Air New Zealand 2022 Interim Results
Media release
24 February 2022
Air New Zealand announces interim loss and updates outlook
for the full year as preparations continue for ‘revive’
Interim results summary
• A statutory loss before taxation of $376 million for the six-month period ending 31 December 2021
• Operating revenue 9 percent lower than the prior period, driven by a 26 percent decline in
passenger revenue due to the national alert level restrictions and 107-day Auckland lockdown
• Cargo revenue increased 29 percent on the same period last year to $482 million, supported by
Government freight support schemes
• Fuel costs increased 14% to $174 million for the half year, with the increasing cost of fuel
expected to impact the second half
• Drawings under Crown Standby Loan Facility (the Crown Facility) are $760 million as at 23
February 2022
• Liquidity of $1.4 billion as at 23 February 2022, made up of approximately $170 million of cash
and $1.24 billion of available funds under the remaining Crown Facility and Redeemable Shares
• Steps to recapitalise the balance sheet are underway including an equity capital raise that is
intended to be launched by the end of March 2022 or shortly thereafter, subject to market
conditions
• Dividends remain suspended
• Current expectation for the full 2022 financial year is a loss before taxation and other significant
items that will exceed $800 million
Air New Zealand reported a statutory loss before taxation of $376 million which includes a $9 million loss
from other significant items
1
(aircraft impairment and foreign exchange losses on uncovered debt) for the six-
month period ended 31 December 2021. The result reflects the substantial impact the Covid-19 pandemic
continues to have on the airline. This compares to a statutory loss before taxation of $105 million for the
same period last year.
Continued restrictions on international travel, the national lockdown which commenced in August 2021 and
the extended period of travel restrictions for the Auckland region saw the airline’s operating revenue decline
9 percent to $1.1 billion in the period. Passenger flying was down 26 percent from the corresponding period
in financial year 2021 and was down 84 percent compared to pre-Covid levels.
Chief Executive Officer Greg Foran says limited international travel on top of local lockdowns in the first half
of the financial year had a huge impact on this interim result.
“The airline has typically derived two-thirds of its revenue from its international passenger network and much
of that was effectively grounded for the majority of the first half.”
Compared to 2020 and 2021 which saw shorter, sporadic lockdowns, the longer lockdown and Auckland
border restrictions contributed to the loss in the first half and an extremely challenging time for the airline’s
8,400 employees.
“I couldn’t be prouder of our Air New Zealand whānau for what they’ve achieved this year so far. Everything from
adding flights so Northland could remain connected to the rest of the country while the Auckland border was in
place, to the digital solution for our customers to seamlessly upload their vaccine pass to their Air New Zealand
1
Other significant items represent items which due to their size or nature warrant separate disclosure to assist with the understanding of the underlying financial
performance of the Group. Other significant items are reported within the Group’s unaudited interim financial statements.
app. The restart of the domestic network in December in time for the holidays went like clockwork, as did the
reopening of the Cook Islands bubble in January.”
Despite the remaining uncertainty around future travel demand and ongoing impacts on financial
performance, Mr Foran can see light ahead for the airline.
“Looking at what is happening around the world and at home, we can see the path back to the Revive phase of
our Survive, Revive, Thrive plan. We have the right strategy, the right people and we are ready to fly. We’re
excited about welcoming Kiwis home in the coming days and months and international travellers back to Aotearoa
later in the year.”
“We’re bringing back approximately 250 cabin crew and pilots and have reanimated one of our Boeing 777-300s
to do some of the cargo heavy lifting. Looking further out to the end of this calendar year, we will be ramping up
more passenger flights to North America and looking forward to starting up our direct service to New York City.”
“As we continue operating through Covid, we know safety and wellbeing is even more important to our customers.
There are a number of actions we have taken in this area, including vaccine requirements for international and
domestic travel, and continuously updating our procedures to keep people safe onboard,” says Mr Foran.
Air New Zealand was recently named the world's safest airline by the Australian rating service
AirlineRatings.com, highlighting the airline’s laser-focus on safety and Mr Foran says there’s more work going on
in the airline to make sure we continue to take care further than any other airline.
“When we get back to international passenger flying we’ll be making sure our customers get the very best of
our uniquely Kiwi hospitality.”
“Looking to a sustainable future, we’ve made progress towards our aim of being carbon neutral by 2050. We
signed an agreement with the Ministry of Business, Innovation & Employment to conduct a feasibility study into a
local supply of sustainable aviation fuel and have a Memorandum of Understanding in place with Airbus to
explore the use of hydrogen aircraft in New Zealand.”
Chair Dame Therese Walsh noted that while optimism for the future is well-founded, the 2022 financial year is the
most difficult one yet for the airline.
“It would be easy to think the first year of the pandemic had the biggest impact on Air New Zealand’s
finances. However, only the final quarter of the 2020 financial year was impacted, and in the 2021 financial
year the airline was able to access relief support from the Government through various subsidies, PAYE
deferrals and cargo support schemes. The domestic network largely kept flying across the 2021 financial
year and the trans-Tasman and Cook Islands bubbles gave a real boost to the second half of 2021. The 2022
financial year has and will continue to be much more heavily impacted, both by continued suppressed
demand and rising costs,” says Dame Therese.
“As we’ve all seen at the petrol pumps, the cost of fuel has been significantly increasing – and although we have
hedging strategies in place, we expect to see these rising costs start to come through in the second half and
beyond.”
A bright spot was the cargo business, which continued to perform strongly, with the extension of the
Government’s Maintaining International Air Connectivity (MIAC) scheme and the Australian Government’s
International Freight Assistance Mechanism (IFAM) scheme.
“Our cargo operation has been outstanding throughout the pandemic and continues to play an essential role in
connecting New Zealand to the world. Cargo revenue increased by 29 percent to $482 million for this first half
compared to the same period in 2021,” notes Dame Therese.
“Despite the financial result, we remain encouraged about the future of air travel. Kiwis love to travel, and as
seeing their own country is the only option for the moment, they have been making the most of it over this
summer, supporting the local economy and our tourism industry. We had more than 24,000 flights moving 1.3
million customers around New Zealand in December and January.”
“I’m confident in the continued resilience and agility of the business to respond to the challenges ahead. We have
an exceptional executive team led by Greg Foran, a focused strategy to keep the airline heading in the right
direction, and we are making sound investments in our people, customer experience and infrastructure for the
future.”
“I want to thank our customers for their continued support and patience as we’ve had to swiftly adapt our
schedules and services in response to the constantly changing environment. We’re looking forward to playing
our part in those long-awaited reunions as more Kiwis head back home on our international services”.
Financial information:
Outlook for 2022
There remains a large degree of uncertainty on the impact of the Omicron variant on demand for domestic
travel for the remainder of the financial year.
Additionally, while recent clarity on the phasing of border openings for New Zealand is helpful, the timing of
reduced or removed self-isolation restrictions remains unclear, driving continued uncertainty in the level of
demand for international air travel. Self-isolation restrictions are expected to continue to have a substantial
adverse impact on international demand in the second half of 2022 financial year, and for as long as those
restrictions exist.
Air New Zealand’s current expectations are that the 2022 financial year will incur a loss before taxation and
other significant items that exceeds $800 million.
Liquidity and cash burn update – Dividend remains suspended
In mid-December we announced a revised Crown support package, comprising of a further $500 million of
additional liquidity. Total support from the Crown is now $2 billion, consisting of $1 billion of the Crown
Facility and $1 billion of non-voting redeemable shares.
As at 23 February 2022, the airline has available liquidity of $1.4 billion, consisting of cash of approximately
$170 million, $240 million of available funds on the Crown Facility and $1.0 billion of redeemable shares. The
total amount drawn on the Crown Facility as at 31 December 2021 was $545 million and as at 23 February
was $760 million.
Based on the current demand profile and noting the last of three PAYE repayments to the Crown of
approximately $100 million due in March, the airline expects it will begin issuing redeemable shares in March
2022. The redeemable shares become available, and will be accessed incrementally, once $850 million has
been drawn under the Crown Facility.
Due to the ongoing financial impact from Covid-19, and the restrictions of the Crown Facility, dividends
remain suspended. Accordingly, there will be no interim dividend for the 2022 financial year.
Capital structure update
Air New Zealand continues to actively engage with the Crown as it assesses its longer-term capital structure
and funding needs. This includes the revised Crown support package comprising a further $500 million of
additional liquidity that was announced in December. This better positions the airline during the period up to
its recapitalisation including an ordinary equity raising. The revised package has increased the overall
liquidity support to $2 billion.
Air New Zealand intends to launch an equity capital raise before the end of March 2022 or shortly thereafter,
subject to market conditions. Given the critical role the company has in New Zealand’s economy and society,
the Crown is supportive of this intention and has confirmed its longstanding commitment to maintaining a
majority shareholding and, subject to Cabinet being satisfied with the terms of Air New Zealand’s proposed
equity capital raise, it would participate in the equity capital raise in order to maintain a majority shareholding
in Air New Zealand.
The airline would like to thank its shareholders again for their continued support and patience.
Ends
Issued by Air New Zealand Public Affairs ph +64 21 747 320
---
Interim
financial
report
2022
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
2
Covid-19 remains a
key theme for the
2022 financial year
while Air New Zealand
continues to play a
vital role in the nation’s
economy, connecting
Kiwis and keeping
supplies moving
around the world.
