 2020INTERIM RESULT
AIR NEW ZEALAND 2020INTERIM RESULT
Supplementary
slides
AIR NEW ZEALAND 2020INTERIM RESULT
26
Decrease in
jet fuel price
US$87 to US$76
per barrel
Dec 2019
hedge loss of
$22m
vs
Dec 2018
hedge
gain of $24m
$28 million
effective decrease
in fuel price
(4%)
Fuel cost movement
649
15
(74)
46
20
656
0
200
400
600
800
DEC 2018
FUEL COST
VOLUMEUNDERLYING
PRICE
NET HEDGINGFX
MOVEMENTS
DEC 2019
FUEL COST
$ millions
AIR NEW ZEALAND 2020INTERIM RESULT
27
Fuel hedging*
• 91% of estimated volumes hedged in 2H
2020
• 56% of 1H 2021 estimated volumes
currently hedged
Foreign exchange hedging
• 2H 2020 US dollar is 88% hedged at a rate
of 0.6617
• 1H 2021 US dollar is 50% hedged at a rate
of 0.6472
* Based on fuel hedging disclosure as at 21 February 2020.
Hedging update
AIR NEW ZEALAND 2020INTERIM RESULT
7.5
7.0
7.5
7.1
7.1
7.8
8.0
2016201720182019202020212022
Aircraft fleet age in years
(seat weighted)
HistoricalForecast
28
Projected aircraft in service and fleet age
*
Excludes short-term leases which provide cover for the global Rolls-Royce engine issues.
*
*
202020212022
Boeing 777-300ER
777
Boeing 777-200ER887
Boeing 787-9141414
Airbus A320222016
Airbus A320/A321 NEO111216
ATR72-600282929
Bombardier Q300232323
Total Fleet113113112
AIR NEW ZEALAND 2020INTERIM RESULT
29
Impact of new lease accounting standard (NZ IFRS 16)
Income statement impact
Dec 2018
$M
Dec 2019
$M
Notes
Rental and lease expense122
Depreciation expense111Net movement of $6 million comprised of:
Interest expense14NZ IFRS 16 methodology changes3
Other expenses3Underlying changes to lease portfolio3
Total income statement122
Total income statement1286
Note: For details on the transitional impact of NZ IFRS 16 on the balance sheet, refer to Note 8 of the Group’s Interim Financial Statements.
Dec 2018
$M
Dec 2019
$M
Notes
Cash flows from
operating activities
111Cash flows from financing
activities
111This represents the reclassification of the principal
portion of operating lease payments
Statement of cash flows impact
AIR NEW ZEALAND 2020INTERIM RESULT
30
* Includes capitalised off-balance sheet aircraft lease commitments at 30 June 2019.
1
Refer to Note 8 in the Group’s 2020 Interim Financial Statements for details of the fair value hedge adjustment and impact ofNZ IFRS 16.
Reconciliation of gearing movements
Reported
30 Jun 2019
Fair value
hedge
adjustment
Adjusted
30 Jun 2019
Impact of
NZ IFRS 16
Restated
1 Jul 2019
Reported
31 Dec 2019
Net Debt
($M)
2,517*-2,517*(384)2,1332,389
Equity
($M)
2,089(97)1,992-1,9922,014
Gearing (%)
54.6*55.8*51.754.3
Aircraft lease commitments for
the next twelve months
multiplied by a factor of seven
$(1,246m)
Operating lease liabilities
$862m
Impact of bringing operating leases on balance sheet:
AIR NEW ZEALAND 2020INTERIM RESULT
31
Earnings before other significant items and taxation
Dec 2019
$M
Dec 2018
$M
Full year
estimate
$M
Earnings before taxation (per NZ IFRS)
139211
Add back other significant items:
Disestablishment of fair value aircraft hedges
1
46646
Reorganisation costs
2
13-20 -25
Gain on sale of airport slots
3
--(21)
Earnings before other significant items and taxation
198217
Earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding items which due to their size or
nature warrant separate disclosure to assist with understanding the underlying financial performance of the Group. Earnings before other significant items and taxation is
reported within the Group’s condensed interim financial statements which was subject to review by the external auditors. Furtherdetails are contained within Note 3 of the
Group’s condensed interim financial statements.
1
The International Financial Reporting Interpretations Committee ("IFRIC") published a new interpretation on the principals ofNZIFRS 9.The interpretation no longer permits
fair value hedges of underlying United States Dollar aircraft values previously undertaken by the Group.The retrospective application of the interpretation resulted in the
disestablishment of these hedges.
2
Reorganisation costs relate to the withdrawal of services on the London-Los Angeles route and a two-year cost reduction programme.
3
A gain on sale related to the sale of northern winter Heathrow landing slots (arising from the exit of the London-Los Angeles route) is expected to be recognised in June 2020.
AIR NEW ZEALAND 2020INTERIM RESULT
32
* Comparative is for 30 June 2019.
** Comparative information is at 1 July 2019, the Group’s transition date for NZ IFRS 16.
*** Dividends are fully imputed.
Dec 2019
$M
Dec 2018
$M
Movement
$M
Movement
%
Operating revenue
3,0152,927883.0%
Earnings before other significant items and taxation
198217(19)(8.8%)
Earnings before taxation
139211(72)(34.1%)
Net profit after taxation
101150(49)(32.7%)
Operating cash flow
5344755912.4%
Cash position*
1,0031,055(52)(4.9%)
Gearing**
54.3%51.7%-2.6 pts
Ordinary dividends declared***
11.0 cps11.0 cps--
Financial overview
AIR NEW ZEALAND 2020INTERIM RESULT
33
* Calculation based on numbers before rounding.
Dec 2019Dec 2018Movement*
Passengers carried (‘000s)9,0408,8951.6%
Available seat kilometres (ASKs, millions)23,74123,0842.8%
Revenue passenger kilometres (RPKs, millions)20,02119,2444.0%
Load factor84.3%83.4%0.9pts
Passengerrevenue per ASKs as reported
(RASK, cents)
10.810.80.3%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
10.810.8(0.1%)
Group performance metrics
AIR NEW ZEALAND 2020INTERIM RESULT
34
Dec 2019Dec 2018Movement*
Passengers carried (‘000s)5,7875,7550.6%
Available seat kilometres (ASKs, millions)3,5063,591(2.4%)
Revenue passenger kilometres (RPKs, millions)2,9732,9700.1%
Load factor84.8%82.7%2.1pts
Passengerrevenue per ASKs as reported
(RASK, cents)
24.322.57.7%
Passenger revenue per ASKs, excluding FX
(RASK, cents)
24.2
22.5
7.6%
* Calculation based on numbers before rounding.
Domestic
AIR NEW ZEALAND 2020INTERIM RESULT
35
1
Pacific Islands including Bali and Hawaii.
* Calculation based on numbers before rounding.
Dec 2019Dec 2018Movement*
Passengers carried (‘000s)2,1112,0741.8%
Available seat kilometres (ASKs, millions)7,0937,0720.3%
Revenue passenger kilometres (RPKs, millions)5,8525,8320.3%
Load factor82.5%82.5%
-
Passengerrevenue per ASKs as reported
(RASK, cents)
9.79.9(1.9%)
Passenger revenue per ASKs, excluding FX
(RASK, cents)
9.7
9.9
(1.5%)
Tasman & Pacific Islands
1
AIR NEW ZEALAND 2020INTERIM RESULT
36
* Calculation based on numbers before rounding.
Dec 2019Dec 2018Movement*
Passengers carried (‘000s)1,1421,0667.2%
Available seat kilometres (ASKs, millions)13,14212,4215.8%
Revenue passenger kilometres (RPKs, millions)11,19610,4427.2%
Load factor85.2%84.1%1.1pts
Passengerrevenue per ASKs as reported
(RASK, cents)
7.98.0(0.9%)
Passenger revenue per ASKs, excluding FX
(RASK, cents)
7.88.0(1.9%)
International
AIR NEW ZEALAND 2020INTERIM 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
Gearing
Net Debt / (NetDebt + Equity); Net Debt includes capitalised aircraft operating lease commitments at 30 June
2019
Net Debt
Interest-bearing liabilities, lease liabilities less bank and short-term deposits, net open derivatives held in relation
to interest-bearing liabilities and lease liabilities, and interest-bearing assets, plus, for the prior period, net aircraft
operating lease commitments for the next twelve months multiplied by a factor of seven (excluding short-term
leases, which 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
37
AIR NEW ZEALAND 2020INTERIM 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
38
AIR NEW ZEALAND 2020INTERIM RESULT
---
INTERIM FINANCIAL
REPORT 2020
Letter from the Chairman
2
AIR NEW ZEALAND GROUP
Kia ora koutou katoa.
As we celebrate the 80th anniversary of Air New Zealand this year,
I am reminded of the tremendous history of this airline and of the
milestones that we have achieved. From an operation that started
with three flying boats, we now operate more than 110 aircraft to
over 40 destinations, connecting New Zealanders to the world and
the world to New Zealand.
In the last 10 years alone, Air New
Zealand has substantially expanded
its network, modernised and simplified
its fleet and innovated the customer
experience both at the airport and
on-board our flights. We have also put
sustainability at the heart of our business
strategy and have partnered with regional
and iwi stakeholders to ensure that the
regions remain core to the narrative for
New Zealand’s ongoing success.
While it is milestones like this that lead
us to reflect on where we have come
from, it is crucial that we focus on where
we are headed. 2020 is shaping up to
be an exciting year for the airline, with
direct flights to New York commencing in
October providing the first ever non-stop
link between Australasia and the east
coast of the United States. We will also
unveil our vision for the aircraft cabin
of the future, which is the outcome of
three years of product testing with our
customers. We know that our world-class
product and service offering is one of our
key competitive advantages and these
exciting new developments will further
solidify that advantage.
Our new Chief Executive Officer Greg
Foran has now officially taken the helm
and has been spending time getting to
know our business and our people. Greg
has a very hands-on approach and is
an extremely accomplished executive,
who has proven in some of the toughest
commercial environments in the world
that he has the ability to understand and
deliver on customer needs, empower staff
to provide outstanding customer service
and produce excellent commercial
results. The Board and I are proud to have
someone of Greg’s calibre leading the
airline into its 80th year and beyond.
On behalf of the Board, I would like to take
the opportunity to thank Jeff McDowall
for his excellent stewardship of the role of
Acting Chief Executive Officer, as well as
the rest of the Executive team who have
been unwavering in their dedication to
executing our strategic goals.
In a period where we have seen
further external challenges impact our
business, I want to acknowledge and
thank all Air New Zealanders for their
hard work and dedication. Whether it
be working to secure leased aircraft
to limit customer disruption from the
ongoing engine maintenance backlog
or regularly checking in on a nervous
flyer during a flight, I feel proud every
day of our Air New Zealand whānau.
Speaking of external challenges, our
team have spent a great deal of time in
recent weeks assessing the expected
impact of Covid-19 on the airline. While
the situation is dynamic and continues
to evolve, we have taken immediate
steps to mitigate the impact of softer
demand. This includes reducing capacity
to a number of destinations within Asia,
as well as some Domestic and Tasman
ports where we are seeing the indirect
effect of this reduced demand. We have
the flexibility to scale these adjustments
up or down as the need requires and
I am confident that we have the ability
to manage the expected short-term
impacts of Covid-19 effectively.
Above – Dame Therese Walsh; Chairman
AIR NEW ZEALAND GROUP
Financial Results
Air New Zealand has delivered a solid
result for the first six months of the
financial year, with earnings before other
significant items and taxation
1
of $198
million. This represents a decline of 8.8
percent compared to the prior period,
reflecting the slower demand growth
environment as well as weakness in
the global cargo markets, increased
competition on the Tasman, and the
impact of ongoing unrest in Hong Kong.
The business is making good progress
to mitigate the impact of this slower
demand growth environment. Last year
we highlighted a number of tactical
responses to address the external
challenges facing the airline, such as
moderating growth on our mature routes
to drive stronger unit revenue and
margin, restructuring our domestic fare
framework to stimulate leisure traffic,
and delivering sustainable cost savings
via our business review initiatives.
These actions have enabled us to deliver
increased operating revenue of $3.0
billion, up 3.0 percent on last year, and
achieve underlying unit cost savings
of 0.5 percent despite significant price
increases in domestic air navigation and
landing charges.
Our financial position remains robust with
gearing at 54.3 percent. Air New Zealand
also continues to maintain a stable
investment grade credit rating of Baa2
from Moody’s. For this interim period
the Board is pleased to declare a fully
imputed interim dividend of 11.0 cents
per share.
Outlook
While the outlook for the remainder
of the year is uncertain, based on our
current assumptions of lower demand
as well as the benefit of the announced
capacity reductions and lower jet fuel
prices, the airline currently expects a
net negative impact to earnings in the
range of $35 million to $75 million as
a result of Covid-19.
At the midpoint of the estimated range
above, which is approximately $55
million, the airline is targeting earnings
before other significant items and
taxation to be in a range of approximately
$300 million to $350 million
2
.
The airline will provide an update to this
guidance should the current assumptions
materially change.
Ngā mihi
Dame Therese Walsh
Chairman
27 February 2020
Earlier this year, we welcomed
Laurissa Cooney to the Board
as an independent non-
executive director. Laurissa has
a strong understanding of the
regional tourism industry, as
well as deep connections to
iwi and regional stakeholders
across New Zealand. She has
excellent commercial skills as
well as a passion for leadership,
and we are very excited for the
new perspective she brings to
the Board.
At the end of March we will
farewell Sir John Key. Sir
John has made an invaluable
contribution to the Board and
has been instrumental to the
delivery of our overall strategy
during that time. I would like
to thank him for his dedication
and I wish him all the very
best for the future. Whilst Sir
John’s replacement is yet to be
announced, I am confident that
we continue to have the right
mix of experience at the Board
and Executive level to lead the
airline into the future.