Reflecting on the past 24 months,
it would be easy to believe the first
year of the pandemic was going to be
the most difficult for Air New Zealand's
finances. In reality, only the final
quarter of the 2020 financial year was
impacted. During the 2021 financial
year disruptions were sporadic and the
airline was able to access relief support
from the Government through various
subsidy programmes, PAYE deferrals
and cargo support schemes to mitigate
some of the impact. The domestic
network was also largely flying across
the 2021 year, and the trans-Tasman
and Cook Islands bubbles opened
and contributed positively during the
second half of the year.
This 2022 financial year continues to
be different again, with the impact of
Covid-19 suppressing domestic demand
while we simultaneously plan for the
phased international border openings.
LETTER FROM THE CHAIR AND CHIEF EXECUTIVE OFFICER
DAME THERESE WALSH
Chair
These factors have contributed to a loss
in the first half.
Positively, and across the entire pandemic
to date, we have seen our cargo business
operate at record levels, and we have
taken the time to refine our strategy and
develop our offerings so the exceptional
customer service and travel experience
we are so famous for is better than
ever when we welcome Kiwis home and
international travellers back to Aotearoa.
Kia ora
koutou
katoa
AIR NEW ZEALAND GROUP
2 Letter from the Chair and
Chief Executive Officer
8 Financial Commentary
10 Change in Earnings
11 Condensed Interim
Financial Statements
23 Independent Auditor's
Review Report
3
CONTENTS
GREG FORAN
Chief Executive Officer
Aucklanders stay in the region for 107
days, by far the longest restriction that
has been experienced since the onset of
the pandemic. As a result, much of our
passenger network wasn’t flying in the
first half, impacting our financial results
compared to the same period in the 2021
financial year. Cargo has been critical
during this time, providing our airline with
a source of much needed revenue as we
assist with the vital task of connecting
New Zealand exporters and their goods
with the rest of the world, while also
importing crucial goods into the country.
A challenging start
to the year
Following an optimistic start to the
first half of the 2022 financial year with
record numbers of customers flying on
the domestic network in July and good
forward bookings, our network was
constrained by the introduction of the
Delta variant in New Zealand and the
resulting lockdown. This lockdown saw
SEP 2019
DEC 2019
MAR 2020
JUN2020
SEP 2020
DEC 2020
MAR 2021
JUN2021
SEP 2021
DEC 2021
Auckland-region
lockdowns
Auckland-region
lockdowns
Initial Covid-19
outbreak and
nationwide lockdown
in New Zealand
Following
outbreak of Delta
variant, nationwide
lockdown followed
by Auckland-region
restrictions
H1FY2022FY2021
Pre-Covid-19
H1FY2022 at
20%
pre - Covid-19
levels
FY2020
During Covid-19
Long-haul
Tasman and
Pacific Islands
Domestic
Impact of Covid-19 on passenger revenue
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
4
After the summer holiday period,
which saw 1.3 million Kiwis exploring
all corners of the country, and gearing
up for the planned border openings
early in the New Year, the arrival of the
Covid-19 Omicron variant has changed
the landscape once again, adding more
uncertainty as we head into the second
half of the financial year.
Tourism and hospitality industries in
New Zealand continue to be significantly
impacted by Covid-19. Our own network
has been disrupted numerous times
as a result of travel restrictions both
in New Zealand and in other markets.
Our people have worked tirelessly
to reschedule flights and support
customers with mass flight cancellations
and rebookings throughout – and we
can’t thank them enough for all they
do every day as we navigate this ever-
changing situation.
Our sincere thank you to our customers
also for their ongoing patience,
understanding and support as events
continue to disrupt their plans and
create challenges.
Our people
making a difference
We can’t discount that there has been
some exceptional work from our people
over this first half.
In our efforts to support the vaccine
rollout, the team dreamed up Jabaseat –
a unique experience for New Zealanders
to get vaccinated on board one of our
Boeing 787s and catch up on some
inflight entertainment with a goody-bag.
Our vaccine mandates for domestic
and international flying were announced
in an effort to keep our people and
customers safe. The subsequent rollout
of these has been smooth, with the
international no jab, no fly policy coming
into place on 1 February following the
implementation of the domestic policy
mid-December.
The vaccine pass introduction was
seamless, with our digital teams creating
the app in record time and making it
available so our Airports team could
support customers from day one.
It highlights just how well Air New
Zealanders come together to solve
problems quickly.
We have been working closely with
our unions on a number of initiatives,
including the vaccination rollout, and it
has been pleasing to see such a strong
uptake of vaccinations and subsequently
the Rapid Antigen Testing programme.
The restart of the Domestic network
in mid-December, along with the
reinstatement of Cook Islands flights
on 14 January, was another highlight,
with good on time performance over the
holiday period – 93.5 percent of flights
arriving at the scheduled time. It is about
getting these ‘brilliant basics’ right, and
our people are showcasing that every day.
Teams across the business came
together to set up new cargo routes,
including those from Australia direct
to North America, and connecting
Northland to the rest of the country when
Auckland was in lockdown. We are also
in the process of selling our remaining
Boeing 777-200s and introduced new
aircraft into the fleet to support our
operations, with two Airbus A320neos
and our 29th and final ATR72-600 joining
the fleet in November and December.
The resilience, agility and power of our
people is what has allowed us to adapt
to the variety of challenges thrown our
way. We wouldn’t be here without them,
and we couldn’t be prouder of them all.
LETTER FROM THE CHAIR AND CHIEF EXECUTIVE OFFICER
(CONTINUED)
N e w AT R 7 2- 6 0 0Jump on board Jabaseat
New Airbus A320neo
Profi t drivers
Grow
Domestic
Profitably grow and enhance our iconic
domestic offering, providing New
Zealanders with even more choice as the
best-connected country in the world
Optimise
International
Connecting New Zealanders and
our exports to the world through an
optimal international network and
premium leisure product
Lift
Loyalty
Increase products and benefits
members value from our Airpoints™
programme, supercharging the loyalty
ecosystem for the airline
Our Kia Mau strategy is focused on 3 clear drivers
of value creation, executed through excellence
and innovation across 4 key business enablers.
Enabled by strong culture and focused investment
Brilliant
Basics
Operational excellence that
provides a seamless travel
experience for our customers –
do it right, first time, every time
Serious about
Sustainability
Committed to meaningful
action to reduce our
carbon impact
Digital
Dexterity
Technology focused on delivering
a world-class experience for
our people and customers while
driving efficiencies
Prioritising
People & Safety
Putting people, health
and safety first
This is our plan for Air New Zealand to thrive.
AIR NEW ZEALAND GROUP
5
Ready for recovery
From the perspective of business
resilience and readiness, we have
started welcoming back some cabin
crew and pilots to strengthen our
Domestic network and as we prepare
for international borders to reopen in
the near-term.
Air New Zealand has also continued
strengthening its position, with a
clear strategy, strong leadership team
and investment in the right areas to
prepare it for the future. The past six
months has seen further refinement
and depth added to the strategy,
where the focus is on our three profit
drivers of domestic, international and
loyalty, underpinned by our enablers
of brilliant basics, sustainability, digital
dexterity and prioritising people and
safety. By controlling what we can,
we have laid out a clear path for areas
of focus over the medium-term.
Executing on our strategy includes
enabling some new ways of working
together – allowing us to build on our
people’s agility and creativity to drive
innovation. You will have seen some
of this in our trials with new food and
beverage offerings on domestic flights.
We are looking at how we embed these
principles further across the business
to really help us accelerate the strategy.
Investments continue to be made to
enhance the customer experience and
keep us future focused. In addition
to updating the Air New Zealand
app so customers can easily upload
vaccine passes for domestic travel,
we announced late last year we are
launching our own credit card which
will give customers new and innovative
ways to earn Airpoints™.
Sustainability is critical to the long-term
viability of Air New Zealand, and we are
putting in place a number of initiatives
that will see us achieve carbon neutrality
by 2050. Key to the success of this
is the introduction of cost-effective
sustainable aviation fuel (SAF) in New
Zealand. We are working closely with
the Ministry of Business, Innovation &
Employment to make SAF a reality, as
it will be critical for reducing the carbon
footprint of our international fleet. In
addition, we have launched a request
for proposal for zero emissions aircraft
for our Domestic network and have a
memorandum of understanding with
Airbus on a joint research project to
better understand the opportunities
and challenges of flying zero-emission
hydrogen aircraft in New Zealand.
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
Building back international
We were pleased when the Government
announced its five-step plan in
February for reopening of borders,
allowing New Zealanders to travel home
more freely without the restrictions of
managed isolation, and later this year
allowing us to welcome international
travellers to Aotearoa.
In preparation for this, we have
started welcoming back more of our
Air New Zealand whānau to support
this, including approximately 250
cabin crew and pilots. We have also
started reactivating a number of our
key ports around the world so we are
ready for customers.
Looking further out to the end of this
calendar year, we will be introducing
more flights to North America and
reinstating some of our routes that have
been closed for the past two years,
including Chicago and Houston.