Governance changes
32020 INTERIM FINANCIAL REPORT
Contents
Letter from the Chairman 2
Letter from the
Chief Executive Officer
4
Financial Commentary 5
Change in Profitability 7
Condensed Interim
Financial Statements
8
Independent Review Report 19
1
Refer to the financial commentary section
on page 5. Earnings before taxation were
$139 million.
2
Assuming jet fuel prices remain at US$65
per barrel for the remainder of the year and
excludes the impact of NZ IFRS 16.
4
Letter from the Chief Executive Officer
Since joining Air New Zealand earlier this month, I have taken the
opportunity to spend as much time as possible out in the business,
getting to know our people, our customers and our operations.
It has been a terrific experience and has enabled me to get a feel
for the unique culture of the airline and to soak up the insights and
vast knowledge of the team around me.
It is clear to me that we run a fantastic
airline, playing to our core strengths in
domestic New Zealand and across the
Pacific Rim. Over time we have built
key competitive advantages, such as a
domestic network that is unmatched,
an international network that leverages
deep alliance partnerships, and we
operate a modern and fuel-efficient fleet.
Most importantly, we have a team of
enthusiastic, dedicated and extremely
capable employees who come to work
every day focused on delivering an
exceptional customer experience.
As I have interacted with different teams
across the airline, the genuine desire
Air New Zealanders have to go above
and beyond for the customer has been
quite astounding to me. I think it speaks
volumes about the value our organisation
has placed on getting the culture right.
To all Air New Zealanders, I thank each
and every one of you for everything that
you do. You are the very core of our
airline and the key to its ongoing success.
The 2020 interim result and outlook
for the full year reflect a number of flow-
on effects from the slowing demand
growth environment, weakness in the
global cargo market and the ongoing
unrest in Hong Kong. The full impact of
the recent Covid-19 outbreak remains
uncertain but will undoubtedly have an
impact on our financial performance
for the second half of the year. This
uncertainty should not detract from
the fact that we are a strong, resilient
airline, with an incredibly powerful core
domestic business, in an industry that is
at the forefront of innovation, technology
and customer service.
My focus over the coming months will be
to work through a directed diagnostic of
the airline’s strategic opportunities and
risks, and, together with my Executive
team, set a course for the future of Air
New Zealand. While we still have further
work and analysis to do, it is clear that we
need to remain vigilant at this part of the
economic cycle and continuously deliver
the high-quality standard of service
our customers expect from us, while
improving our financial performance.
I recognise that I have inherited an
enormous legacy and that Air New
Zealand is a company that is dear to the
heart of New Zealanders. I could not be
more excited to be back home in New
Zealand after 25 years, taking the lessons
I have learnt in my career and using them
to shape the future of this iconic company.
My overarching vision is to make Air New
Zealand a company that all companies,
not just other airlines, aspire to be
like – whether it be from a financial or
operational perspective, or in terms of the
culture, the customer experience, product
innovation or passion for sustainability.
I look forward to sharing more with you
in the coming months.
Ka kite anō au i a koutou mauriora.
Greg Foran
Chief Executive Officer
27 February 2020
AIR NEW ZEALAND GROUP
Above – Greg Foran; Chief Executive Officer
5
Our network responses to the lower
demand growth environment have
resulted in a solid revenue performance,
with strong demand on the Domestic and
Pacific Islands networks, as well as newer
services into Asia and North America.
This has been offset by increased domestic air navigation and
landing charges, additional ownership costs and a weaker New
Zealand dollar. Underlying unit cost improvements contributed
$59 million to profitability, driven by strong economies of scale and
efficiencies as the airline implements its business review initiatives.
Despite the challenging demand environment, the Group delivered
earnings before other significant items and taxation
1
of $198 million
for the first six months of the 2020 financial year. Earnings before
taxation were $139 million.
Revenue
Operating revenue for the period
increased 3.0 percent to $3.0 billion, an
increase of $88 million. Excluding the
impact of foreign exchange, operating
revenue increased 2.6 percent. Passenger
revenue increased by 3.2 percent to
$2.6 billion, reflecting higher capacity
across the long-haul network as well
as Domestic unit revenue growth.
Excluding the impact of foreign exchange,
passenger revenue was up 2.8 percent.
Capacity (Available Seat Kilometres, ASK)
increased 2.8 percent this period, driven
by the commencement of new routes on
the long-haul network. Demand (Revenue
Passenger Kilometres, RPK) grew ahead
of capacity at 4.0 percent, resulting in
an increased load factor of 84.3 percent
for the period.
Overall Passenger Revenue per Available
Seat Kilometre (RASK) improved
modestly at 0.3 percent, as increased
demand on the Domestic and Pacific
Islands routes was largely offset by
competitive pressures on the Tasman
and the impact of lower demand to Hong
Kong following ongoing unrest in the
region. Excluding the impact of foreign
exchange, RASK declined 0.1 percent.
International long-haul capacity grew
5.8 percent due to the annualisation
of Chicago and Taipei services and
additional services to Singapore from
Auckland and Christchurch. Demand on
international long-haul routes increased
7.2 percent, with load factor increasing
1.1 percentage points to 85.2 percent.
International long-haul RASK declined
by 0.9 percent reflecting the impact of
increased capacity from new routes, as
well as increased market capacity for San
Francisco services compared to the prior
period. Excluding the impact of foreign
exchange, RASK declined 1.9 percent.
Short-haul capacity declined 0.6 percent,
as the rationalisation of capacity across
the Domestic and Pacific Islands
networks was partially offset by growth
on the Tasman, including increased
frequency to the Queensland region
and the wrap-around of new services to
Brisbane. Demand growth of 0.3 percent
was slightly ahead of capacity, with load
factors improving by 0.8 percentage
points to 83.3 percent.
Short-haul RASK grew 2.6 percent, or
2.7 percent excluding the impact
of foreign exchange, largely due to
increased demand on the Domestic and
Pacific Islands networks, partially offset
by capacity growth in the Tasman.
Cargo revenue was $195 million,
representing a decline of $18 million
or 8.5 percent. Excluding the impact of
foreign exchange, cargo revenue declined
9.4 percent, reflecting a downturn in the
global cargo market following the ongoing
tensions between the United States and
China. Overall, cargo volumes declined
8.1 percent and yields declined 1.3 percent.
Contract services and other revenue was
$244 million, an increase of 12 percent,
due to higher revenue from maintenance
contracts for third parties.
Expenses
Operating expenditure increased by
$82 million or 3.5 percent compared
to the prior period. This was primarily
due to higher maintenance costs
for third party contracts, significant
increases in domestic air navigation
and landing charges, unfavourable
foreign exchange movements, and
increased ownership costs from the
arrival of new fleet. Fuel volumes
also increased this year as a result of
growth on the long-haul network.
Costs per ASK (CASK) increased
0.7 percent primarily as a result
of unfavourable foreign exchange
movements and increased maintenance
for third party contracts, partially offset
by fuel price declines. Excluding those
items, CASK improved 0.5 percent,
as non-fuel price increases were
more than offset by economies of
scale and efficiencies.
Labour costs were $681 million, up
$9 million or 1.3 percent, as rate and
activity increases were only partially
offset by reduced incentive payments
and productivity initiatives across wider
support areas that followed from the
airline’s business review initiatives.
Foreign exchange had no impact on
these costs during the period.
Fuel costs were $656 million,
increasing by $7 million or 1.1 percent.
The largest driver of this increase was
unfavourable foreign exchange from
a weaker New Zealand dollar, which
resulted in an additional cost of $20
million. Volume growth resulted in an
increase of $15 million or 2.3 percent,
reflecting capacity growth partially
offset by the benefit of new aircraft
efficiencies. The average price of fuel
for the period declined $28 million or
4.3 percent, as a 13 percent decline
2020 INTERIM FINANCIAL REPORT
Financial Commentary
1
Earnings before other significant items and taxation represent Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding
items which due to their size or nature warrant separate disclosure to assist with understanding the underlying financial performance of the
Group. Earnings before other significant items and taxation is reported within the condensed Group interim financial statements which was
subject to review by the external auditors. Further details are contained within Note 3 of the condensed Group interim financial statements.
in underlying fuel prices was partially
offset by hedging losses.
Aircraft operations, passenger services
and maintenance costs were $753
million, an increase of $55 million or
7.9 percent. This was a result of
capacity growth and increases in
domestic air navigation and landing
charges. In addition, growth in the fleet
and increased maintenance activity
for third party contracts drove higher
maintenance costs.
Sales, marketing and other expenses
increased by $5 million or 1.5 percent,
due to additional digital and property
spend, partially offset by lower marketing
costs relative to the prior period.
Ownership costs increased by $29 million
or 7.1 percent, reflecting an increase in
aircraft depreciation due to delivery of
new aircraft, which was partly 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
movement of $15 million. After taking
into account a $6 million unfavourable
movement in hedging, overall foreign
exchange had a net $21 million adverse
impact on the Group result for the six-
month period.
Share of Earnings of Associates
Share of earnings of associates has
increased by $4 million to $23 million
for the period, reflecting further
growth in engine volumes through the
Christchurch Engine Centre.
Other Significant Items
Other significant items of $59 million
were recognised during the period.
These relate to reorganisation costs
and the impact of retrospectively
disestablishing fair value aircraft hedges.
Reorganisation costs of $13 million were
incurred relating to business review
initiatives, as well as costs associated
with withdrawal from the Los Angeles to
London service, which was announced
in October 2019.
Following clarifications issued by
the International Financial Reporting
Interpretations Committee during the
2020 financial period, the Group’s fair
value US dollar aircraft hedges were
disestablished, which resulted in a
non-cash adverse impact of $46 million.
Cash and Financial Position
Cash on hand at 31 December
2019 was $1.0 billion, a decrease of
$52 million from 30 June 2019, as
operating cash flow in the period was
offset by investment in aircraft and
dividend payments.
Operating cash flows of $534 million
increased $59 million, primarily driven
by the impact of the new accounting
standard on leases, NZ IFRS 16.
Adjusting for reclassifications arising
under NZ IFRS 16, operating cash flow
declined $52 million due to the timing
of tax payments, advanced purchases
of inventory and lower earnings.
Net gearing for the period ending
31 December 2019 increased 2.6
percentage points to 54.3 percent
compared to 1 July 2019
1
, largely due
to continued investment in our fleet.
A fully imputed interim ordinary
dividend of 11.0 cents per share has
been declared, which is in-line with
the prior period.
Dividend
record date:
13 March 2020
Dividend
payment date:
25 March 2020
6
AIR NEW ZEALAND GROUP
1
Gearing has been restated on a comparable basis following the Group’s adoption of NZ IFRS 16,
the new lease accounting standard, which is effective from 1 July 2019.
72020 INTERIM FINANCIAL REPORT
December 2018 earnings before taxation
Passenger capacity
$35m
- Capacity increased by 2.8 percent from growth arising from the
annualisation of new routes to Chicago and Taipei, increased
frequency on Singapore and growth on the Tasman offset by
rationalisation of capacity on Domestic and Pacific Islands routes
Passenger RASK
$35m
- Revenue per Available Seat Kilometre (RASK) is comparable with
the previous period. Loads increased by 0.9 percentage points to
84.3 percent
- Long-haul RASK declined by 1.9 percent excluding FX and loads
increased 1.1 percentage points to 85.2 percent
- Short-haul RASK improved by 2.7 percent excluding FX and loads
improved 0.8 percentage points to 83.3 percent
Cargo revenue
-$20m
- Cargo revenue declined due to a reduction in volumes of 8.1 percent
and yield of 1.3 percent
Contract services and other revenue
$26m
- Increase in maintenance work for third parties
Labour
-$9m
- Increased activity arising from capacity growth and general rate
increases offset by reduced incentive payments and lower support
area costs due to business transformation initiatives
Fuel
$13m
- The average fuel price declined 4 percent compared to the prior
year (net of hedging) resulting in a reduction in costs of $28 million.
Consumption increased by 2.3 percent due to an increase in capacity
offset by fleet efficiencies arising from delivery of new aircraft
Maintenance
-$31m
- Increase in maintenance work for third parties and growth in fleet
Aircraft operations and passenger services
-$21m
- Increased activity combined with price increases in domestic air
navigation and landing charges
Sales and marketing and other expenses
-$1m
- Additional digital and property costs offset by lower promotional
activity for new route launches
Depreciation and funding costs
-$29m
- Increase in depreciation reflecting new aircraft deliveries offset by
lower funding costs
Net impact of foreign exchange movements
-$21m
- Net unfavourable impact of currency movements on revenue and
costs and lower foreign exchange hedging gains
Share of earnings of associates
$4m
- Improved earnings from Christchurch Engine Centre driven by growth
in engine volumes
Other significant items
-$53m
- Fair value losses on uncovered debt following retrospective
disestablishment of the fair value aircraft hedge and current period
reorganisation costs
December 2019 earnings before taxation
*The numbers referred to in the Financial Commentary on the previous page have not isolated the impact of foreign exchange.
$211m
$139m
Change in Profitability
The key changes in profitability, after isolating the impact of foreign exchange movements,
are set out in the table below*:
NOTES
6 MONTHS TO
31 DEC 2019
$M
6 MONTHS TO
31 DEC 2018
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
2,576
195
117
127
2,497
213
92
125
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange gains
Other expenses
43,015
(681)
(656)
(224)
(358)
(171)
(174)
23
(159)
2,927
(672)
(649)
(193)
(345)
(160)
(178)
29
(150)
(2,400)(2,318)
Operating Earnings (excluding items below)
Depreciation and amortisation
Rental and lease expenses
615
(412)
-
609
(272)
(122)
Earnings Before Finance Costs, Associates, Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)2(a)
203
20
(48)
23
215
22
(39)
19
Earnings Before Other Significant Items and Taxation
Other significant items3
198
(59)
217
(6)
Earnings Before Taxation
Taxation expense
139
(38)
211
(61)
Net Profit Attributable to Shareholders of Parent Company101150
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)
9.0
9.0
11.0
163
13.5
13.4
11.0
160
Statement of Financial Performance (unaudited)
For the six months to 31 December 2019
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.