We are thrilled to be commencing
flights to New York City later in the
year – something we know excites
Kiwis as well! Adding this direct route
from Auckland will give our customers
greater reach to destinations across
the eastern United States and another
fantastic holiday destination to
choose from.
Financial results
Air New Zealand delivered a loss
before other significant items and
taxation¹ of $367 million for the six-
month period ended 31 December 2021,
reflecting the substantial impact the
Covid-19 pandemic continues to have
on the airline. This compares to the
loss before other significant items and
taxation of $186 million for the same
period last year.
Statutory losses before taxation of
$376 million include a $9 million loss
from other significant items (aircraft
impairment and foreign exchange losses
on uncovered debt) compared to a $105
million loss before taxation for the first
half of the previous financial year.
The continuation of substantial
restrictions on international travel
to and from New Zealand and the
national lockdown in August 2021 saw
the airline’s operating revenue decline
9 percent to $1.1 billion in the first
six months of the financial year, as
passenger revenues were substantially
reduced by 26 percent to $523 million.
This was partially offset by strong cargo
revenues of $482 million, which were up
29 percent on the same period last year.
Operating costs increased by
11 percent or $108 million to $1.1 billion,
in large part due to higher labour costs,
increased jet fuel prices and the removal
of aviation subsidy support compared
to the prior period.
Our net gearing position increased
to 78.0 percent, a change of 6.9
percentage points from 30 June 2021,
and was primarily driven by losses
in the period, and to a lesser extent,
investment in aircraft and weaker
foreign exchange. The Board remains
committed to a medium-term gearing
target range of 45 percent to 55 percent
as we recover from the pandemic.
Liquidity and cash
burn update
Due to the ongoing financial impact from
Covid-19, we have needed to continue to
draw on the Crown Standby Loan Facility
(Crown Facility) in the first six months of
the year, with $195 million of drawings
bringing the total as at 31 December to
$545 million. Those drawdowns have
continued early into calendar year 2022,
as we have started to paydown PAYE
and FBT deferrals of approximately
$300 million.
In mid-December we announced a revised
Crown support package, comprising of a
further $500 million of additional liquidity.
Total support from the Crown is now
$2 billion, consisting of $1 billion of the
Crown Facility and $1 billion of non-voting
redeemable shares.
As at 23 February 2022, the airline
has available liquidity of $1.4 billion,
consisting of cash of approximately
$170 million, $240 million of available
funds on the Crown Standby Loan Facility
and $1.0 billion of redeemable shares.
Based on the current demand profile
and noting the last PAYE and FBT
repayment of approximately $100 million
due in March, the airline expects it
will begin issuing redeemable shares
to the Crown in March 2022. The
redeemable shares become available,
and will be accessed incrementally,
once $850 million has been drawn
under the Crown Facility.
Capital structure
and dividend
Air New Zealand continues to actively
engage with the Crown as it assesses
its longer-term capital structure and
funding needs. This includes the
additional liquidity of $500 million that
was announced in December which
better positions the airline during the
period up to its recapitalisation.
Air New Zealand intends to launch an
equity capital raise by the end of March
2022 or shortly thereafter, subject to
market conditions. Given the critical
role the company has in New Zealand’s
economy and society, the Crown is
1. Refer to the Financial Commentary section on page 8.
6
LETTER FROM THE CHAIR AND CHIEF EXECUTIVE OFFICER
(CONTINUED)
EXECUTIVE TEAM CHANGES
TOP TO BOTTOM
Alexandria Marren – Chief Operations Officer / Michael Williams – Chief Transformation & Alliances Officer
With the departure of
Carrie Hurihanganui,
Alexandria Marren has been
appointed into the Chief
Operations Officer role.
Alexandria has spent her career in large
scale, complex industries and has more
than 30 years’ experience in aviation,
working previously as Chief Operating
Officer for ExpressJet Airlines, across
various senior leadership roles with
United Airlines and led Hertz Rental
Cars’ North American operations
team. She comes to us from her role
of President of ABM Aviation, where
she has led a team of 11,000 plus to
support airlines at airports around the
globe to navigate Covid-19.
In addition, Michael Williams,
formerly Group General
Manager Commercial,
Alliances & Strategy, has been
appointed to the newly created
role of Chief Transformation
& Alliances Officer.
Michael has held several senior commercial
and strategy roles since joining the airline
in 2016, having previously worked with
the Boston Consulting Group in Australia,
Finland and the USA with clients in the
aviation, technology and retail sectors.
With his deep understanding of our
business and a sharp strategic ability, he
will be integral in leading the programme
to look at our ways of working to support
the successful delivery of our strategy.
supportive of this intention and has
confirmed its longstanding commitment
to maintaining a majority shareholding
and, subject to Cabinet being satisfied
with the terms of Air New Zealand’s
proposed equity capital raise, it would
participate in the equity capital raise in
order to maintain a majority shareholding
in Air New Zealand.
Due to the ongoing financial impact from
Covid-19 and the restrictions of the Crown
Facility dividends remain suspended.
Accordingly, there will be no interim
dividend for the 2022 financial year.
Outlook
There remains a large degree of
uncertainty on the impact of the Omicron
variant on demand for domestic travel for
the remainder of the financial year.
Additionally, while recent clarity on the
phasing of border openings for New
Zealand is helpful, the timing of reduced
or removed self-isolation restrictions
remains unclear, driving continued
uncertainty in the level of demand for
international air travel. Self-isolation
restrictions are expected to continue to
have a substantial adverse impact on
international demand in the second half
of 2022 financial year, and for as long as
those restrictions exist.
Air New Zealand’s current expectations
are that the 2022 financial year will incur a
loss before taxation and other significant
items that exceeds $800 million.
Close
Earlier this month we farewelled Chief
Operations Officer Carrie Hurihanganui.
We thank her for her years of
commitment and dedication to the
airline and all she has achieved over
the past 23 years. We wish her all the
best in her new role as Chief Executive
Officer of Auckland Airport and look
forward to continuing to work with her
as she leads New Zealand’s largest
airport into the future.
We are excited about welcoming
our new Chief Operations Officer
Alexandria Marren in late March from
Atlanta, USA and Michael Williams as
our Chief Transformation & Alliances
Officer to the Executive team. Both
Alexandria and Michael bring a wealth
of experience and skills which will be
vital for taking us forward.
Once again, thank you to our customers
and shareholders for sticking with us
through these turbulent times. Thank
you also to our people who have stayed
committed to our customers and made it
possible for us to respond rapidly to the
changes and challenges thrown our way.
As we head into the second half, we are
optimistic about our future now we have
a clearer picture of how borders and
international flying will phase over the
coming months. We know Covid-19 will
run its course, and we are ready
and excited to welcome Kiwis home
and customers back to the skies!
Ngā mihi nui
Dame Therese Walsh
Chair
Greg Foran
Chief Executive Officer
24 February 2022
7
AIR NEW ZEALAND GROUP
8
Revenue
Operating revenue for the period
declined to $1.1 billion, a decrease
of 9 percent as continued Covid-19
related border closures and travel
restrictions expanded to temporarily
include the Domestic network, resulting
in substantially reduced passenger
network flying. Foreign exchange drove
a 0.5 percent adverse impact.
Passenger revenue declined by
26 percent to $523 million, as the
continued impact of significantly limited
international travel due to Covid-19 was
further exacerbated from an outbreak
of the Delta variant in New Zealand
in August 2021. The subsequent
three week nationwide lockdown and
extended domestic border restrictions
around the Auckland region lasted
107 days, substantially impacting
the domestic passenger network
for the period. Capacity (Available
Seat Kilometres, ASK) reduced by
26 percent excluding cargo-only
flights, due to the operation of a
limited passenger schedule. Including
cargo-only flights, capacity increased
6.7 percent compared to the same
period last year, due to additional flying
supported by the New Zealand and
Australian governments.
Demand (Revenue Passenger Kilometres,
RPK) decreased less than capacity for the
period, resulting in a load factor of 58.5
percent, an increase of 4.8 percentage
points on the prior comparative period.
Revenue per Available Seat Kilometre
(RASK) decreased nominally by 0.2
percent excluding FX and was impacted
by the change in segment mix from
longer sector long-haul travel and
corporate travel towards shorter sector
domestic leisure travel.
International long-haul capacity declined
44 percent as continued travel restrictions
in New Zealand and globally impacted
demand. Demand on international long-
haul routes declined 40 percent, with load
factors increasing 2.2 percentage points
to 30.0 percent. International long-haul
RASK reduced by 13 percent. Excluding
the impact of foreign exchange, long-haul
RASK declined 11 percent.
International short-haul capacity
increased by 5 percent as a result of two-
way quarantine free travel to the Cook
Islands up to mid-August 2021 and from
Australia for parts of July 2021 as well
as workers arriving from low-risk Pacific
Island nations under the Recognised
Seasonal Employer (RSE) scheme.
Demand on international short-haul
routes improved by 107 percent, with load
factors increasing 26.6 percentage points
to 54.0 percent. International short-haul
RASK was up 30 percent and was only
nominally impacted by foreign exchange.
Domestic capacity decreased 23 percent,
due to a nationwide lockdown and
continued prohibition on non-essential
travel for the Auckland region which
lasted nearly four months. As a result
of the temporary restrictions, domestic
demand declined more than capacity at
27 percent, with load factors decreasing
by 3.8 percentage points to 72.6 percent.
Domestic RASK declined 4.7 percent and
was not impacted by foreign exchange.
Cargo revenue was $482 million, an
increase of 29 percent. Foreign exchange
had a nominal impact. The increase was
driven by additional scheduled flying
under the New Zealand Government’s
Maintaining International Air Connectivity
scheme (MIAC). Higher demand for air
freight also contributed to the growth
as a consequence of fewer international
carriers in the New Zealand market.
Contract services and other revenue were
$120 million, a decrease of $33 million or
22 percent, driven primarily by reduced
maintenance activity on contracts for third
parties. Reduced lounge revenue and
lower customer activity also contributed
to the decline. Foreign exchange resulted
in an adverse impact of 2.6 percent.
1. Loss 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. Loss 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 4 of the condensed Group interim financial statements.
FINANCIAL COMMENTARY
Due to the continued impact of Covid-19, including extended
domestic travel restrictions following the outbreak of the Delta variant,
Air New Zealand reported a loss before other significant items and
taxation¹ of $367 million for the six months ended 31 December 2021.
Including the impact of other significant items, statutory losses before
taxation were $376 million.
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
Expenses
Operating expenditure increased by
$108 million or 11 percent. Higher labour
costs, increased jet fuel prices and the
lack of aviation subsidy support in the
period all contributed to the overall
increase. Reported costs per ASK (CASK)
increased 3.7 percent, with the removal
of the aviation subsidy support driving
the largest impact in the period.
Underlying CASK, which excludes the
impact of fuel price, foreign exchange
and third-party maintenance as well as
the absence of aviation subsidy support,
deteriorated nominally by 0.2 percent.
Labour costs were $433 million,
increasing by $39 million or 9.9 percent.
Foreign exchange had no impact on
labour costs in the period. Full-time
equivalent labour (FTE) increased 8.1
percent to approximately 8,000 compared
to the prior period (represents a 33
percent reduction compared to pre-Covid
levels of approximately 12,000), driven by
the select recall and hiring of operational
and support workforces to support the
expected recovery as travel restrictions
ease. An employee share award received
in the period, a provision for incentive
payments and investment in digital labour
to support the airline’s medium-term
strategic priorities also drove the increase.
A government wage subsidy was received
following the impact of nationwide and
Auckland-area lockdowns however, this
support was $6 million less than the prior
comparative period.
Fuel costs were $174 million, increasing
by $22 million or 14.5 percent. Excluding
the impact of foreign exchange, fuel
costs grew by 22 percent. The increase
in fuel cost was largely driven by a
higher average fuel price in the period
of 19 percent or $29 million. Significant
9
AIR NEW ZEALAND GROUP
increases in underlying Singapore Jet
fuel, and to a lesser extent, increases
in the price of domestic carbon offsets,
drove $97 million of the additional cost,
and were partially offset by $68 million
of hedging gains. A 6.7 percent increase
in capacity due to cargo flying in the
period drove a 4 percent increase in
consumption, or $4 million, and was
more than offset by an $11 million benefit
from the stronger New Zealand dollar.
Aircraft operations, passenger services
and maintenance costs were $348 million,
representing an increase of $38 million.
Excluding support received in the prior
period under the Government’s aviation
support package, which did not repeat in
the current six months, costs decreased
by $20 million or 5.4 percent. Underlying
reductions in activity, including reduced
third-party maintenance revenues drove
lower costs across these areas.
Sales and marketing and other expenses
were $167 million, growing $22 million or
15.2 percent reflecting increased brand
activity and digital costs.
Ownership costs decreased by $34 million
or 8.2 percent, driven by impairment of
grounded Boeing 777 widebody aircraft
that occurred in the prior year, aircraft
exits and reduced utilisation of engine
maintenance assets, partially offset by
A320neo and ATR aircraft deliveries.
The impact of foreign exchange rate
changes on the revenue and cost base in
the period resulted in a favourable foreign
exchange movement of $16 million.
After taking into account a $13 million
favourable movement in hedging, overall
foreign exchange had a net $29 million
positive impact on the Group result for
the period.
Share of Earnings
of Associates
Share of earnings of associates increased
by $2 million to $12 million for the period,
reflecting higher engine volumes and mix
of maintenance work being serviced by
the Christchurch Engine Centre.
Other Significant Items
Other significant items resulted in a
loss of $9 million during the six-month
period, a decrease of $90 million.
These relate in the current period to net
foreign exchange losses on uncovered
debt of $6 million and aircraft impairment
of $3 million.
Cash and Financial Position
Cash on hand at 31 December 2021 was
$156 million, a decrease of $110 million
since 30 June 2021. This balance reflects
the impact of fixed asset purchases and
debt and lease payments offset by $195
million in drawings on the $1 billion Crown
Facility and other aircraft financing as well
as cash flows from operating activities.
In December 2021, the airline announced
a revised Crown support package
including a further $500 million of
additional liquidity. Total support from
the Crown is now $2 billion, consisting
of $1 billion of the Crown Facility and
$1 billion of non-voting redeemable shares.
Operating cash flows were a net inflow of
$40 million, reflecting favourable working
capital movements including revenue
received for ticket sales in advance of
flying, partially offset by a deterioration
in cash earnings resulting from the
increased restrictions in the period.
Net gearing increased 6.9 percentage
points to 78.0 percent compared to 30
June 2021, driven by net losses after
taxation, investment in the airline’s fleet
and foreign exchange movements.
No dividend for the 2022 interim
financial period has been declared due
to the continued impact of Covid-19 on
the business and the conditions of the
Crown Facility.
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
10
December 2020 loss
before taxation
Passenger capacity
-$155m
- Capacity decreased by 26 percent (excluding cargo-only flights) due to Covid-19
border closures and travel restrictions. Including cargo-only flights capacity
increased by 6.7 percent.
- Domestic capacity declined by 23 percent reflecting nationwide lockdowns and
extended non-essential travel restrictions in the Auckland region from mid August
through to mid December.
- International short-haul capacity increased by 5 percent. Two-way quarantine
free travel with Australia was paused in July and suspended in August. Capacity
increases to the Pacific Islands were driven by quarantine-free travel with the Cook
Islands to August and Recognised Seasonal Employer (RSE) scheme workers coming
to New Zealand.
- International long-haul capacity declined 44 percent due to the suspension of
services as a result of the global pandemic with a small number of passenger
services operating primarily on routes supported by international airfreight
schemes. Capacity declines reflected the initial demand for repatriation flights in the
prior period.
Passenger RASK
-$28m
- Domestic Revenue per Available Seat Kilometre (RASK) declined by 5 percent
excluding FX and loads declined 3.8 percentage points to 72.6 percent.
- International short-haul RASK improved by 30 percent excluding FX and loads
increased 26.6 percentage points to 54.0 percent.
- International long-haul RASK declined by 11 percent excluding FX and loads increased
2.2 percentage points to 30.0 percent. Limited passenger services, primarily for
essential travel and repatriations, supplemented cargo services.
- Overall Group RASK was in-line with the prior period (declining 0.2 percent excluding
FX) and was impacted by a change in segment mix of flying in the current year towards
shorter sector leisure travel. Loads increased by 4.8 percentage points to 58.5 percent.
Cargo revenue
$110m
- Cargo revenue improved due to the award of additional cargo-only scheduled flights
by the New Zealand Government under the Maintaining International Air Connectivity
scheme and increased demand with fewer carriers operating to New Zealand.
Contract services and
other revenue
-$29m
- Reduced maintenance work for third-parties and border restrictions reducing
customer activity.
Labour
-$39m
- Higher labour costs due to reduced government subsidies, a staff share award,
performance incentives and increased investment in digital activities.
Fuel
-$33m
- The average fuel price increased 19 percent compared to the prior year (net of
hedging) resulting in an increase in costs of $29 million. Consumption increased by
4 percent ($4 million) compared to an increase in capacity of 6.7 percent.
Maintenance, aircraft
operations and
passenger services
$16m
- Decrease in maintenance driven by a reduction in third-party work.
Aviation support
package
-$59m
- Receipt of aviation support package subsidies in the prior period not repeated in the
current year.
Sales and marketing
and other expenses
-$21m
- Higher investment in brand and digital activity.
Ownership costs
$26m
- Decrease in depreciation reflecting impairment of grounded Boeing 777 widebody
aircraft in the prior year and aircraft exits as well as reduced utilisation of engine
maintenance assets partially offset by new aircraft deliveries.
Net impact of foreign
exchange movements
$29m
- Net favourable impact of foreign exchange from reduced hedging losses and currency
movement impact on revenue and costs.
Share of earnings of
associates
$2m
- Increase in earnings from Christchurch Engine Centre driven by higher engine
volumes and heavier mix of maintenance visits.
Other significant items
-$90m
- Reduction in foreign exchange gains on uncovered debt and gain on sale of landing
slots in the prior year partially offset by reduced reorganisation costs, lower aircraft
impairment and lease modification costs and a decrease in de-designation of hedges
as a result of forecast transactions no longer being expected to occur.
December 2021 loss
before taxation
-$105m
CHANGE IN EARNINGS
The key changes in earnings, after isolating the impact of foreign exchange movements,
are set out in the table below
*
:
*The numbers referred to in the Financial Commentary on the previous page have not isolated the
impact of foreign exchange.