8
AIR NEW ZEALAND GROUP
92020 INTERIM FINANCIAL REPORT
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to
NZ SRE 2410, issued by the External Reporting Board. The accompanying notes form part of these financial statements.
6 MONTHS TO
31 DEC 2019
$M
6 MONTHS TO
31 DEC 2018
$M
Net Profit for the Period
Other Comprehensive Income:
Items that will not be reclassified to profit or loss:
Actuarial losses on defined benefit plans
Taxation on above reserve movements
101
-
-
150
(6)
2
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Changes in fair value of cash flow hedges
Transfers to net profit from cash flow hedge reserve
Changes in cost of hedging reserve
Taxation on above reserve movements
-
91
(16)
4
(22)
(4)
(69)
(72)
(28)
48
Total items that may be reclassified subsequently to profit or loss57(121)
Total Other Comprehensive Income for the Period, Net of Taxation57(125)
Total Comprehensive Income for the Period, Attributable to Shareholders
of the Parent Company15825
Statement of Comprehensive Income (unaudited)
For the six months to 31 December 2019
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 2019 2,219 (31) (12) (87) 2,089
Application of IFRIC interpretation8---(97)(97)
Restated Balance as at 1 July 20192,219(31)(12)(184)1,992
Net profit for the period
Other comprehensive income for the period
-
-
-
57
-
-
101
-
101
57
Total Comprehensive Income for the Period- 57-101 158
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
(15)
-
-
-
-
-
-
-
-
-
(123)
2
(15)
(123)
Total Transactions with Owners (13) - - (123) (136)
Balance as at 31 December 20192(e) 2,206 26 (12)(206) 2,014
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
Application of IFRIC interpretation8---(103)(103)
Restated Balance as at 1 July 20182,22666(13)(206)2,073
Net profit for the period
Other comprehensive income for the period
-
-
-
(122)
-
1
150
(4)
150
(125)
Total Comprehensive Income for the Period- (122)1146 25
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 2018 2,218 (56) (12)(184) 1,966
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.
10
Statement of Changes in Equity (unaudited)
For the six months to 31 December 2019
AIR NEW ZEALAND GROUP
112020 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 2019
$M
30 JUN 2019
$M
Current Assets
Bank and short term deposits
Trade and other receivables
Inventories
Derivative financial assets
Income taxation
Other assets
1,003
447
140
61
16
101
1,055
564
81
48
-
56
Total Current Assets1,7681,804
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Right of use assets
Intangible assets
Investments in other entities
Other assets
8
8
2(a)
2(b)
97
3,838
2,459
188
156
343
64
5,133
-
186
149
285
Total Non-Current Assets7,0815,817
Total Assets8,8497,6 2 1
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Derivative financial liabilities
Provisions
Income taxation
Other liabilities
2(c), 8
8
609
1,388
151
357
79
80
-
263
585
1,372
307
-
32
105
25
240
Total Current Liabilities2,9272,666
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Provisions
Other liabilities
Deferred taxation
2(c), 8
8
222
1,322
1,829
182
31
322
200
2,290
-
165
42
266
Total Non-Current Liabilities3,9082,963
Total Liabilities6,8355,629
Net Assets2,0141,992
Equity
Share capital
Reserves
2(d)
2(e)
2,206
(192)
2,219
(227)
Total Equity2,0141,992
Dame Therese Walsh, CHAIRMAN Jan Dawson, DEPUTY CHAIRMAN
For and on behalf of the Board, 27 February 2020
Statement of Financial Position (unaudited)
As at 31 December 2019
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 2019
$M
6 MONTHS TO
31 DEC 2018
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest paid
Interest received
3,072
(2 ,474)
(39)
(46)
21
2,951
(2,451)
(10)
(36)
21
Net Cash Flow from Operating Activities534475
Cash Flows from Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for resale
Proceeds from sale of slots
Distribution from associates
Acquisition of property, plant and equipment and intangibles
Interest-bearing asset payments
Investment in associate
3
7
42
17
(485)
(58)
(1)
5
-
7
(493)
(77)
-
Net Cash Flow from Investing Activities(478)(558)
Cash Flows from Financing Activities
Interest-bearing liabilities drawdowns
Lease liabilities drawdowns
Equity settlements of long-term incentive obligations
Interest-bearing liabilities payments
Lease liabilities payments
Rollover of foreign exchange contracts*
Dividends on Ordinary Shares
2(d)
7
46
193
(15)
(75)
(181)
54
(130)
263
-
(14)
(218)
-
56
(130)
Net Cash Flow from Financing Activities(108)(43)
Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
(52)
1,055
(126)
1,343
Cash and Cash Equivalents at the End of the Period1,0031,217
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
Loss on disposal of property, plant and equipment
Impairment reversal on property, plant and equipment
Foreign exchange losses on debt, no longer offset by foreign exchange gains
on the hedged item
Share of earnings of associates
Movements on fuel derivatives
Other non-cash items
3
2(a)
101
412
2
(3)
46
(23)
(2)
3
150
272
-
-
6
(19)
3
10
Net working capital movements:
Assets
Revenue in advance
Liabilities
536
(43)
38
3
422
32
(23)
44
(2)53
Net Cash Flow from Operating Activities534475
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
12
Statement of Cash Flows (unaudited)
For the six months to 31 December 2019
AIR NEW ZEALAND GROUP
132020 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”) as it applies to the interim period. 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 2019.
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 2019 and 31 December 2018, except as noted below.
The Group adopted the requirements of NZ IFRS 16 - Leases with effect from 1 July 2019. This standard has significantly changed the
accounting treatment of leases by lessees. The previous dual accounting model for lessees which distinguished between on-balance
sheet finance leases and off-balance sheet operating leases, no longer applies. Instead, there is now a single, on-balance sheet
accounting model for all leases. Lessor accounting remains similar to previous practice. Further details of the impact of the standard,
including transitional adjustments arising on adoption, are included in Note 8.
In September 2019, the International Financial Reporting Interpretations Committee (“IFRIC”) published an agenda decision in respect
of a “Fair Value Hedge of Foreign Currency Risk on Non-Financial Assets”. The new interpretation by IFRIC of the principles of IFRS 9 -
Financial Instruments no longer permits certain fair value hedges of underlying United States Dollar aircraft values previously undertaken
by the Group. The interpretation has been applied retrospectively and comparative information within the financial statements restated
accordingly. Further details are set out in Notes 3 and 8.
2. General Disclosures
Group composition
(a) The Group has a 49% interest in the Christchurch Engine Centre (“CEC”) and a 21% interest in Drylandcarbon One Partnership LLC
which are recognised as investment in associates 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 $23 million (31 December 2018: $19 million).
Interest-bearing assets
(b) Non-current “Other assets” include interest-bearing assets of $321 million (30 June 2019: $264 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 2019 was $362 million (30 June 2019: $287 million) and are subject to fixed and floating interest rates. Fixed interest
rates in the six months to 31 December 2019 ranged from 3.1% to 3.6% (six months to 31 December 2018: 3.1%).
Interest-bearing liabilities
(c) Interest-bearing liabilities includes secured borrowings of $1,423 million and unsecured bonds of $50 million (30 June 2019: secured
borrowings of $1,459 million, unsecured bonds of $50 million and finance leases of $1,088 million) which are recognised initially at
fair value and subsequently measured at amortised cost. The fair value of secured borrowings and bonds as at 31 December 2019 is
$1,480 million (30 June 2019: $1,549 million). Borrowings are secured over aircraft and are subject to both fixed and floating interest
rates. Fixed interest rates were 1.0% in the six months to 31 December 2019 (six months to 31 December 2018: 1.0%). Bonds have
a fixed interest rate of 4.25%.
Share capital
(d) During the six months ended 31 December 2019 the Group funded the purchase on-market of 5,456,593 shares for $15 million
(31 December 2018: 4,463,819 shares for $14 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 2019, $33 million of gains (30 June 2019: $21 million of losses) were held in the cash flow hedge reserve and
$7 million of losses (30 June 2019: $10 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”.
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
3. Other Significant Items
Other significant items are items of revenue or expenditure which due to their size or nature warrant separate disclosure to assist with the
understanding of the underlying financial performance of the Group.
6 MONTHS TO
31 DEC 2019
$M
6 MONTHS TO
31 DEC 2018
$M
Foreign exchange losses on debt, no longer offset by foreign exchange gains on the hedged item
Reorganisation costs
(46)
(13)
(6)
-
(59)(6)
In September 2019, the International Financial Reporting Interpretations Committee (“IFRIC”) published an agenda decision in respect of
a “Fair Value Hedge of Foreign Currency Risk on Non-Financial Assets”. The interpretation issued by IFRIC of the principles of IFRS 9 -
Financial Instruments no longer permits certain fair value hedges of underlying United States Dollar aircraft values which were previously
undertaken by the Group. The interpretation has been applied retrospectively in the interim financial statements. The impact on the
comparative period is set out in Note 8.
As a result of the reversal of the fair value hedges, $46 million of foreign currency losses arising on translation of the previously
designated debt, was no longer offset by foreign currency gains arising on the hedged item. The debt was subsequently re-designated
in new hedge relationships in accordance with the Group’s financial risk management policies.
In March 2019, Air New Zealand announced a two-year cost reduction programme. Reorganisation costs, comprising of redundancy and
other related costs, have been recognised in relation to the programme. In addition, following the announcement of the withdrawal of
services on the London-Los Angeles route effective from October 2020, a provision for redundancy costs was recognised in respect of
the London based cabin crew, ground staff and sales staff.
In October 2019 Air New Zealand announced its withdrawal from the London-Los Angeles route with effect from October 2020. Proceeds
for the sale of the London Heathrow slots were received in December 2019. The gain on sale is expected to be recognised at the time the
slot swaps are formally registered in June 2020 and November 2020. A gain on sale of $21 million is expected to be classified as an Other
Significant Item in the second half of the financial year and will be reflected in the 2020 annual financial statements. A further gain on
sale of $21 million is expected to be recognised for the year ended 30 June 2021.
4. 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 2019
$M
6 MONTHS TO
31 DEC 2018
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
United Kingdom and Europe
Asia
Americas
1,870
347
136
270
392
1,787
364
136
251
389
Total Operating Revenue3,0152,927
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.
14
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
AIR NEW ZEALAND GROUP
152020 INTERIM FINANCIAL REPORT
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
5. Commitments
31 DEC 2019
$M
30 JUN 2019
$M
Capital commitments
Aircraft and engines
Other assets
2,861
36
1,056
52
2,8971,108
Lease commitments
Aircraft
Property
31
-
767
291
311,058
Following approval being obtained at the Annual Shareholder Meeting on 25 September 2019, agreements were entered into to acquire
eight Boeing 787-10 aircraft (powered by GE Aviation’s Genx-1B engines) and two spare engines.
Capital commitments as at reporting date include eight Boeing 787-10 aircraft (planned delivery from 2023 to 2028 financial years), seven
Airbus A321 NEOs and two Airbus A320 NEOs (delivery from 2021 to 2024 financial years) and two ATR72-600s (delivery from 2020 to
2021 financial years) and spare engines (delivery from 2021 to 2026 financial years).
On 1 July 2019, the Group adopted the requirements of NZ IFRS 16 - Leases. Effective from this date, lease liabilities were recognised
on-balance sheet (refer Note 8 for further details). Where lease arrangements have not yet commenced, commitments are disclosed above.
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 2019: $31 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 $126 million (30 June 2019: $155 million).
7. Dividends
On 26 February 2020, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on 25 March 2020
to registered shareholders at 13 March 2020. 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 2019 interim
financial statements.
An interim dividend in respect of the 2019 financial year of 11.0 cents per Ordinary Share was paid on 27 March 2019. Imputation credits
were attached and supplementary dividends paid to non-resident shareholders.
A final dividend in respect of the 2019 financial year of 11.0 cents per Ordinary Share was paid on 18 September 2019 (2018 financial year:
11.0 cents per Ordinary Share was paid on 19 September 2018). Imputation credits were attached and supplementary dividends paid to
non-resident shareholders.
8. Impact of New Accounting Standards and Interpretations
NZ IFRS 16 - Leases
The Group adopted the requirements of NZ IFRS 16 - Leases with effect from 1 July 2019. This standard has significantly changed the
accounting treatment of leases by lessees. The previous dual accounting model for lessees which distinguished between on-balance
sheet finance leases and off-balance sheet operating leases, no longer applies. Instead, there is now a single, on-balance sheet
accounting model for all leases. Lessor accounting remains similar to previous practice.
This standard has had 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, adjusted for any unamortised payments in advance or
incentives at that date, 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’;
16
AIR NEW ZEALAND GROUP
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
8. Impact of New Accounting Standards and Interpretations (continued)
- 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. This is managed as part of the Group’s Financial Risk
Management Policy; and
- reclassification of finance lease assets and liabilities from ‘Property, plant and equipment’ and ‘Interest-bearing liabilities’ to ‘Right of
use assets’ and ‘Lease liabilities’, respectively, within the Statement of Financial Position.
In accordance with the transition provisions of NZ IFRS 16, comparatives have not been restated, with the cumulative effect having been
recognised in opening retained earnings at the date of initial application of 1 July 2019. Right of use assets were measured at 1 July 2019
at an amount equal to the lease liability. As permitted by NZ IFRS 16, initial direct costs have been excluded from the measurement
of the right of use asset at the date of initial application and lease terms, where the lease contains options to extend or terminate the
lease, have been redetermined with the benefit of hindsight. 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 impact of the changes on the affected line items in the Statement of Financial Position as at 1 July 2019 is set out below:
Statement of Financial Position as at 1 July 2019 Impact of Changes in Accounting Policies
PRIOR TO
APPLICATION
OF NZ IFRS 16*
$M
NZ IFRS 16
ADJUSTMENTS
$M
FINANCE
LEASE
RECLASSIFICATION
$M
AFTER
APPLICATION
OF NZ IFRS 16
$M
Current Assets
Trade and other receivables564(25)-539
Total Current Assets1,804(25)-1,7 79
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Right of use assets
64
5,133
-
(4)
-
876
-
(1,298)
1,298
60
3,835
2,174
Total Non-Current Assets5,817872-6,689
Total Assets7,6 2 1847-8,468
Current Liabilities
Interest-bearing liabilities
Lease liabilities
Other liabilities
307
-
240
-
193
(3)
(161)
161
-
146
354
237
Total Current Liabilities2,666190-2,856
Non-Current Liabilities
Interest-bearing liabilities
Lease liabilities
Other liabilities
2,290
-
42
-
669
(12)
(927)
927
-
1,363
1,596
30
Total Non-Current Liabilities2,963657-3,620
Total Liabilities5,629847-6,476
Net Assets1,992--1,992
* Including the impact of the IFRIC interpretation adjustment (refer following page).
The following table provides a reconciliation of the operating lease commitments disclosed as at 30 June 2019 to the total lease liabilities
recognised on the Statement of Financial Position in accordance with NZ IFRS 16 as at 1 July 2019:
NOTE30 JUN 2019
$M
Operating lease commitments as at 30 June 2019
Leases not yet commenced
Effect of discounting
Redetermination of lease term
Short-term leases
(a)
(b)
(c)
(d)
1,058
(182)
(141)
141
(14)
Total additional lease liabilities expected on adoption of NZ IFRS 16 862
Finance lease obligations as at 30 June 20191,088
Total lease liabilities as at 1 July 20191,950
172020 INTERIM FINANCIAL REPORT
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
8. Impact of New Accounting Standards and Interpretations (continued)
(a) Leases not yet commenced: Operating lease commitments disclosed as at 30 June 2019 included amounts relating to leases
entered into by the Group that had not yet commenced as at 30 June 2019. In accordance with NZ IFRS 16, assets and liabilities are
not recognised on the Statement of Financial Position until the date of commencement of the leases. Leases which have not yet
commenced continue to be disclosed as a commitment under NZ IFRS 16.
(b) Effect of discounting: The amount of the lease liability recognised under NZ IFRS 16 is on a discounted basis whereas operating lease
commitments under NZ IAS 17 were on an undiscounted basis. The discount rates used on transition are appropriate for each lease,
based on factors such as the lease term and lease currency. The weighted average discount rate used on transition was around 3%.
(c) Redetermination of lease term: Certain property leases, for which there is no readily identifiable alternative property available, include
an additional renewal period where one is available under the lease contract.
(d) Short-term leases: Certain leases with a term of less than 12 months (including those providing cover for Boeing 787-9 engine issues)
have not been recognised as assets or liabilities as at 1 July 2019. Operating lease commitments disclosed as at 30 June 2019
included such leases.
Leasing activities
The Group leases mainly aircraft, spare engines, airport lounges, offices and hangars, other office buildings and storage space. Aircraft
leases are typically for 12 to 14 years with a series of early termination options. Property leases are typically 3 to 5 years, with a number
of renewal options, together with a small number of longer term strategic leases. Extension and termination options are used to maximise
operational flexibility.
Determination of lease term
The lease term is the non-cancellable period of a lease, together with periods covered by an option to extend or terminate the lease if
the lessee is reasonably certain to exercise/not to exercise that option. In determining the lease term, the Group considers all facts and
circumstances that create an economic incentive to exercise/not exercise an option. Such assessment is reviewed if a significant event or
change in circumstances occurs which affects this assessment and is within the control of the Group.
NZ IFRIC 23 - Uncertainty over Income Tax Treatments
The Group adopted the requirements of NZ IFRIC 23 - Uncertainty over Income Tax Treatments with effect from 1 July 2019. It clarifies
how to apply the recognition and measurement requirements in NZ IAS 12 - Taxation when there is uncertainty over income tax
treatments. This Interpretation has not had any impact on the financial statements.
IFRIC Interpretation
In September 2019, the International Financial Reporting Interpretations Committee (“IFRIC”) published an agenda decision in respect of
a “Fair Value Hedge of Foreign Currency Risk on Non-Financial Assets”. The new interpretation by IFRIC of the principles of IFRS 9 - Financial
Instruments no longer permits certain fair value hedges of underlying United States Dollar aircraft values previously undertaken by the Group.
The interpretation has now been applied retrospectively. The impact of the change on the prior year comparatives is set out below:
- As a result of retrospectively applying the IFRIC agenda decision, cumulative foreign exchange gains recognised within aircraft assets
were reversed. The impact in the six months to 31 December 2018 was $6 million, offset by $6 million of depreciation expense on the
accumulated position.
- The above adjustments resulted in $6 million of foreign exchange losses, which arose upon retranslation of previously designated
debt in the six months to 31 December 2018, now having no offsetting hedged item. Given that Group policy requires such items to
be hedged, this has been reclassified to ‘Other significant items’.
18
AIR NEW ZEALAND GROUP
8. Impact of New Accounting Standards and Interpretations (continued)
Statement of Financial Performance
6 MONTHS TO
31 DEC 2018
AS PREVIOUSLY
REPORTED
$M
6 MONTHS TO
31 DEC 2018
ADJUSTMENTS
$M
6 MONTHS TO
31 DEC 2018
RECLASSIFICATION
$M
6 MONTHS TO
31 DEC 2018
A S R E S TAT E D
$M
Foreign exchange gains29(6)629
Operating Earnings (excluding items below)
Depreciation and amortisation
609
(278)
(6)
6
6
-
609
(272)
Earnings Before Finance Costs, Associates, Other Significant
Items and Taxation
Other significant items
209
-
-
-
6
(6)
215
(6)
Earnings Before Taxation
Taxation expense
211
(59)
-
(2)
-
-
211
(61)
Net Profit Attributable to Shareholders of Parent Company152(2)-150
Statement of Financial Position
30 JUN 2019
AS PREVIOUSLY
REPORTED
$M
30 JUN 2019
ADJUSTMENTS
1
$M
30 JUN 2019
A S R E S TAT E D
$M
Property, plant and equipment 5,268(135)5,133
Total Non-Current Assets 5,952 (135) 5,817
Total Assets7,756 (135)7,621
Deferred taxation
304
(38) 266
Total Non-Current Liabilities3,001(38)2,963
Net Assets2,089(97)1,992
Reserves(130)(97)(227)
Total Equity2,089(97)1,992
1
As at 30 June 2019, the retrospective application of IFRIC’s agenda decision resulted in a decrease of $135 million in aircraft assets,
representing accumulated foreign exchange losses recognised up to the date of the change, offset by a decrease of $38 million in
deferred taxation. An amount of $103 million was recognised through opening retained earnings as at 1 July 2018 offset by a $6 million
gain in the year to 30 June 2019 ($13 million reversal of depreciation expense offset by $5 million foreign exchange movement net of
$2 million taxation expense).
Statement of Changes in EquityGeneral ReservesTotal Equity
AS PREVIOUSLY
REPORTED
$M
ADJUSTMENTS
$M
A S R E S TAT E D
$M
AS PREVIOUSLY
REPORTED
$M
ADJUSTMENTS
$M
A S R E S TAT E D
$M
Balance as at 1 July 2018
Net profit for the period
(103)
152
(103)
(2)
(206)
150
2,176
152
(103)
(2)
2,073
150
Total Comprehensive Income for the Period148(2)14627(2)25
Balance as at 31 December 2018(79)(105)(184)2,071(105)1,966
Balance as at 30 June 2019(87)(97)(184)2,089(97)1,992
Condensed Notes to the Financial Statements (unaudited)
As at and for the six months to 31 December 2019
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 8 to 18, which comprise the
Statement of Financial Position as at 31 December 2019, 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 other services which are compatible
with the independence requirements of the Auditor-General’s
Auditing Standards, which incorporate the independence
requirements of Professional and Ethical Standard 1 (Revised):
Code of Ethics for Assurance Practitioners issued by the New
Zealand Auditing and Assurance Standards Board. In addition to
these engagements, principals and employees of our firm deal
with the Group on normal terms within the ordinary course of
trading activities of the Group. These engagements and trading
activities have not impaired our independence as auditor of the
Group. Other than this review, the audit of the Group annual
financial statements and these engagements and trading activities,
we have no relationship with, or interests in, the Group.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed Group interim financial
statements do not present fairly, in all material respects, the
financial position of the Group as at 31 December 2019 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
27 February 2020
Auckland, New Zealand
19
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
One million
domestic fares
*
under $50...
and counting
Supporting Kiwis to get out and explore their backyard.
*Domestic fares sold from February 2019
---
Amount (000s)
3,035,000
3,035,000
101,000
101,000
0.11000000
0.04277778
13-Mar-20
25-Mar-20
NZ$ AmountReporting Period
1.63
Contact person for this announcement
Unaudited interim financial statements accompany this announcement.
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuerAir New Zealand
Reporting Period6 months to 31 December 2019
Previous Reporting Period6 months to 31 December 2018
Percentage change
Revenue from continuing operations2.9%
Total Revenue2.9%
CurrencyNew Zealand Dollars
Dividend Payment Date
Prior Comparative Period
Net profit from continuing operations(32.7%)
Total net profit(32.7%)
Interim Dividend (NZ$)
Amount per Quoted Equity Security
Imputed amount per sec Quoted Equity
Security
Record Date
Net tangible assets per Quoted Equity
Security
1.60
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
Refer to media release.
The interim dividend was declared on 26 February
2020.
Date of release through MAP27 February 2020
Leila Peters, GM Investor Relations and Financial
Planning
Authority for this announcement
Name of person authorised to make this
announcement
Jennifer Page, General Counsel and Company
Secretary
Contact phone number+64 9 336 2607
Contact email addressinvestor@airnz.co.nz
Air New Zealand Limited
Preliminary Half Year Results
27 February 2020
CONTENTS
NZX Appendix 2 Results Announcement, pursuant to NZX Listing Rule 3.5.1
NZX Distribution Notice, pursuant to NZX Listing Rule 3.14.1
Air New Zealand Limited
NZX Preliminary Interim Report
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2019 (referred to in this report as the "current half year")
1 Information prescribed by NZX
(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.
$NZ'm*NZ Cents Per Share
Distributions recognised
Final dividend for 2019 financial year on Ordinary Shares12311.0
Distributions paid
Final dividend for 2019 financial year on Ordinary Shares13011.0
* T
he difference between distributions recognised and paid relates to supplementary dividends.
(e)
A
Statement of Movements in Equity
Refer to the Interim Financial Statements.
Ordinary Shares163160
(g)
Co
mmentary on the results
MeasurementCurrent period
Prior
comparable
period
(i)Basic earnings per shareNZ cents per share9.0
13.5
Diluted earnings per shareNZ cents per share9.0 13.4
(
ii)Returns to shareholders (see also section (d) above)
Final dividend on Ordinary Shares$NZ'm123
124
(f) Net tangible assets per
security with the comparative figure for the previous corresponding period
(NZ Cents Per Share)Current period
Prior comparable
period
Refer to Results for announcement to the market.
2 The following information, which may be presented in whatever way the Issuer considers is the most clear and helpful to users, e.g.,
combined with the body of the announcement, combined with notes to the financial statements, or set out separately.
(d) De
tails of individual and total dividends or distributions and dividend or distribution payments, which:
(i)h
ave been declared, and
(ii)
relat
e to the period (in the case of ordinary dividends or ordinary dividends and special dividends declared at the same time) or we
re
d
eclared within the period (in the case of special dividends).
On 26 February 2020, the Board of Directors declared an interim dividend of 11.0 cents per Ordinary Share payable on 25 March 2020 to registered
shareholders at 13 March 2020. 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 2019 interim financial statements.
A interim dividend in respect of the 2019 financial year of 11.0 cents per Ordinary Share was paid on 27 March 2019. Imputation credits were attached
and supplementary dividends paid to non-resident shareholders.
A final dividend in respect of the 2019 financial year of 11.0 cents per Ordinary Share was paid on 18 September 2019. 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 2019 (referred to in this report as the "current half year")
(iii) Significant features of operating performance:
(iv) Discussion of trends in performance:
(v) The Issuer's dividend policy
(vi)
(h) A
udit of financial statements
Basis of preparation
Accounting policies
Refer to Note 1 of the Interim Financial Statements.
Changes in accounting policies
Audit Review Report
A copy of the review report is attached at the back of the Interim Financial Statements.
Additional information
Not applicable.
This half year report was approved by the Board of Directors on 27 February 2020.
Dame Therese Walsh
Chairman
Refer to the media release.
Refer to Air New Zealand website - https://www.airnewzealand.co.nz/dividend-history
Any other factors which have or are likely to affect the results, including those where the effect could not be quantified:
Refer to the media release.
The annoucement is based on unaudited interim financial statements. The interim financial statements have been the subject of review by the external
auditor, pursuant to NZ SRE 2410 Review of Financial Statements Performed by the Independent Auditor of the Entity, issued by the External Reporting
Board.
This report is 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.
Refer to Note 1 and Note 8 of the Interim Financial Statements.
Refer to the media release.