-$376m
AIR NEW ZEALAND GROUP
NOTES
6 MONTHS TO
31 DEC 2021
$M
R E S TAT E D
6 MONTHS TO
31 DEC 2020
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
2(b)
523
482
66
54
708
373
93
60
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange gains/(losses)
Other expenses
3
2(b)
2(b)
2(b)
2(b)
1,125
(433)
(174)
(123)
(180)
(45)
(41)
-
(126)
1,234
(394)
(152)
(140)
(143)
(27)
(29)
(13)
(116)
(1,122)(1,014)
Operating Earnings (excluding items below)
Depreciation and amortisation
3
(344)
220
(372)
Loss Before Finance Costs, Associates, Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)
2(b)
2(a)
(341)
3
(41)
12
(152)
4
(48)
10
Loss Before Other Significant Items and Taxation
Other significant items4
(367)
(9)
(186)
81
Loss Before Taxation
Taxation credit
(376)
104
(105)
32
Net Loss Attributable to Shareholders of Parent Company(272)(73)
Per Share Information:
Basic and diluted earnings per share (cents)
Net tangible assets per share (cents)
(24.2)
57
(6.5)
97
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised) 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.
11
STATEMENT OF FINANCIAL PERFORMANCE (unaudited)
For the six months to 31 December 2021
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
12
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
6 MONTHS TO
31 DEC 2021
$M
R E S TAT E D
6 MONTHS TO
31 DEC 2020
$M
Net Loss for the Period
Other Comprehensive (Loss)/Income:
Items that may be reclassified subsequently to profit or loss:
Changes in fair value of cash flow hedges
Transfers to net loss from cash flow hedge reserve
Net translation loss on investment in foreign operations
Changes in cost of hedging reserve
Taxation on above reserve movements
(272)
20
(45)
-
-
8
(73)
(10)
42
(3)
3
(14)
Total items that may be reclassified subsequently to profit or loss(17)18
Total Other Comprehensive (Loss)/Income for the Period, Net of Taxation(17)18
Total Comprehensive Loss for the Period, Attributable to Shareholders
of the Parent Company(289)(55)
STATEMENT OF COMPREHENSIVE INCOME (unaudited)
For the six months to 31 December 2021
AIR NEW ZEALAND GROUP
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
R E S TAT E D
GENERAL
RESERVES
$M
R E S TAT E D
TOTAL
EQUITY
$M
Balance as at 1 July 2021
Application of IFRIC Interpretation7
2,213
-
(49)
-
(17)
-
(1,042)
(7)
1,105
(7)
Restated Balance as at 1 July 20212,213(49)(17)(1,049)1,098
Net loss for the period
Other comprehensive loss for the period
-
-
-
(18)
-
1
(272)
-
(272)
(17)
Total Comprehensive Loss for the Period- (18)1(272)(289)
Transactions with Owners:
Equity-settled share-based payments
(net of taxation)
Equity settlements of staff share
award obligations
2(g)
6
(4)
-
-
-
-
-
-
6
(4)
Total Transactions with Owners 2 - - - 2
Balance as at 31 December 20212(h) 2,215 (67) (16)(1,321)811
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
R E S TAT E D
GENERAL
RESERVES
$M
R E S TAT E D
TOTAL
EQUITY
$M
Balance as at 1 July 2020
Application of IFRIC Interpretation7
2,209
-
(123)
-
(11)
-
(757)
(4)
1,318
(4)
Restated Balance as at 1 July 20202,209(123)(11)(761)1,314
Net loss for the period
Other comprehensive income for the period
7 -
-
-
25
-
(7)
(73)
-
(73)
18
Total Comprehensive Loss for the Period- 25(7)(73)(55)
Transactions with Owners:
Equity-settled share-based payments
(net of taxation)
2
-
-
-
2
Total Transactions with Owners 2 - - - 2
Balance as at 31 December 20207 2,211 (98) (18)(834) 1,261
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
13
STATEMENT OF CHANGES IN EQUITY (unaudited)
For the six months to 31 December 2021
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
14
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
31 DEC 2021
$M
R E S TAT E D
30 JUN 2021
$M
Current Assets
Bank and short term deposits
Trade and other receivables
Inventories
Derivative financial assets
Other assets
156
287
100
50
110
266
252
92
79
137
Total Current Assets703826
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Right of use assets
Intangible assets
Investments in other entities
Deferred taxation
Other assets
7
2(a)
2(e)
2(d)
39
3,288
1,721
171
129
53
352
92
3,128
1,989
169
138
-
342
Total Non-Current Assets5,7535,858
Total Assets 6,456 6,684
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Derivative financial liabilities
Provisions
Other liabilities
2(b)
2(f)
559
74 8
784
260
7
117
178
524
689
524
383
11
58
164
Total Current Liabilities2,6532,353
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Provisions
Other liabilities
Deferred taxation
2(f)
7
492
1,000
1,322
149
29
-
503
1,023
1,378
241
30
58
Total Non-Current Liabilities 2,992 3,233
Total Liabilities 5,645 5,586
Net Assets8111,098
Equity
Share capital
Reserves2(h)
2,215
(1,404)
2,213
(1,115)
Total Equity8111,098
Dame Therese Walsh
CHAIR
For and on behalf of the Board, 24 February 2022
STATEMENT OF FINANCIAL POSITION (unaudited)
As at 31 December 2021
Alison Gerry
DIRECTOR
AIR NEW ZEALAND GROUP
These condensed financial statements have not been audited. They have been the subject of review by the auditor pursuant to NZ SRE 2410 (Revised),
issued by the External Reporting Board. The accompanying notes form part of these financial statements.
NOTES
6 MONTHS TO
31 DEC 2021
$M
R E S TAT E D
6 MONTHS TO
31 DEC 2020
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax paid
Interest paid
Interest received
7
1,177
(1,105)
-
(35)
3
1,047
(1,140)
(5)
(45)
7
Net Cash Flow from Operating Activities40(136)
Cash Flows from Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for resale
Distribution from associates
Acquisition of property, plant and equipment, right of use assets and intangibles
Interest-bearing asset receipts
Investment in associate
7
10
32
(234)
17
(8)
2
21
(133)
-
(3)
Net Cash Flow from Investing Activities(183)(113)
Cash Flows from Financing Activities
Interest-bearing liabilities drawdowns
Equity settlements of staff share award
Interest-bearing liabilities payments
Lease liabilities payments
Rollover of foreign exchange contracts*
2(g)
313
(4)
(83)
(200)
7
340
-
(108)
(173)
( 74)
Net Cash Flow from Financing Activities33(15)
Decrease in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the period
(110)
266
(264)
438
Cash and Cash Equivalents at the End of the Period156174
Reconciliation of Net Loss Attributable to Shareholders to Net Cash Flows
from Operating Activities:
Net loss attributable to shareholders
Plus/(less) non-cash items:
Depreciation and amortisation
Loss on disposal of property, plant and equipment, right of use assets and assets
held for resale
Impairment on property, plant and equipment, right of use assets and assets
held for resale
Foreign exchange losses/(gains) on uncovered interest-bearing liabilities and
lease liabilities
Amounts transferred from the cash flow hedge reserve where the forecast
transaction is no longer expected to occur
Share of earnings of associates
Movements on fuel derivatives
Other non-cash items
4
4
4
4
2(a)
(272)
344
4
3
6
-
(12)
1
8
(73)
372
6
34
(146)
6
(10)
(15)
(6)
Net working capital movements:
Assets
Revenue in advance
Liabilities
82
(54)
48
(36)
168
7
(195)
(116)
(42)(304)
Net Cash Flow from Operating Activities40(136)
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
15
STATEMENT OF CASH FLOWS (unaudited)
For the six months to 31 December 2021
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
16
1. Financial Statements
The financial statements presented are those of the consolidated Air New Zealand Group (the 'Group'), including Air New Zealand Limited
and its subsidiaries, joint ventures and associates.
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 an 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 (Revised) 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 2021.
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 2021 and 31 December 2020 except as outlined below.
In April 2021, the International Financial Reporting Interpretations Committee ("IFRIC") issued an agenda decision on Configuration or
Customisation Costs in a Cloud Computing Arrangement (IAS 38). This Interpretation clarifies the accounting treatment in respect of
costs of configuring or customising a supplier's application software in a Software as a Service ("SaaS") arrangement. The interpretation
has been applied retrospectively and comparative information within the financial statements restated accordingly. Further details are
set out in Note 7.
Impact of Covid-19
The Group has significantly reduced its network as demand declined following border closures and international travel restrictions
arising from the Covid-19 pandemic. In response to the impact, the Group took a number of actions including a reduction in flight
capacity, labour reductions, capital expenditure deferrals, cost reductions and modifications to various vendor and supplier agreements.
In addition, the Group was awarded grants for providing international airfreight services, applied for and received wage subsidies and
a grant under an aviation support package which provided temporary relief from passenger-based government charges and airways
related fees.
Liquidity was supported by cancelling non-essential spend and deferring capital expenditure. The Group applied for Covid-19
related tax relief by electing to carry back the 2020 financial year income tax loss and was granted a deferral of FBT and PAYE for the
period 1 July 2020 to 30 September 2021. The FBT and PAYE liabilities arising during this period will be settled during January 2022 to
March 2022.