Page 2
Air New Zealand Limited
NZX Preliminary Interim Report
Distribution Notice
Section 1: Issuer information
Name of issuer Air New Zealand Limited
Financial product name/description Ordinary Shares
NZX ticker code AIR.NZ
ISIN (If unknown, check on NZX
website)
NZAIRE0001S2
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year Quarterly
Half Year X Special
DRP applies
Record date 13/03/2020
Ex-Date (one business day before the
Record Date)
12/03/2020
Payment date (and allotment date for
DRP)
25/03/2020
Total monies associated with the
distribution
1
$123,509,115
Source of distribution (for example,
retained earnings)
Operating Free Cash Flow
Currency New Zealand
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.15277778
Gross taxable amount
3
$0.15277778
Total cash distribution
4
$0.11000000
Excluded amount (applicable to listed
PIEs)
N/A – Not a listed PIE
Supplementary distribution amount $0.01941176
Section 3: Imputation credits and Resident Withholding Tax
5
Is the distribution imputed Fully imputed
Partial imputation
No imputation
1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Gross taxable amount” is the gross distribution minus any excluded income.
4
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
5
The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is
fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute
advice as to whether or not RWT needs to be withheld.
If fully or partially imputed, please
state imputation rate as % applied
6
28%
Imputation tax credits per financial
product
$0.04277778
Resident Withholding Tax per
financial product
$0.00763889
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
N/A
Start date and end date for
determining market price for DRP
N/A N/A
Date strike price to be announced (if
not available at this time)
N/A
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
N/A
DRP strike price per financial product
N/A
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
N/A
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Jennifer Page, General Counsel and Company
Secretary
Contact person for this
announcement
Jennifer Page
Contact phone number +64 279090691
Contact email address
Jennifer.Page@airnz.co.nz
Date of release through MAP
27/02/2020
6
Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.
---
1
Contents
• January 2020 traffic highlights
• Operating statistics table
• Recent media releases
January 2020 highlights
* % change is based on numbers prior to rounding.
1
Reported RASK (unit passenger revenue per available seat kilometre) is inclusive of foreign currency impact, and
underlying RASK excludes foreign currency impact.
Group traffic summary
20202019% *20202019% *
Passengers carried (000)1,3301,3051.9%10,37010,2011.7%
Revenue Passenger Kilometres(m)3,4723,2457.0%23,49322,4894.5%
Available Seat Kilometres (m)4,0923,8496.3%27,83326,9333.3%
Passenger Load Factor (%)84.9%84.3%0.6 pts84.4%83.5%0.9 pts
Ye a r-to-da te RASK
1
Group0.4% (0.1%)
Short Haul3.2% 3.3%
Long Haul(0.7%)(2.0%)
JANUARY
% change in reported RASK
(incl. FX)
% change in underlying RASK
(excl. FX)
FINANCIAL YTD
27 February 2020
2
Operating statistics table
Group FINANCIAL YTD
2020
2019% *20202019% *
Passengers carried (000)1,3301,3051.9%10,37010,2011.7%
Revenue Passenger Kilometres(m)3,4723,2457.0%23,49322,4894.5%
Available Seat Kilometres (m)4,0923,8496.3%27,83326,9333.3%
Passenger Load Factor (%)
84.9%84.3%0.6 pts84.4%83.5%0.9 pts
Short Haul TotalFINANCIAL YTD
20202019% *20202019% *
Passengers carried (000)
1,1131,115(0.2%)9,0118,944
0.7%
Revenue Passenger Kilometres(m)1,3241,353(2.1%)10,14910,155(0.1%)
Available Seat Kilometres (m)1,5971,679(4.9%)12,19712,342(1.2%)
Passenger Load Factor (%)
82.9%80.6%2.3 pts83.2%82.3%0.9 pts
DomesticFINANCIAL YTD
20202019% *20202019% *
Passengers carried (000)7807750.6%6,567
6,5310.6%
Revenue Passenger Kilometres(m)
420
420(0.0%)3,393
3,3900.1%
Available Seat Kilometres (m)490510(4.0%)
3,996
4,102(2.6%)
Passenger Load Factor (%)85.7%82.4%3.3 pts84.9%
82.7%2.2 pts
Tasman / PacificFINANCIAL YTD
20202019% *20202019% *
Passengers carried (000)
333340(2.0%)2,4442,4141.2%
Revenue Passenger Kilometres(m)904932(3.0%)6,7566,764(0.1%)
Available Seat Kilometres (m)1,1071,168
(5.2%)8,2008,240(0.5%)
Passenger Load Factor (%)81.7%79.8%1.9 pts82.4%82.1%
0.3 pts
Long Haul TotalFINANCIAL YTD
20202019% *2020
2019% *
Passengers carried (000)21819114.2%1,3591,2568.2%
Revenue Passenger Kilometres(m)2,1481,89213.5%13,34412,335
8.2%
Available Seat Kilometres (m)
2,4942,17014.9%15,63614,5917.2%
Passenger Load Factor (%)86.1%87.2%(1.1 pts)85.3%
84.5%0.8 pts
Asia / Japan / Singapore +FINANCIAL YTD
20202019% *20202019% *
Passengers carried (000)1007730.3%60851318.5%
Revenue Passenger Kilometres(m)89768830.4%5,405
4,57618.1%
Available Seat Kilometres (m)1,049772
35.8%6,3945,45617.2%
Passenger Load Factor (%)85.5%89.1%(3.6 pts)84.5%83.9%0.6 pts
Americas / UKFINANCIAL YTD
20202019% *20202019% *
Passengers carried (000)117
114
3.3%751743
1.1%
Revenue Passenger Kilometres(m)1,2511,2043.9%7,9397,7592.3%
Available Seat Kilometres (m)1,4451,3983.4%9,2439,1351.2%
Passenger Load Factor (%)86.5%86.1%0.4 pts85.9%84.9%1.0 pts
JANUARY
JANUARY
JANUARY
JANUARY
JANUARY
JANUARY
JANUARY
Air New Zealand operates primarily 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. The following operational data and statistics is
additional supplementary information only.
+ Includes fourteen return flights between Auckland and Hong Kong replaced by Cathay Pacific charters.
* % change is based on numbers prior to rounding
3
Media Releases
(during the period 28 January to 26 February 2020)
Air New Zealand to put economy travellers to sleep 26 February 2020
Air New Zealand has unveiled a ground-breaking new lie-flat prototype sleep product for economy class
travellers.
The Economy Skynest is the result of three years of Air New Zealand research and development, with the
input of more than 200 customers at its Hangar 22 innovation centre in Auckland. The airline has filed patent
and trademark applications for the Economy Skynest which provides six full length lie-flat sleep pods.
Air New Zealand Chief Marketing and Customer Officer Mike Tod says that as the airline operates some of
the world’s longest flights, such as the upcoming Auckland-New York service at up to 17 hours 40 minutes
one way, it is committed to putting more magic back into flying.
“We have a tremendous amount of development work underway looking at product innovations we can bring
across all cabins of the aircraft. A clear pain point for economy travellers on long-haul flights is the inability to
stretch out. The development of the Economy Skynest is a direct response to that challenge,” Mr Tod says.
Air New Zealand will make a final decision on whether to operate the Economy Skynest next year after it has
assessed the performance of its inaugural year of Auckland-New York operations.
General Manager of Customer Experience Nikki Goodman says customer and cabin crew feedback on the
Economy Skynest during its final phase of development has been outstanding, with significant partners also
keenly involved.
“We see a future flying experience where an economy-class customer on long-haul flights would be able to
book the Economy Skynest in addition to their Economy seat, get some quality rest and arrive at their
destination ready to go. This is a game changer on so many levels,” Ms Goodman says.
“We’re so excited to be sharing this product development with our customers. This is one of the highlights of
three years’ intensive work centred on customer wellbeing. We’re sure this innovation is going to be a game
changer for the industry and bring significant improvements to long-haul flying. We expect other airlines will
want to explore licensing the Economy Skynest from us just as they have with the Economy Skycouch™.”
Air New Zealand’s Head of Airline Programmes Kerry Reeves says ‘can do’ is one of the airline’s key values
and the Economy Skynest prototype is a tangible example of this.
“At Air New Zealand, we continue to nurture a can-do attitude, we’re not afraid of being bold and trying new
things. The question is never ‘can we do this’ but instead ‘is it right to do this for our customers?’ and, if so,
‘how will we do this?’”
“Our ability to take a good idea, to execute and deliver an innovation that works in our
environment, our market and for our people and customers gives us an edge.”
Mr Reeves says the scale of the challenge in developing the Economy Skynest and working
through its certification with the necessary regulators is immense compared with the development
of the Economy Skycouch.
4
“But it was a prize worth chasing and one that we think has the potential to be a game changer for economy
class travellers on all airlines around the world.”
Air New Zealand Economy Skynest specs*
Where will the Economy Skynest be
placed within the aircraft?
The exact positioning of the Economy Skynest within the aircraft
has still to be confirmed, however, it will be in the Economy
cabin.
How many beds will the Economy
Skynest accommodate?
Each Economy Skynest can accommodate six sleeping pods
Overall length of the sleeping pods
In excess of 200cm
Width at the shoulder area
In excess of 58cm
What’s included with the Economy
Skynest?
It is intended that each pod will include a full-size pillow, sheets
and blanket, ear plugs along with privacy curtains and lighting
designed for sleep. We are exploring other features such as
separate reading light, personal device USB outlet and
ventilation outlet.
Air New Zealand provides update on impact of coronavirus 24 February 2020
on 2020 outlook
Air New Zealand has provided an update on its current estimate of the impact of coronavirus on earnings for
the 2020 financial year.
The airline’s revenue outlook for the remainder of the year is expected to be adversely impacted as a result
of softer demand for travel to and from Asian destinations. Weaker forward bookings for travel on the Tasman
and Domestic networks have also emerged as a result.
Immediate steps have been taken to mitigate the impact of lower demand, including adjustments to capacity
across the Asia, Tasman and Domestic networks. The airline is also increasing market development
investment to drive additional demand, specifically across its Domestic and Tasman markets. These actions,
in addition to the reduced market price for jet fuel, will partially mitigate the impact of lower demand, however
overall earnings for the 2020 financial year will be adversely impacted.
While the situation is uncertain, based on current assumptions of lower demand as well as the benefit of the
announced capacity reductions and lower jet fuel prices, the airline currently expects a net negative impact
to earnings in the range of $35 million to $75 million as a result of coronavirus.
At the midpoint of the estimated range above, which is approximately $55 million, the airline is targeting
earnings before other significant items and taxation to be in a range of approximately $300 million to $350
million
[1]
.
5
The airline will provide an update to this guidance should the current assumptions materially change.
Chief Executive Officer Greg Foran acknowledges the challenging environment but says that he is confident
Air New Zealand is well positioned to deliver the best result under these conditions.
“Air New Zealand is a resilient business and we have demonstrated the ability time and again to respond
quickly to changing market conditions. We have a highly capable and experienced senior leadership team
who have dealt with challenges such as this before and I am confident that we will effectively navigate our
way through this,” says Mr Foran.
The airline will release its 2020 Interim Results to the market on Thursday 27 February.
Current network actions taken to mitigate impact of coronavirus on demand
The airline will continue to assess the appropriate level of capacity and other potential actions to reflect the
changing demand environment. Current network actions the airline has taken include:
• Previously announced capacity reductions across Asia routes, predominantly related to Shanghai
and Hong Kong services.
• The airline announces that services to Seoul will be temporarily suspended from 7 March through the
end of June.
• Total Asia capacity will thereby reduce by 17% for the months of February through June.
• Tasman capacity reductions of 3% from March through May.
• Reductions in Domestic capacity of 2% across March and April, focused on Christchurch and
Queenstown services to/from Auckland.
Guidance summary
Amended guidance for 2020
financial year
(as disclosed on 24 February
2020)
While the situation is uncertain, based on our current assumptions of
lower demand as well as the benefit of the announced capacity
reductions and lower jet fuel prices, the airline currently expects a net
negative impact to earnings in the range of $35 million to $75 million as
a result of coronavirus.
At the midpoint of the estimated range above, which is approximately
$55 million, the airline is targeting earnings before other significant
items and taxation to be in a range of approximately $300 million to
$350 million.
1
The airline will provide an update to this guidance should the current
assumptions materially change.
1
Assuming jet fuel prices remain at US$65 per barrel for the remainder
of the year and excludes the impact of NZ IFRS 16.
Previous guidance for 2020
financial year
(as disclosed on 28 January
2020)
Based upon current market conditions and assuming an average jet
fuel price of US$75 per barrel, the airline is targeting earnings before
Other Significant Items and taxation to be in the range of $350 million
to $450 million. This outlook excludes the impact of the new accounting
standard for leases (IFRS 16).
[1]
Assuming jet fuel prices remain at US$65 per barrel for the remainder of the year and excludes the
impact of the NZ IFRS 16.
6
Air New Zealand announces capacity adjustments on 18 February 2020
Shanghai and Hong Kong routes
Air New Zealand has advised that it will be reducing capacity on its Shanghai route throughout April, and
Hong Kong route throughout April and May as a result of the impact of coronavirus (COVID-19) on customer
demand.
Shanghai services are currently suspended until 29 March as a consequence of international travel bans
affecting crew logistics and customer bookings. The resumption of these services is dependent on a change
in status of international travel restrictions. The health and safety of the airline’s crew and customers is
paramount and re-entry into Shanghai in particular will also be subject to guidance from the New Zealand
Ministry of Health and Air New Zealand Medical team.
From 30 March, Shanghai services will be adjusted from seven return services per week to a return service
every second day through to 30 April. Hong Kong services, currently operated by Cathay Pacific, will resume
on Air New Zealand aircraft from 29 March and will be adjusted from seven return services per week to four
return services per week from 21 April – 31 May.
Air New Zealand Chief Revenue Officer Cam Wallace says the airline remains committed to its Shanghai and
Hong Kong services despite the impact of the coronavirus.
“We have this week conveyed to officials in China our intention to resume services from April subject to the
current travel restrictions being lifted and the appropriate medical advice from the New Zealand Ministry of
Health and our own Medical Team. We are grateful for officials’ understanding of our temporary suspension
of Shanghai services,” Mr Wallace says.
“Clearly, the coronavirus has had an impact on bookings into Shanghai and Hong Kong, and our schedule for
April and May will reflect this with a lower flight frequency.”
Air New Zealand will directly contact customers affected by these changes in the coming week. Customers
booked via a travel agent (including online travel agents) will be contacted by their booking agent. The latest
information will also be published on the Travel Alerts section of the Air New Zealand website and customers
are encouraged to check this, before calling the airline's contact centre. Customers are also welcome to
directly message the airline through its social media channels.
Air New Zealand project diverts nearly 900 tonnes of 17 February 2020
inflight waste from landfill
Air New Zealand has diverted more than 890 tonnes of in-flight waste from landfill two years on from the
launch of Project Green, its glass recycling and product use waste reduction initiative. This is equivalent to
the weight of five 777-300 aircraft.
Project Green, launched in late 2017, means that unused items from a flight service that previously may have
gone to landfill can be put onto a subsequent flight provided they come off the aircraft sealed and untouched.
The reclassification of these items was made possible through a collaboration between the airline, its catering
partner LSG Sky Chefs and the Ministry of Primary Industries.
Some of the more than 40 item types Project Green covers includes cans of soft drink, packets of cookies,
boxed tea, coffee and sugar sachets and sealed napkins. Prior to the establishment of this process, even
unopened items of these product types taken on board would have had to be incinerated.
To date Project Green has meant Air New Zealand has been able to recover the equivalent weight of 2 x
A320s of 1.5L Water Bottles (85 tonnes), more than 11.5 million plastic glasses and more than 4 million sticks
of sugar.
7
Air New Zealand’s General Manager Supply Chain Chloe Surridge says in addition to reducing waste to
landfill, data captured from the roll out of Project Green in Auckland, Wellington, Christchurch, Queenstown
and Los Angeles International airport helps the business to better assess flight loading requirements and to
look for opportunities to reduce waste at source.
“We are also working on ways to further segregate the waste that is collected inflight (for example soft plastics
and compostables). A major challenge we face, however, in reducing waste to landfill, is the lack of recycling
and composting infrastructure available for us to send our material to. More robust infrastructure across the
country, including in the regions, would help us keep compostables and recyclables out of landfills.”
“Project Green is a very good example of the steps Air New Zealand is taking to build sustainability into its
supply chain. We are looking to make impactful sustainability gains and, in order to do this, we have to enable
those bigger conversations through relationships with our suppliers and business partners.”
Air New Zealand Shanghai suspension 2 February 2020
Following the announcement from the New Zealand Government on China travel restrictions, Air New
Zealand has suspended its Auckland-Shanghai route with immediate effect until 29 March 2020.
Air New Zealand Chief Operational Integrity and Standards Officer Captain David Morgan says the
suspension has been brought forward following increased border restrictions, which pose significant
operational and crew logistics challenges.
“We thank customers for their understanding as the situation evolves. Our teams are working to make
alternative travel arrangements for all customers impacted by this suspension and they will be contacted with
options in the coming days,” Captain Morgan says.
Air New Zealand’s contact centre is currently operating at high volumes. The latest information will be
published on the Travel Alerts section of Air New Zealand’s website and customers are encouraged to check
this, before calling the contact centre. Customers are also welcome to directly message the airline through its
social media channels.
One million Air New Zealand domestic fares go for under $50 28 January 2020
Air New Zealand has sold more than one million domestic fares for under $50 since it overhauled its domestic
pricing structure a year ago.
The airline shrunk its lowest fares on 41 domestic routes in February 2019 reducing some by up to 50 percent.
The move meant Kiwis can fly within each island for as low as $39 and between the North Island and South
Island for as low as $39.
Air New Zealand Chief Revenue Officer Cam Wallace says the response to the reduction to the airline’s
lowest fares has been fantastic.
“When we announced this overhaul in February last year, we committed to making three quarters of a million
seats a year available for less than $50. It’s terrific to have well and truly surpassed this and to hit the one
million milestone.
“Around 600,000 of these fares sold for under $50 have been for flights on our regional routes. We remain
committed to delivering great low fares for our customers, but they’re in hot demand, so people need to
remember to book early to get the best possible deals.”
---
UnitsFY20 Q3FY20 Q4FY21 Q1FY21 Q2FY21 Q3FY20 H2FY21 H1
Jan-MarApr-JunJul-SepOct-DecJan-MarJan-Jun 2020Jul-Dec 2020
Brent Swaps
VolumeBarrels
50,00027,50052,50077,500
PriceUSD
57.9957.3757.0257.77
Brent Collars
VolumeBarrels2,262,5001,822,5001,600,000982,500195,0004,085,0002,582,500
Ceiling PriceUSD65.1662.4759.4859.1057.3363.9659.33
Floor PriceUSD55.4253.6852.9153.1950.8754.6453.01
Barrels2,262,5001,822,5001,650,0001,010,000247,5004,085,0002,660,000
Barrels2,359,9702,138,6242,350,0002,375,0002,450,0004,498,5954,725,000
96%85%70%43%10%91%56%
USD(2,487,534)(4,745,512)286,205536,922408,660(7,233,046)823,127
USD(5,938,500)(3,603,375)(2,393,850)(1,042,025)(303,725)(9,541,875)(3,435,875)
USD(8,426,034)(8,348,887)(2,107,645)(505,103)104,935(16,774,921)(2,612,748)
Brent Call Spreads (3)
VolumeBarrels1,275,000412,5001,687,500
Bought CallUSD60.7260.5860.68
Sold CallUSD65.8366.5566.01
Jet-Brent Crack Spreads (4)
VolumeBarrels837,500825,000100,0001,662,500100,000
PriceUSD16.6213.8315.4415.2315.44
Notes:
Brent spot was US$59 and 12 month Brent was US$57. As at 21 February 2020, Air New Zealand had no WTI hedges.
Singapore Jet Spot was US$65 and 12 month Singapore Jet was US$68.
(1) Compensation from fuel hedges is the sum of the mark-to-market value of all fuel hedges as at 21 February 2020.
(3) Brent Call Spreads lower the ceiling price of existing collar structures.
Volume: Fuel volume is reported in barrels for passenger aircraft (42 US gallons in a barrel).
Price: Price is quoted in USD cost per barrel of Brent and Singapore Jet.
Page 1 of 1
(2) Net compensation from fuel hedges represents the unrealised gains and losses on fuel hedges. These gains and losses will be accounted for in line with Air New Zealand Limited’s fuel instrument accounting
policy. The effective portion of changes in the intrinsic value and time value of fuel derivatives is recognised through Other Comprehensive Income. Any accounting ineffectiveness is recognised through
earnings.
(4) Jet-Brent Crack Spreads lock in the margin between the Singapore Jet and Brent Crude prices; Air New Zealand has entered into Jet-Brent Crack Spreads to actively manage the volatility of the spread between Singapore Jet and
Brent Crude prices.
Purchase cost of options
Net compensation from hedges (2)
Air New Zealand Limited
Fuel Hedge Position as at 21 February 2020
Total hedged volume
Estimated fuel consumption
Hedged volume as proportion of total
Compensation from fuel hedges (1)
=== IR PAGE TRANSCRIPT: 2020 Interim results Analyst Call Transcript ===
Client Id: 77
THOMSON REUTERS STREETEVENTS
EDITED TRANSCRIPT
AIR.NZ - Interim 2020 Air New Zealand Ltd Earnings Call
EVENT DATE/TIME: FEBRUARY 26, 2020 / 9:00PM GMT
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Client Id: 77
CORPORATE PARTICIPANTS
Gregory S. Foran Air New Zealand Limited - CEO
Jeff McDowall Air New Zealand Limited - CFO
Leila Peters Air New Zealand Limited - General Manager of IR & Financial Planning
CONFERENCE CALL PARTICIPANTS
Andrew James Bowley Forsyth Barr Group Ltd., Research Division - Head of Research
Marcus Curley UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Owen Birrell Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
PRESENTATION
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Air New Zealand 2020 Interim Results Investor Briefing. (Operator Instructions)
I'd now like to hand over to Air New Zealand's General Manager of Investor Relations and Financial Planning, Leila Peters.
Leila Peters - Air New Zealand Limited - General Manager of IR & Financial Planning
Thank you, and good morning, everyone. Today's call 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 and financial
report, media release and the relevant stock exchange disclosures.
Speaking on the call today will be Chief Executive Officer, Greg Foran; 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.
I would also like to draw your attention to the fact that a number of prior period comparative figures have been restated throughout the presentation
to reflect the retrospective disestablishment of aircraft fair value hedges, which we disclosed to the market on the 28th of January.
The group has also adopted NZ IFRS 16, the new leasing standard, from the 1st of July 2019. In accordance with the transition, provisions of the
standard comparatives have not been restated. I urge you to read through these statements on Slide 3.
Within the presentation, there is also a supplementary information section that includes slides that we will not specifically address during the
webcast. These slides provide key financial and operational details, and we recommend that you take the time to review that information.
Before I hand things over to him, Greg, I would like to take this opportunity to welcome you to your first Air New Zealand investor call. I'm sure that
I'm not alone in saying that we are very excited to have you here and look forward to having you meet our investors and analyst community in due
course.
With that, I will now turn the call over to Greg.
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FEBRUARY 26, 2020 / 9:00PM, AIR.NZ - Interim 2020 Air New Zealand Ltd Earnings Call
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Gregory S. Foran - Air New Zealand Limited - CEO
Thank you, Leila. Kia ora, and good morning, everyone, and thanks for joining us on today's call. It's a great pleasure to be here, and I do look forward
to meeting with many of you over the coming months.
I don't think I've made any secret of the fact that I am incredibly excited to have returned home to New Zealand as the CEO of one of New Zealand's
most iconic and loved companies. Many of my happiest childhood memories involve my family and I traveling around our beautiful country, seeing
everything that the regions and centers have to offer. And I'm thrilled to lead a company that provides that opportunity to all New Zealanders as
well as visitors to our country.
Having now spent almost a month in the business, taking every opportunity I can to meet Air New Zealanders and customers alike, one thing that
really stands out to me is the fact that we have an incredible culture here with a team of enthusiastic, dedicated employees who are focused on
delivering an exceptional but still very kiwi customer experience every day.
If there's one thing that my career has taught me, it's that the power of an exceptional culture, which, in turn, leads to the creation of an exceptional
customer experience, cannot be undervalued. Whether you're in the retail industry or the airline industry, creating the right customer experience
is the key to delivering a long-term sustainable success. I see this role as a fantastic opportunity to take the lessons I've learned in my career to date
and use them to help develop and enhance all of the things that make Air New Zealand so special.
Now I would be remiss if I did not acknowledge the obvious uncertainty facing Air New Zealand at the moment with regards to COVID-19 and its
expected impact on the airline. You may have seen the announcements we made both last week and on Monday regarding changes to our network
in direct response to the reduced demand we are seeing. We have the ability to scale these adjustments up or down depending on how the situation
progresses. You can be certain that the team is closely monitoring our forward bookings profile to ensure that we have an appropriate level of
capacity in the market.
At this point, it is clear that there will be an adverse impact to the current year's financial performance as a result of COVID-19, and Jeff will provide
more detail on our thinking regarding that impact later in the presentation.
From my perspective, Air New Zealand is a resilient business with a strong core in its domestic market, and we've demonstrated the ability, time
and again, to respond quickly to changing market conditions. We have a highly capable and experienced team who have dealt with challenges
such as this before, and I'm confident that we will weather this storm, too. That's not to say that it won't be challenging. It will be, but the strategic
advantages we had spent years investing in and enhancing will help us deliver during this time.
I will now hand over to Jeff to discuss the first half results.
Jeff McDowall - Air New Zealand Limited - CFO
Thanks very much, Greg, and kia ora to everyone on the call. Earlier this morning, we released Air New Zealand's financial results for the first 6
months of the 2020 financial year to the market. It was a solid result with earnings before other significant items and taxation of $198 million,
reflecting the resilience of our business and the execution of our strategy despite a challenging economic backdrop.
Our revenue performance was strong, driven by growth in the recently launched [and new] markets such as Korea, [Christchurch,] Singapore,
Chicago and Taipei as well as strong demand across our Domestic and Pacific Island networks. That demand, in conjunction with the actions we've
taken to stimulate additional leisure traffic with our domestic fare restructure, helped contribute to a 2.8% increase in passenger revenue despite
the slower demand growth environment and the impact of ongoing unrest in Hong Kong.
Total revenue growth was impacted by continued weakness in the global cargo market, which resulted in the decline of 9.4%, excluding foreign
exchange in our own cargo business. The cargo business has been challenged for the last 12 months or so, predominantly driven by trade tensions
between the U.S. and China, which has reduced demand and put pressure on yields.
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On the cost front, I'm pleased with the results we're seeing from our business review initiatives, which have contributed to the improvement in
our underlying unit cost performance for the first half. This is despite the fact that we faced increased domestic air navigation and landing charges
this year.
As you'll be aware, fuel costs were lower this financial period, which is a positive. However, the benefits of this have essentially been offset by the
impact of the weaker New Zealand dollar over the same period. It's really been the continued focus on our cost base that's led to increased efficiencies
and economies of scale and ultimately delivered an underlying unit cost improvement.
I would like to take this opportunity to thank the team at Air New Zealand for their continued and relentless focus on driving sustainable cost
savings, and that's despite the external challenges the business has faced and continues to face.
As we will touch on later when discussing the outlook for the remainder of the year, I'd really like to reiterate Greg's earlier sentiments. Air New
Zealand's a strong, resilient company that's adjusted its business in response to a number of external challenges in the first half. However, as we've
communicated to you in the past, we're not satisfied with this lower level of earnings, and we'll continue to take necessary actions to navigate
these short-term headwinds.
At our Investor Day last May, we articulated 3 focus areas from a network perspective that will guide our thinking on capacity growth. They were,
firstly, to grow into attractive new markets, thereby accessing untapped pools of demand. In the first half of this year, we saw good momentum
from that strategy with revenue growth across recently launched markets performing ahead of our expectations.