A standby Government loan facility was secured and amended in the prior year as the impact of the pandemic progressed, to support
the future business operations. In December 2021, the airline announced a revised Crown support package, comprising a new agreement
which gives the Group the ability to issue up to $1 billion of non-voting Redeemable Shares to the Crown and a reduction in the existing
secured loan facility from $1.5 billion to $1 billion, with an extended term to January 2026. The Group can call for the Crown to subscribe
for up to $1 billion of Redeemable Shares once at least $850 million is drawn under the secured loan facility. The revised support package
provides an additional $500 million of liquidity to better position the airline during the period leading up to its recapitalisation. As at
31 December 2021, the Group had drawn down $545 million of the facility (30 June 2021: $350 million).
Capital structure
Given the severity of the impact of Covid-19 on the business, the Board is well advanced in considering the future capital structure of the
Group and intends to launch a fully underwritten equity raise in the first quarter of the 2022 calendar year. In revising the Crown support
package, consideration was given to what support and flexibility may be needed if unexpected and material events were to occur such
that a further delay to the planned equity raise may be deemed necessary. In conjunction with the planned equity raise, the Board is also
considering further debt funding, which will be reviewed in the context of the Group's liquidity needs plus targeted gearing and debt
coverage ratios.
The Group's capital structure is managed in light of economic conditions, future capital expenditure profiles and the risk characteristics
of the underlying assets. The Group monitors capital on the basis of gearing and debt coverage ratios. The gearing ratios are calculated
as net debt over net debt plus equity. The Group targets a minimum liquidity level, ensuring long-term commitments are managed with
respect to forecast available cash inflow and managing maturity profiles.
Forecast liquidity
Detailed cash flow projections have been developed (refer Note 2(c)) which incorporate the Board's and management's current view
of the anticipated recovery timeframe from the Covid-19 pandemic and includes an assumption around a planned equity raise and
additional debt financing. Given the uncertainty in predicting the timeframes over which travel restrictions may be lifted and border
reopenings may occur, the potential for future waves of the pandemic and the severity of the economic impact, the Group is not able
to provide certainty that there may not be more severe downsides than those already considered. While such severe scenarios are not
considered likely, in the event a more material adverse scenario occurs, the Group would consider a number of other actions that could
be taken.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
AIR NEW ZEALAND GROUP
1. Financial Statements (Continued)
As a result of the critical role the Group has in New Zealand’s economy and society, the Crown has, confirmed its longstanding
commitment to maintaining a majority shareholding in Air New Zealand. Subject to Cabinet being satisfied with the terms of Air New
Zealand’s proposed equity raise, it would participate in the planned equity raise in order to maintain a majority shareholding.
Given the intention to complete an equity raise in 2022, the continued support of the Crown regarding those plans, the revised Crown
support package and the accessibility of additional debt funding, the Board has a reasonable expectation that the Group has sufficient
liquidity to continue to operate for the foreseeable future. Therefore, the adoption of the going concern basis for the financial statements
is considered appropriate.
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. The Group's share of equity accounted earnings from the CEC was $12 million
(31 December 2020: $10 million).
Government grants, subsidies and other related party transactions
(b) The Group was awarded grants to supply international airfreight services by the New Zealand Government through the Ministry of
Transport as part of its efforts to ensure the supply of critical imports and maintain economic benefits of high value New Zealand
exports during the Covid-19 pandemic. The arrangements are for a period from 30 April 2020 through to 31 March 2022. The awards
were negotiated on an arm’s length basis using standard commercial terms. The Group was awarded from August 2020 contracts
to provide international freight services on certain ports from Australia to the United States under the Australian Government
International Freight Assistance Mechanism (IFAM). IFAM was intended to restore critical supply chains due to the impact of the
global pandemic. Conditions attached to the grants recognised in the Statement of Financial Performance have been satisfied as
at balance date.
6 MONTHS TO
31 DEC 2021
$M
6 MONTHS TO
31 DEC 2020
$M
Amounts recognised in Cargo revenue for government grants and assistance:
- New Zealand
- Other regions
182
12
142
5
Total cargo grants and assistance194147
Given the significant impact that Covid-19 has had on the New Zealand economy the New Zealand Government through the
Ministry of Social Development provided wage subsidies for periods where there was alert level restrictions and businesses could
demonstrate a decline in revenues as a result of the pandemic. Additional subsidies were received from other governments related
to offshore offices including Australia, the United States of America, Singapore and the Cook Islands. The wage subsidies were
recognised within Labour expenses as an offset to the underlying labour cost. Conditions attached to the government subsidies
which have been recognised in the Statement of Financial Performance have been satisfied.
The New Zealand Government through the Ministry of Transport provided an aviation support package as a result of the impact
of Covid-19 which included financial support to airlines to pay passenger-based government charges and Airways related fees.
The package covered the period from 1 March 2020 through to 31 December 2020. All conditions associated with the government
assistance were satisfied.
6 MONTHS TO
31 DEC 2021
$M
6 MONTHS TO
31 DEC 2020
$M
Government grants and subsidies recognised in Operating Expenditure include:
Wage subsidies (recognised within 'Labour'):
- New Zealand
- Other regions
46
1
51
2
Total wage subsidies4753
Aviation support grant (recognised within 'Passenger services')
Aviation support grant (recognised within 'Aircraft operations')
Aviation support grant (recognised within 'Other expenses')
-
-
-
18
40
1
Total aviation support grant-59
The Group undertook during the six months ended 31 December 2021 and 31 December 2020 domestic charters and other services
to support quarantine activity as part of border restriction requirements. The transactions were negotiated on an arm's length basis.
Financing costs of $14 million were recognised in relation to the Government standby loan facility during the six months ended
31 December 2021 (31 December 2020: $12 million).
In accordance with Covid-19 related tax relief the Group has deferred FBT and PAYE amounts payable of $298 million (30 June 2021:
$254 million). The deferred amount was recognised in the Statement of Financial Position within 'Trade and other payables'.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
17
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
18
2. General Disclosures (Continued)
Impairment of assets intended for resale, property, plant and equipment and right of use assets
(c) Assets are required to be carried at no more than their recoverable amount either through use or sale of the asset. Due to the rapid
deterioration of worldwide and domestic travel, and the uncertainty surrounding the expected recovery period of global demand as a
result of the Covid-19 pandemic, the Group has undertaken impairment testing to ensure the carrying value of assets are appropriate.
Given the severity of the Covid-19 pandemic on long-haul travel the Group has grounded its Boeing 777 fleets. The Boeing 777-
200ER fleet as well as one leased Boeing 777-300ER aircraft are not expected to return to service for Air New Zealand. The Boeing
777-200ER owned aircraft, spare engines and associated assets were transferred to assets held for resale and are carried at the
lower of their fair value less costs to sell and their previous carrying value.
For the 2022 financial year the fair values were determined based on expressions of interest from third parties. In the 2021 financial
year, market values of the owned Boeing 777-200ER aircraft were obtained from an external valuer which equated to level 2 on the
fair value hierarchy. Key inputs into the external valuations include economic factors, the age and manufacture type of the aircraft
and engines, the maintenance condition of the aircraft and list prices of manufacturers. The leased Boeing 777-200ER and Boeing
777-300ER aircraft were tested for impairment separately from the rest of the Group's assets and the right of use assets were fully
impaired. No impairment expense was recognised in the Statement of Financial Performance in relation to these assets
(31 December 2020: $25 million). An impairment provision of $5 million was held against aircraft interiors on leased aircraft
(30 June 2021: $5 million).
The carrying value of all other assets (including Boeing 777-300ER aircraft expected to return to service in the Air New Zealand fleet)
were tested for impairment as part of the airline network cash generating unit, using a value in use discounted cash flow model.
Cash flow projections were developed for a 9.5 year period, on the basis of detailed shorter-term forecasts which incorporate
recovery towards pre-Covid-19 capacity, followed by extrapolation at a growth rate of 2.10% per annum from the 2026 financial year
(30 June 2021: 1.75% per annum).
Cash flow projections used in the discounted cash flow models reflect the Board's and management’s current view of the anticipated
timing and recovery from the impact of the pandemic. The projections incorporated key inputs and assumptions including the
recovery of passenger demand for domestic and international travel, which is predominantly driven by the removal of border
restrictions, including any isolation requirements in both New Zealand and international markets where Air New Zealand flies. The
uncertain nature of the timing of the removal of such border restrictions requires a judgement of management and the Board and has
been assumed to progressively commence during the 2022 calendar year, with demand for travel in Short-haul international markets
assumed to recover ahead of Long-haul international markets. Cash flow projections also included the Group's expectations for
expected fleet usage, network operations and investment profile. Capital investments during the projected period reflect actions the
Group has taken to delay or reduce investments in the near-term periods to improve cash flow.
Pre-Covid-19, the Group had for five years consistently reported pre-tax ROIC which exceeded its weighted average cost of capital,
indicating, along with other factors including aircraft market values, that the Group's cash generating unit was not impaired prior to
the pandemic.
In assessing the cash flow projections, the Board has considered a number of sensitivities. The factors driving the largest sensitivities
within the overall model were terminal values and discount rates, and within the detailed projection period to the 2026 financial year
were RASK, timing of border openings and fuel price. Consideration has been given to historical performance and the previous Board
approved 5 year plans, particularly when assessing the reasonableness of cash flows towards the end of the projected period and
terminal year growth assumptions.
The majority of the enterprise value within the value in use model is derived from the terminal value as opposed to short-term
detailed cashflow projections to the 2026 financial year. As a consequence sensitivities to the timing of border openings are not
expected to result in impairment, given the short-term nature of the potential volatility in cash flows compared to the expectation
that performance will recover to pre-Covid-19 levels over the projection period of 2026 and beyond. Potential short-term variances
in the Group's cashflow projections, while impacting the measurement of the recoverable amount, does not materially impact the
headroom identified.
The cash flow projections are discounted using a pre-tax rate of 11.0% (30 June 2021: 10.7%) which reflected a market estimate of the
weighted average cost of capital for the Group with sensitivities performed within the range of 9.8% to 12.1% (30 June 2021: 9.4% to
11.9%). This pre-tax weighted average cost of capital equated to a post tax rate of 9.00% (30 June 2021: 8.75%).
The discounted cash flows from the cash generating unit confirmed that there was no impairment to the remaining aircraft as,
in the opinion of the directors, the recoverable value from value in use exceeded the book value of the aircraft, based on the Board's
current assessment of the Group's future operations.
Interest-bearing assets
(d) Non-current "Other assets" include interest-bearing assets of $317 million (30 June 2021: $324 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 2021 was $351 million (30 June 2021: $361 million) and are subject to fixed and floating interest rates. Fixed interest
rates in the six months to 31 December 2021 ranged from 0.04% per annum to 3.6% per annum (six months to 31 December 2020:
0.07% per annum to 3.6% per annum).
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
AIR NEW ZEALAND GROUP
2. General Disclosures (Continued)
Deferred taxation
(e) The Group recognised a deferred tax asset as at 31 December 2021 (30 June 2021: Nil). Detailed cash flow projections used to model
the Group's anticipated recovery timeframe (refer note 2(c) above) were used to inform judgement around the recognition and
recoverability of the net deferred tax asset relating to income tax losses.
Interest-bearing liabilities
(f) Interest-bearing liabilities of $1,784 million (30 June 2021: $1,547 million) are recognised initially at fair value and subsequently
measured at amortised cost. The fair value at 31 December 2021 is $1,767 million (30 June 2021: $1,534 million).
Interest-bearing liabilities include unsecured bonds of $50 million (30 June 2021: $50 million), secured borrowings of $1,189 million
which are secured over aircraft assets (30 June 2021: $1,147 million) and secured borrowings from the New Zealand Government
of $545 million (30 June 2021: $350 million) which are secured against specific aircraft assets and a general security interest against
other assets of the Group. Secured borrowings are subject to both fixed and floating interest rates. Fixed interest rates on secured
borrowings were between 1.0% per annum and 4.4% per annum in the six months to 31 December 2021 (six months to 31 December
2020: 1.0% to 7.3% per annum). Unsecured bonds have a fixed interest rate of 4.25% per annum (31 December 2020: 4.25% per annum).
Under the terms of the revised Crown support package (refer to Note 1), Tranche A of the Amended Crown loan reduced from
$1 billion to $850 million and Tranche B reduced from $500 million to $150 million. There were no changes to the interest rates on
the tranches.
Share capital
(g) During the six months ended 31 December 2021 the Group funded the purchase on-market of 2,279,412 shares for $4 million.
The shares were used to settle obligations under a staff share award. The total cost of the purchase including transaction costs has
been deducted from Share Capital. No purchases were funded for the six months ended 31 December 2020.
Hedge reserves
(h) As at 31 December 2021, $67 million of losses (30 June 2021: $49 million of losses) were held in the cash flow hedge reserve and
nil (30 June 2021: Nil) in the costs of hedging reserve. These reserves are combined within the Statement of Changes in Equity as
"Hedge reserves".
3. Segmental Information
Air New Zealand operates predominantly in one segment, its primary business being the transportation of passengers and cargo on an
integrated network of scheduled airline services to, from and within New Zealand. Resource allocation decisions across the network are
made to optimise the consolidated Group's financial result.
Geographical
An analysis of revenue by geographical region of original sale is provided below.
6 MONTHS TO
31 DEC 2021
$M
6 MONTHS TO
31 DEC 2020
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
Asia, United Kingdom and Europe
Americas
867
66
103
89
981
66
90
97
Total Operating Revenue1,1251,234
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.
19
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
20
4. 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 2021
$M
6 MONTHS TO
31 DEC 2020
$M
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast
transaction is no longer expected to occur
Foreign exchange (losses)/gains on uncovered interest-bearing liabilities and lease liabilities
Aircraft impairment and lease modifications
Reorganisation costs
Gain on sale of landing slots
-
(6)
(3)
-
-
(6)
146
(39)
(41)
21
(9)81
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast transaction is no longer expected to occur
Group policy is to manage risk exposures on foreign currency risk arising in respect of forecast operating cash flows. As a result of
Covid-19 there was a substantial decline in customer demand due to border closures and domestic travel restrictions. The airline
significantly reduced operating capacity, affecting revenues and operating expenditure. A number of foreign currency operating
revenue and expenditure transactions were de-designated. Where the forecast hedged transaction was no longer expected to occur,
the associated accumulated gains or losses were transferred from the cash flow hedge reserve to profit or loss.
Foreign exchange (losses)/gains on uncovered interest-bearing liabilities and lease liabilities
Group policy is to manage foreign currency exposures arising from foreign currency denominated liabilities. Due to a significant
decline in forecast foreign currency revenue as a result of Covid-19, the Group was required to de-designate revenue hedges in the
prior year which resulted in certain foreign currency debt and lease obligations becoming unhedged. Foreign currency translation
gains/losses arising on these obligations are now recognised in the Statement of Financial Performance.
Aircraft impairment and lease modifications
As a result of Covid-19 the Group significantly reduced its network capacity following border closures and international travel
restrictions. Due to the severe impact that the pandemic had on global demand for international air travel, the Boeing 777-200ER
fleet and one Boeing 777-300ER leased aircraft were grounded for an indefinite period into the future. The aircraft and other
associated assets were assessed for impairment to determine the recoverable amount based on the fair value less costs to
sell. Fair values for the 2022 financial year were determined based on expressions of interest from third parties and in the 2021
financial year from external market valuations. No impairment expense was recognised in the Statement of Financial Performance
in relation to these assets (31 December 2020: $25 million). In the six months ended 31 December 2020 losses arising on lease
modifications of $5 million were recognised in respect of these aircraft.
In the prior year, the Group exited from service the ATR72-500 fleet following a scheduled replacement. As at 31 December 2021
two aircraft were classified as Held for Resale (31 December 2020: six aircraft) and were carried at the lower of their previous
book value at the date of transfer or fair value less costs to sell. During the six months ended 31 December 2021 an impairment
expense of $3 million was recognised in the Statement of Financial Performance (31 December 2020: $9 million).
Reorganisation costs
Due to the unprecedented impact of Covid-19 on the airline, a reorganisation programme was undertaken to realign the cost base.
This resulted in a reduction in employee numbers in the prior year of over 4,000 staff, with redundancy costs being recognised over
the period including within the six months ended 31 December 2020.
Gain on sale of landing slots
The Group entered into an agreement to dispose of its London Heathrow slots following the announced withdrawal from the
London-Los Angeles route. Proceeds from the sale were received in December 2019. The gain on sale of $21 million was recognised
in the six months ended 31 December 2020 upon formal transfer of the slots to the purchaser.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
AIR NEW ZEALAND GROUP
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
5. Commitments
31 DEC 2021
$M
30 JUN 2021
$M
Capital commitments
Aircraft and engines
Other assets
2,511
18
2,568
21
2,5292,589
In August 2021 the Group deferred one Boeing 787 aircraft from the 2024 financial year to the 2026 financial year, and in
September 2021 deferred two A321neo aircraft from August 2023 and September 2023 to the third quarter of the 2026 calendar
year. Three A321neo aircraft due to arrive in the middle of the 2022 calendar year have been delayed by one month resulting in an
aircraft delivery moving from the 2022 financial year to the 2023 financial year.
Capital commitments as at reporting date include eight Boeing 787 aircraft (planned delivery from 2024 to 2028 financial years)
and seven Airbus A321neos (delivery from 2023 to 2027 financial years).
6. Contingent Liabilities
All significant legal disputes involving probable loss that can be reliably estimated have been provided for in the financial statements.
No other significant contingent liability claims are outstanding at balance date.
Outstanding letters of credit total $21 million (30 June 2021: $22 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 $167 million (30 June 2021:
$100 million).
7. Impact of New Accounting Interpretations
In April 2021, the International Financial Reporting Interpretations Committee ("IFRIC") issued an agenda decision on Configuration
or Customisation Costs in a Cloud Computing Arrangement (IAS 38). This Interpretation clarifies the accounting treatment in respect
of costs of configuring or customising a supplier's application software in a Software as a Service ("SaaS") arrangement. Whilst such
costs may be able to continue to be capitalised in limited circumstances, in many cases the costs will now need to be recognised as
an operating expense.