Next, we look to drive cost-efficient growth through upgauging to NEO aircraft on some of our short-haul services. The ongoing replacement of
older A320 aircraft on the short-haul network with newer NEO aircraft is providing good efficiencies and economies of scale, which is especially
helpful to our cost competitiveness as we face elevated levels of market supply on the Tasman.
The last element to our network growth strategy was to moderate growth on our existing routes and drive strong RASK improvement. This was
most apparent to markets that we had grown considerably over the past 4 to 5 years such as the overall Domestic market and the Pacific Islands
as well as Japan.
Now to provide a brief update on our previously communicated cost initiatives. As I mentioned earlier, we're seeing good progress across all 3
pillars. As you will remember, the overall goal of this program is to structurally reduce the cost base by approximately $60 million across a 2-year
period to align our cost base with the new lower demand growth environment. These cost savings are in addition to our usual daily diet of cost
savings and efficiencies that help us to offset inflation.
So in terms of the first pillar, we're on track to regain efficiencies in our operations following the impact of the global Rolls-Royce engine issues on
our network across the last 2 years or so. A large part of that inefficiency was driven by labor costs, specifically having elevated levels of staff and
crew available to support our customers and operations throughout the disruption.
Despite the additional TEN engine maintenance backlog this half, we still expect to deliver approximately $20 million in savings related to this
initiative in the 2020 financial year. A large part of the savings achieved to date have been from the ability to make more proactive network planning
decisions with fewer last-minute changes to aircraft type later in the planning cycle, which as we discussed last year is really inefficient from a cost
perspective. Also, the need to hold additional levels of both crew and other operational staff has dropped off as we [built] some certainty back into
our schedule.
Then turning to the second pillar, which is a 5% reduction in overheads. The focus here is to ensure that we have the most efficient and effective
cost structure to support the business in a lower demand growth environment. We're expecting to deliver on these improvements from an earnings
perspective in both 2020 and 2021.
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Then if we turn to the third component, where we have commenced a targeted review of the operations cost base. As mentioned before, this will
involve some supply chain consolidation as well as improved labor utilization and optimization of our facilities. While a portion of these savings
are on track to be delivered in 2020, the majority will now be delivered in 2021.
Turning now to some of the financial highlights of the first half. Operating revenues were $3 billion, an increase of 3% on the prior period. Against
the backdrop of the additional headwinds I highlighted earlier, this is quite a strong result. This half, we delivered earnings before taxation of $139
million. Earnings before other significant items and taxation were $198 million, a decline of 8.8%.
As a reminder, in January, we announced several items that will be classified as other significant items for the financial year. A breakdown of those
items can be found in the supplementary slides in the back of the presentation. Net profit after tax for the period was $101 million, and reported
operating cash flow was $534 million.
Delving a bit deeper into the drivers of our revenue performance. Overall passenger revenue increased 2.8%, driven by strong demand growth of
4%, which outpaced capacity growth of 2.8%. RASK, excluding the impact of FX, was marginally down, which is a solid result in light of the mix of
long-haul capacity growth in the period. I'll touch on the cargo business in more detail shortly, but overall, revenues declined 9.4%, excluding
foreign exchange.
We've summarized our cost performance here, and I will touch on underlying CASK performance in the coming slides. Briefly reviewing the impact
of fuel in the first half. Overall costs increased 1.1% or $7 million. That movement reflects a decline in average fuel price of $28 million, offset by
the weaker New Zealand dollar, which drove $20 million of additional cost. Increased flying across the network also resulted in $15 million of
additional fuel costs in the period. We saw the benefits of our modern fuel-efficient fleet as well as the mix impact of capacity growth on longer
sectors, where fuel volume's growing only 2.3% on capacity growth of 2.8% in the period.
Now I'll briefly touch on some of the key movements which affected our profitability during the year. To better understand the dynamics of each
component, we've isolated the impact of foreign exchange. I won't go into the details of every single item here, but a detailed profitability waterfall
and commentary can be found in the interim financial report on the Investor centre website.
We've already discussed passenger revenue performance, and I'll cover the cargo business shortly. However, I wanted to point out that within the
$76 million of revenue growth, is $26 million in other revenue, which is largely from additional maintenance work for third parties, including on
U.S. Navy gas turbine engines.
Labor costs increased by 1.3%, well below our capacity growth. This was driven by our efforts on cost initiatives that I've already touched on as
well as reduced incentive payments compared to the prior period. Growth in our full-time equivalent workforce, or FTEs, was 2.7%, which is broadly
in line with capacity growth. The majority of growth this year was in [crewing and] airports.
Moving over now to maintenance, aircraft operations and passenger service costs, which increased by $52 million. This increase was primarily
driven by maintenance activity associated with the U.S. Navy gas turbine engine contracts as well as the weaker New Zealand dollar and overall
growth in the fleet. A significant step-up in domestic air navigation and landing charges in the period also impacted our profitability as we absorbed
high single-digit price increases. I would also like to highlight that sales, marketing and other expenses remained essentially flat, highlighting our
ability to leverage efficiencies as we focus on productivity initiatives within the airline.
Ownership costs increased by $29 million, driven by new aircraft deliveries. This increase was lower than our earlier expectations partly due to
delays in the delivery schedule of some aircraft, which has pushed out the timing of those costs into subsequent financial periods. We're now
expecting around $55 million to $60 million of additional ownership costs in the 2020 financial year, which is less than the $70 million to $80 million
estimate we provided in our annual results call last August. And lastly, the weaker New Zealand dollar resulted in a net adverse impact of $21 million
to profitability in the period.
5
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FEBRUARY 26, 2020 / 9:00PM, AIR.NZ - Interim 2020 Air New Zealand Ltd Earnings Call
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If we look at passenger revenue performance by market, and I'm just going to focus on a few here that we haven't discussed already. During the
first half of the year, we saw very high levels of demand on our Japan routes as a result of the Rugby World Cup, which drove high double-digit
RASK growth as well as strong yields in the first half. This was, of course, partially offset by the impact of the ongoing disruptions in Hong Kong.
The Tasman market continued to experience the high levels of market capacity that followed the end of our alliance relationship with Virgin
Australia. In November, we also announced the suspension of our twice-weekly seasonal Christchurch to Perth service as well as the cancellation
of our second daily Auckland to Perth flight through December as a result of the additional maintenance requirements on our Trent 1000 TEN
engines, which impacted passenger revenues.
For the Pacific Islands, excluding Samoa, further capacity rationalization, particularly on routes such as Honolulu and Denpasar, which had experienced
high growth in the last 18 months or so, helped drive strong RASK and yield. Samoa was, however, impacted by the measles outbreak. We also
benefited from positive passenger revenue performance on our core domestic market with more moderated capacity driving strong year-on-year
RASK outcomes and increased load factors. This was largely driven by continued demand strength in the corporate market and further stimulation
of domestic demand following the domestic fare restructure we announced last year. For the last few months of the half, we also added additional
capacity on some of our regional routes following the announcement of the withdrawal of Jetstar from the New Zealand regional market.
And finally, if we look at the Americas, in particular, North America, we saw a weaker New Zealand dollar impact outbound demand on some of
the U.S. routes. This, combined with an overall increase in market capacity of around 5% year-on-year, led to some softness in RASK and yields,
albeit off a strong base. Our additional frequency into Chicago, up from 3x per week to 5, delivered strong revenue growth.
So as I mentioned earlier this morning, the continued slowdown in the globe freight market has led to an overall decline in our own cargo business
of 9.4%, excluding foreign exchange. A large portion of that decline was driven by reduced flows between China and the U.S. as trade tensions
continue. We've also seen a change in pricing behavior with the slowing demand environment, particularly on the Tasman, with higher levels of
discounting in the market putting pressure on both volumes and yields. There was also a mix component to the cargo story. Our team has worked
hard to source additional demand from some of our secondary cargo markets. However, this has typically been for lower-value products, which
have resulted in lower overall revenue.
The other thing to bear in mind when looking at the year-on-year cargo performance is that we're comparing against a strong first half in the 2019
financial year as the slowdown only really started in the second half of last year. In January and early February, we were seeing early signs that the
cargo market was starting to stabilize. However, the outbreak of COVID-19 has impeded that recovery.
Turning now to our operating costs. CASK, when adjusted for the impact of fuel price, FX and maintenance for third parties, improved by 0.5%.
This contributed $59 million to profit in the period and reflects the benefit of cost efficiencies and economies of scale as we grew our long-haul
network during the first half. It's worth noting that while we expect the business will continue to achieve further cost initiatives and efficiencies in
the second half of the year, the recently announced capacity reductions relating to the impact of COVID-19 will impact overall CASK for 2020.
Our operating cash flows remain robust at $534 million on a reported basis. When adjusting for the impact of the new leasing standard, which
resulted in the reclassification of lease payments, operating cash flow has declined 11% to $423 million. This has been primarily driven by a one-off
cash outflow of $55 million as we entered into a maintenance agreement to prepay certain engine parts at an attractive discount as well as the
reduced level of earnings. We ended the period with cash on hand of $1 billion, which reflects a slight decline of 4.9% but are still at the top end
of our target liquidity range of $700 million to $1 billion. The airline continues to maintain a stable investment-grade credit rating from Moody's
of Baa2. Gearing was 54.3% and remains in our target range of 45% to 55%. There was a 2.6 percentage point increase in gearing, which reflects
continued investment in aircraft. Our reported gearing has been impacted by both the adoption of NZ IFRS 16 from the 1st of July 2019 as well as
the disestablishment of fair value aircraft hedges, which we disclosed to the market in late January. In the supplementary slides, we've provided a
reconciliation of the gearing changes relating to this. Finally, the Board was pleased to announce a fully imputed dividend of $0.11 per share,
consistent with the prior period.
In the chart on Slide 17, you can see the phasing of our updated aircraft capital expenditures through to 2023, which totaled approximately $1.5
billion based on an exchange rate of $0.65. You will also see that we've reflected some timing changes on our expected delivery of NEO aircraft for
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the domestic market. Initially, delivery of the first 3 domestic units was expected in the 2021 financial year. However, we are now expecting to
receive just 1 unit in that year, with the other 2 units moving now into the 2022 financial year. We have also deferred 2 further units from 2022 to
2023.
Now turning to the remainder of the year. As Greg mentioned, we are facing a large degree of uncertainty with regards to demand across our
international and Domestic network as a result of the COVID-19 outbreak. We have seen our forward booking trends evolve at quite a rapid pace
over the past few weeks with notable softening in demand across a number of our markets. We believe this reduction in demand is temporary.
However, we have taken immediate action to mitigate the loss of revenue from COVID-19. That includes putting in place a number of capacity
reductions across our Asia, Tasman and Domestic networks, which we announced to the market on Monday, along with an update to our expected
earnings range for the 2020 financial year. We have also taken the opportunity to adjust our schedule to drive more efficient flying using our 787
aircraft on routes such as Honolulu and Bali, given some of those aircraft have now been freed up following the route cancellations and capacity
reductions we've made.
It's clear that our Asia network will be the most directly impacted by COVID-19, specifically, our Shanghai route where services have been suspended
since early February, following the government's restriction on travel to mainland China. We have also suspended services to Seoul from early
March until the end of June.
In addition to the direct impact of cancellations, we've also seen weak inbound demand from other markets in the region, particularly Hong Kong
but also in Japan and Taipei, where we have experienced some group cancellations. Singapore has also seen a slowdown in connecting traffic, and
we've adjusted our frequency there in response to this. The net of all this is that we've implemented targeted capacity reductions across a number
of markets in Asia with a decline in planned capacity of approximately 17% for the month of February through June.
Then if I look at the Tasman, we have observed some softening of demand there in the past 2 weeks or so. We've implemented capacity reductions
of approximately 3% on the Tasman over the March to May period.
On our Domestic network, we are seeing weaker demand on our Christchurch and Queenstown routes, reflecting the decline in inbound Asian
visitors. As a consequence, we've made a number of frequency changes in these markets, reducing capacity by around 2% over the period of March
through April.
It's also worth noting that our Pacific Island network has not seen any notable changes in demand following the outbreak. We're also seeing some
increased bookings for our North American services as customers look to transit to Europe via U.S. ports rather than through Asia.
Turning to Slide 20. We've summarized the current thinking on capacity for the second half of the year and what that means for full year capacity.
Previously, we had anticipated capacity growth in the second half of the year to exceed what we saw in the first half as new long-haul routes such
as Seoul and the Christchurch to Singapore service drove faster growth as well as the impact of increasing the frequency of Taipei and Chicago
services compared to the prior year. Based on our current expectations and the capacity adjustments we've announced, we are expecting second
half capacity growth to be in the range of 1% to 2%, which would imply 2020 full year capacity growth of around 2%.
Turning 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 an assumption of average jet fuel now at USD 65 per barrel, which reflects the current
market demand following the impact of COVID-19. Based on the makeup of our hedges, we have also provided an approximation of how moves
up or down in fuel price would impact our fuel costs for the second half of the year. At USD 65 per barrel for jet fuel, our fuel cost in the second half
would be approximately ended NZD 590 million, which would bring our full year fuel cost to approximately $1.25 billion.
While the situation is uncertain based on our current assumptions of lower demand as well as the benefit of the announced capacity reductions
and lower jet fuel prices, the airline currently expects a net negative impact to earnings in the range of $35 million to $75 million as a result of
COVID-19. At the midpoint of the estimated range above, which is approximately $55 million, the airline is targeting earnings before other significant
items and taxation to be in the range of approximately $300 million to $350 million, assuming jet fuel prices remain at $65 per barrel for the
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remainder of the year and excluding the impact of IFRS 16, the new leasing standard. The airline will provide an update to this guidance should
the current assumptions materially change.
I will now pass you over to Greg, who's going to leave you with some closing remarks.
Gregory S. Foran - Air New Zealand Limited - CEO
Thank you, Jeff. Just to close, I wanted to discuss the strategy review that we are currently undertaking. As some of you will be aware, I recently
initiated a piece of work around Air New Zealand's strategy to assist us in setting a course for the airline's future. This piece of work or directed
diagnostic, as I like to call it, will involve reviewing our strategic opportunities and risks to assess not only where we play but where we can win
going forward. We've assembled a cross-functional team from areas of the business such as networks, commercial, customer and operations, just
to name a few. This team will lead the strategy review and use the vast knowledge and experience of Air New Zealanders across the whole business
to [inform] the diagnostic. Key focus areas will include our route network, sustainability agenda, loyalty proposition, digital ambition, profitability
and, importantly, our culture. The strategy review will likely conclude midyear and will tackle some core questions about the airline and how we
can best deliver for our customers. I think this is a really exciting time for Air New Zealand, and I look forward to sharing more with you in the
coming months.
So with that, can I say thank you very much for listening? I know you will have lots of questions, so operator, please open up the line.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions) Our first question comes from Andy Bowley from Forsyth Barr.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
I've got a couple of questions, the first of which is for you, Greg, and thanks for your comments on the strategy review just now. But in your opening
comments, you made the reference to customer experience being critical to success. Now that you've had the opportunity to talk to staff and
customers about the customer experience over the past month or so in terms of the work you've done internally and the e-mails we've been getting
as frequent flyers externally, but certainly keen to hear what your observations are about the experience thus far and early thoughts as to how you
can enhance what you're seeing and hearing.
Gregory S. Foran - Air New Zealand Limited - CEO
Yes, sure. Thank you for your question, and thanks for following us. So we've got lots of responses in, as you can imagine, from our leadership across
the business and, as you've mentioned, from Elite and Gold customers. And in fact, a lot of our staff, our Air New Zealand staff, have decided let
me know. So look, we're collating those in and having a look at them. I guess, my overriding comment is, I think this is a really good business. I
think it's in pretty good shape. But like any business, there's always opportunities where you can tweak things and you can adjust them. So we're
just going to sensibly go through that list, and in fact, that process is underway at the moment. And as chance would have it, we've got our first
meeting on it actually in a few hours' time to go and review some of the points, some of them small, some of them medium size, some of them a
bit bigger. And we'll think about these as we pull together our strategy and make adjustments where we think we need to. But it's been a really
useful exercise. And I would characterize it by -- it's a good way to often get the unvarnished truth on your business and when you get to that level
that creates opportunities for you to take action.
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Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
Do you see, Greg, any kind of low-hanging fruit in relation to customer experience, more broadly, in terms of what you've observed across the
business thus far?
Gregory S. Foran - Air New Zealand Limited - CEO
Yes, sure. There -- as I said, there you can generally group these things, and I've done this exercise before into some quick wins. We actually put
those in a work stream that we're calling urgent agenda items. And so as I said, there are some of those, and we're just going to sensibly, as I
mentioned, beginning this afternoon, start to have a look at those. And where it makes sense, we'll make decisions. And where we need more data,
we'll go back and get it. But we'll just sensibly work through those. But there are some.
Andrew James Bowley - Forsyth Barr Group Ltd., Research Division - Head of Research
Great. And look forward to hearing about that in due course. So second question probably for you, Jeff, forward-looking in relation to coronavirus
you've talked through. Now historically, you've reacted far quicker than your competitors in responding to demand changes. But could you talk
about how you see the capacity response from other airlines in relation to coronavirus in terms of both timing and quantum and the possible
impact that, that has on you going forward?
Jeff McDowall - Air New Zealand Limited - CFO
Andy, yes, that's right. We have typically been quite fast to react to situations like this and I think as we have this time. But we've also seen other
airlines, particularly in this region, react really quickly as well. So, for example, on the Tasman, we're seeing both Qantas and Virgin announce some
reductions in the last few days. So I think that's appropriate. Yes, clearly, this is a unprecedented event, and airlines everywhere, obviously, managing
it and monitoring it very closely.
Just on the Tasman, just one observation I'd make there is that the Tasman has a number of sort of indirect impacts. One is that there have been a
lot of, historically, Chinese group customers flying on the Tasman, and they had mostly been on other airlines. We hadn't carried a significant
proportion of them. And it's also been a waypoint to Asia for customers originating in other points of New Zealand flying through to Asia. And
again, we're relatively less exposed to that than the other airlines. So you can kind of see that in the capacity reductions that the Australian airlines
have announced on the Tasman.
Leila Peters - Air New Zealand Limited - General Manager of IR & Financial Planning
And then the other thing I would just add, Andy, is if we look further into Asia, markets such as Singapore and Hong Kong, obviously, we work
really closely with our alliance partners there. And so we've been working with them through capacity discussions as well.
Operator
Our next question comes from Owen Birrell from Goldman Sachs.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Yes, just a few questions from me. You talked about the Chinese movements on the Tasman falling, and you're not being as exposed. But clearly,
that's probably one of the drivers behind increased discounting on that route. Can you give us a feel for the level of discounting you're seeing more
broadly through into Asia or even into the U.S. as carriers try to incentivize volumes on their existing capacity?
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Jeff McDowall - Air New Zealand Limited - CFO
Owen, that's exactly right. I mean, although, yes the impact for us on the Tasman isn't so much that we carry a number of those passengers, it's
just that by them not being there, it changes the supply-demand balance. And so you do see more discounting. And we've seen some -- the Tasman
had been in a somewhat oversupplied mode for a little while, and so the pricing had been quite aggressive. And if anything, that has increased
somewhat in the last few weeks.
With respect to the U.S., actually, for us, we're seeing that quite strong for a couple of reasons that outbound demand -- and this -- I have to caution
all of us by saying, look, it's really early. It's only been 3 booking weeks, really. But we're seeing quite strong demand from New Zealand to the U.S.
And yes, you could speculate that some people are choosing the U.S. as a destination in preference to Asia, and that's [giving it] a bit more demand.
And we've also seen some New Zealand-Europe traffic choose U.S. as a gateway in preference to Asia. So for both of those reasons, it's quite strong.
And we haven't, as a consequence of that, seen any real change or any increased intensity from a pricing perspective.
And similarly, for Asia, airlines have really reacted there with capacity changes rather than pricing.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
I guess, a subsequent question to that. It's obviously very difficult for yourselves, but even more so for us, to try and determine, I guess, the balance
between what's happening with demand, the levels of discounting and offset by the capacity reductions across the industry. Are you able to give
us some sense on, like, even directionally, which way you think RASK is going to go over this interim period?
Jeff McDowall - Air New Zealand Limited - CFO
Not really is the short answer. I mean, it's just so early to tell. So I can't really -- I mean, the Asia route, in particular, is very difficult to forecast. But I
think, like I said, it's not a market in which airlines are out there trying to stimulate demand. They're really, really reacting with capacity. So the RASK
outcome kind of depends on how that balance plays out. Elsewhere in the network, we would expect to see U.S. still tracking strongly and Domestic
seeing a little bit of weakness, as we talked about, based on fewer inbound tourists and a little bit of outbound NZ demand to Asia, which connects
to Domestic also being weaker.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Perhaps if I ask this question slightly differently. Based on your current, I guess, booking expectations, where do you see load factors by region?
Are they going to be falling? Or are you matching the capacity reductions to the demand profile?
Jeff McDowall - Air New Zealand Limited - CFO
Yes. I mean, to the extent that we can, we are doing that, but recognizing that it's a bit lumpy because, yes, typically, if you're operating a daily
service, you can obviously move capacity in increments of 1/7, and demand doesn't move in increments of 1/7. So it's never perfect, but we're
doing that as much as we can. I mean, it's really difficult. Like I say, it's -- I think it was the 3rd of February when the government introduced border
restrictions. It might have been the 2nd of February. And so we've had really 3 booking weeks since then. So it is quite difficult to draw any firm
conclusions on what the impact for the next 4 months will be.
Owen Birrell - Goldman Sachs Group Inc., Research Division - Metals and Mining Company Analyst
Okay. Just this final question for me. In terms of fleet coming on, how much fleet do you have coming on in the next, say, 12 months?
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Jeff McDowall - Air New Zealand Limited - CFO
It's actually quite a light period for fleet deliveries. We've got -- in FY '21, I think we have [1 ATR] and 1 A320 delivery, and that's all.
Operator
(Operator Instructions) Our next question comes from Marcus Curley from UBS.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Just a few from me. Can we start with the costs? Just -- Jeff, I just wonder if you could call out, yes, within, yes, the maintenance aircraft, passenger
services bucket, yes, the elements that relate to that third-party maintenance and the aviation charges.
Jeff McDowall - Air New Zealand Limited - CFO
Yes. So the third-party maintenance for you, and that's why we kind of isolate it out from CASK because it's -- there is a -- if you look at the statutory
P&L, there's quite a big uplift for that, but you see an equal uplift in the contract services line and the revenue. So -- which is why we try and isolate
out that for the -- isolate that out, sorry, for the purpose of the CASK reduction or the CASK analysis.
If you look at maintenance costs, excluding that, and if you also exclude currency, then what you see is maintenance costs actually growing less
than capacity. So that's -- we're quite happy with that picture. The underlying maintenance cost discipline's very much evident.
And then the third thing you called out, as you say, has been one of our big causes of cost escalation, which is air navigation charges, primarily,
but also landing charges, to a lesser extent, have had quite a pronounced impact on our operating costs.
Leila Peters - Air New Zealand Limited - General Manager of IR & Financial Planning
And Marcus, you'll see that come through in the aircraft operations predominantly, and to a lesser extent, passenger services.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
But I suppose the reason for the question is it just seems like there's more cost pressure on the business than I would have thought. And obviously,
you're only calling out these 2 elements within the presentation. Outside of these components, do you think you're seeing more underlying cost
pressure?
Jeff McDowall - Air New Zealand Limited - CFO
Not really. I mean, if you look at the labor line, for example, we're really happy with how that's played out. So we've got -- I think labor is at 1.3%,
and that's, what, 2.8% more capacity. And average [sort of] labor rate increases, if you like, with both (inaudible) and independent employment
contract people of between 2.5% and 3%. So absent efficiencies, you would have expected labor costs to increase north of 5%, and that's only at
1.3%. Some of that -- a big chunk of that is the efficiencies that we've implemented, that we highlighted earlier in the year, but also the daily diet
of cost initiatives that we look to implement, coupled with economies of scale and also, actually, a reduction in incentive payments, which you'd
expect with profitability being where it is.
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Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. And then just finally on costs. So overhead is up. Is that a reflection -- or other costs, as you like to call it. Is that a reflection of the delayed
cost savings in bucket 3? Or is it more to it than that?
Leila Peters - Air New Zealand Limited - General Manager of IR & Financial Planning
Sorry, Marcus, when you say overhead expenses, you're talking about other expenses, which -- what are you referring to?
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Right. Yes, yes, other expenses [1 5 9]. And I'm just trying to correlate that with the delayed savings.
Leila Peters - Air New Zealand Limited - General Manager of IR & Financial Planning
Yes. So that's not -- that line item is not really linked to the 3 pillars of the cost initiatives that Jeff spoke to earlier in the presentation. What that
increase is related to is predominantly increase in digital licensing costs and some additional property costs.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. Secondly, you talked about the 787-10 first arrival in '23. Are you reconsidering that given the demand environment at the moment?
Jeff McDowall - Air New Zealand Limited - CFO
We have a strategy project that Greg has talked about earlier. So we're looking at everything as part of that. But at the moment, we're certainly still
planning for that aircraft to arrive at that time. The purpose of that program wasn't really fleet growth at all. It was replacing the 777-200s, and that
is -- and they will exit the fleet by that time. So we're still on track for that.
Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. And just -- could you just provide a little bit of an update where you sit with the 787 engine issues? You, obviously, in the presentation,
referred to some more delays in terms of the second round of maintenance. Is it still having an impact on the business?
Jeff McDowall - Air New Zealand Limited - CFO
Yes is the short answer, but in line with what we expected. So to give you an update right now, we have 3 aircraft, 3 787 aircraft out of action, which
is in line with what we expected to have at this point. That is expected to get down to 2 aircraft in the next couple of weeks, the first half of March,
and then down to one by the end of March. So that is -- I mean, it has been frustrating, as you can imagine. One good thing, if there is such a thing
this time around is that we've had much more notice of these impacts. So -- whereas in the past, these things have happened at quite short notice,
which has delivered a lot of inefficiency into our cost base and also a lot of customer disruption. This time, we've had much more notice. So we've
been able to continue to get the efficiency savings that we were targeting but also provide much better customer outcomes, which, in this case,
is included, having Cathay Pacific operate our Hong Kong service, in our place which went a long way to alleviate those shortfalls.
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Marcus Curley - UBS Investment Bank, Research Division - Executive Director and Head of New Zealand Research
Okay. And then finally for me, obviously, you maintained the dividend. I just wonder whether Greg could comment around whether the capital
structure is part of the strategic review or how you're thinking about that in the context of the current review and, obviously, the coronavirus.
Gregory S. Foran - Air New Zealand Limited - CEO
Yes, sure. Look, when we set our dividend, we think about it in the framework of a level that's consistent and sustainable. And at this point, the
balance sheet is pretty resilient, and the CapEx profile is such that we feel comfortable in maintaining the current level of dividend. We'll get through
the strategy project. And as you would expect us to do, we'll then consider what we want to do from there.
Operator
(Operator Instructions) There are no further questions. So I'll pass back to your speakers for closing comments.
Gregory S. Foran - Air New Zealand Limited - CEO
I'd just like to thank everyone listening on the call for their time and interest in Air New Zealand. And if you'd like to schedule a call or meeting or
any follow-up questions, please direct those requests through to Leila and Kim, our Investor Relations team. Thank you.
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