Changes in accounting treatment as a result of an agenda decision are generally accounted for as a voluntary change in accounting
policy and must be applied retrospectively. The Group has completed the review of such costs and has identified the following
adjustments to previous reporting periods.
The impact of the changes on the affected line items in the Statement of Financial Performance for the six months ended
31 December 2020 is set out below:
6 MONTHS TO
31 DEC 2020
PRIOR TO
APPLICATION
OF AGENDA
DECISION
$M
6 MONTHS TO
31 DEC 2020
AGENDA
DECISION
ADJUSTMENTS
$M
6 MONTHS TO
31 DEC 2020
AFTER
APPLICATION
OF AGENDA
DECISION
$M
Other expenses(114) (2) (116)
Operating Earnings (excluding items below)
Depreciation and amortisation
222
(373)
(2)
1
220
(372)
Loss Before Finance Costs, Associates, Other Significant Items and Taxation(151)(1)(152)
Loss Before Taxation
Taxation credit
(104)
32
(1)
-
(105)
32
Net Loss Attributable to Shareholders of Parent Company(72)(1)(73)
21
AIR NEW ZEALAND INTERIM FINANCIAL REPORT 2022
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
7. Impact of New Accounting Interpretations (Continued)
The impact of the changes on the affected line items in the Statement of Financial Position as at 30 June 2021 is set out below:
STATEMENT OF FINANCIAL POSITION
PRIOR TO
APPLICATION
OF AGENDA
DECISION
$M
AGENDA
DECISION
ADJUSTMENTS
$M
AFTER
APPLICATION
OF AGENDA
DECISION
$M
AS AT 30 JUNE 2021
Non-Current Assets
Intangible assets
179
(10)
169
Total Non-Current Assets 5,868 (10) 5,858
Total Assets6,694(10)6,684
Deferred taxation61(3) 58
Total Non-Current Liabilities3,236(3)3,233
Total Liabilities5,589(3)5,586
Net Assets1,105(7)1,098
Reserves(1,108)(7)(1,115)
Total Equity1,105(7)1,098
The impact of the changes on the affected line items in the Statement of Changes in Equity is set out below:
STATEMENT OF CHANGES IN EQUITY
GENERAL RESERVESTOTAL EQUITY
AS
PREVIOUSLY
REPORTED
$M
ADJUSTMENTS
$M
AS
R E S TAT E D
$M
AS
PREVIOUSLY
REPORTED
$M
ADJUSTMENTS
$M
AS
R E S TAT E D
$M
Balance as at 1 July 2020
Net loss for the period
(757)
(72)
(4)
(1)
(761)
(73)
1,318
(72)
(4)
(1)
1,314
(73)
Total comprehensive loss for the period(72)(1)(73)(54)(1)(55)
Balance as at 31 December 2020(829)(5)(834)1,266(5)1,261
Balance as at 30 June 2021(1,042)(7)(1,049)1,105(7)1,098
The impact of the changes on the affected line items in the Statement of Cash Flows is set out below:
STATEMENT OF CASH FLOWS
6 MONTHS TO
31 DEC 2020
PRIOR TO
APPLICATION
OF AGENDA
DECISION
$M
6 MONTHS TO
31 DEC 2020
AGENDA
DECISION
ADJUSTMENTS
$M
6 MONTHS TO
31 DEC 2020
AFTER
APPLICATION
OF AGENDA
DECISION
$M
Payments to suppliers and employees(1,138) (2) (1,140)
Net Cash Flow from Operating Activities(134) (2) (136)
Acquisition of property, plant and equipment, right of use assets and intangibles(135) 2(133)
Net Cash Flow from Investing Activities(115) 2(113)
Cash and Cash Equivalents at the End of the Period 174 - 174
Reconciliation of Net Loss Attributable to Shareholders to Net Cash Flows from
Operating Activities:
Net loss attributable to shareholders
Plus/(less) non-cash items:
Depreciation and amortisation
(72)
373
(1)
(1)
(73)
372
Net Cash Flow from Operating Activities(134)(2)(136)
22
The Auditor-General is the auditor of
Air New Zealand Limited (“the Company”)
and its subsidiaries (“the Group”).
The Auditor-General has appointed
me, Melissa Collier, using the staff
and resources of Deloitte Limited, to
carry out the review of the condensed
consolidated interim financial statements
(‘interim financial statements’) of the
Group on his behalf.
Conclusion
We have reviewed the interim financial
statements of the Group on pages 11 to 22,
which comprise the Statement of Financial
Position as at 31 December 2021, 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.
Based on our review, nothing has come
to our attention that causes us to believe
that the interim financial statements of
the Group do not present fairly, in all
material respects, the financial position
of the Group as at 31 December 2021,
and its financial performance and 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.
Basis for Conclusion
We conducted our review in accordance
with NZ SRE 2410 (Revised) Review of
Financial Statements Performed by the
Independent Auditor of the Entity (‘NZ
SRE 2410 (Revised)’). Our responsibilities
are further described in the Auditor’s
Responsibilities for the Review of the
Interim Financial Statements section of
our report.
We are independent of the Group in
accordance with the Auditor-General’s
ethical requirements relating to the
audit of the annual financial statements,
which incorporate the independence
requirements issued by the New Zealand
Auditing and Assurance Standards
Board, and we have fulfilled our other
ethical responsibilities in accordance with
these requirements.
In addition to this review and the audit of
the Group annual financial statements,
we have carried out assurance services
relating to greenhouse gas emissions
inventory and compliance with student
fee protection rules. In addition we
provide non-assurance services to the
Corporate Taxpayers Group. 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 these engagements and
trading activities, we have no relationship
with, or interests in, the Group.
Emphasis of Matter – Impact of
Covid-19, Capital Structure and
Forecast Liquidity
Without modifying our conclusion, we
draw attention to Note 1 of the interim
financial statements, which outlines the
Board’s view of the Group’s future capital
structure and forecast liquidity, given the
severity of the impact of Covid-19 on the
business. The Board intends to complete
a fully underwritten equity capital raise in
conjunction with additional debt financing.
Of particular importance to the future
capital structure and forecast liquidity
of the Group, is the confirmation of
the Crown’s commitment to maintain a
majority shareholding in the Company
and participate in the proposed equity
capital raise, subject to Cabinet being
satisfied with the terms of the proposal;
as well as the revised Crown support
package and accessibility of additional
debt funding.
Directors’ Responsibilities for the
Interim Financial Statements
The directors are responsible, on behalf
of the Group, for the preparation and fair
presentation of these 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
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 interim financial
statements, whether in printed or
electronic form.
Auditor’s Responsibilities for
the Review of the Interim
Financial Statements
Our responsibility is to express a
conclusion on the interim financial
statements based on our review. NZ SRE
2410 (Revised) requires us to conclude
whether anything has come to our
attention that causes us to believe that
the 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.
A review of the interim financial
statements in accordance with NZ SRE
2410 (Revised) is a limited assurance
engagement. We perform 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)
and consequently does not enable us to
obtain assurance that we would become
aware of all significant matters that might
be identified in an audit. Accordingly, we
do not express an audit opinion on these
interim financial statements.
Melissa Collier
Partner
for Deloitte Limited
On behalf of the Auditor-General
24 February 2022
Auckland, New Zealand
23
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
INDEPENDENT AUDITOR’S REVIEW REPORT
TO THE SHAREHOLDERS OF AIR NEW ZEALAND LIMITED
For the six months ended 31 December 2021
CONDENSED NOTES TO THE FINANCIAL STATEMENTS (unaudited)
As at and for the six months to 31 December 2021
You fly to say Kia ora
We fly for you
---
2022
Interim
Financial
Results
Investor presentation
24 February 2022
All information is private and confidential
AIR NEW ZEALAND 2022 INTERIM RESULT
2
This presentation is given on behalf of Air New Zealand Limited (NZX: AIR
and AIR020; ASX: AIZ). The information in this presentation:
•Is provided for general purposes only and is not an offer or invitation
for subscription, purchase, or a recommendation of securities in
Air New Zealand
•Should be read in conjunction with, and is subject to, Air New Zealand’s
condensed interim financial statements for the half year ended 31
December 2021, prior annual and interim reports and Air New Zealand’s
market releases on the NZX and ASX
•Is current at the date of this presentation, unless otherwise stated.
Air New Zealand is not under any obligation to update this presentation
after its release, whether as a result of new information, future events
or otherwise
•May contain information from third-parties. No representations or
warranties are made as to the accuracy or completeness of such
information
•Refers to the half year ended 31 December unless otherwise stated
•Contains forward-looking statements 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.
These statements are susceptible to uncertainty and changes in
circumstances. This is particularly the case as a result of the ongoing
impacts of the Covid-19 pandemic and the New Zealand Government's
actions in response to the pandemic. Air New Zealand’s actual future
results may vary materially from those expressed or implied in its
forward-looking statements and undue reliance should not be placed on
any forward-looking statements
•Contains statements relating to past performance which are provided
for illustrative purposes only and should not be relied upon as a reliable
indicator of future performance
•Is expressed in New Zealand dollars unless otherwise stated and
figures, including percentage movements, are subject to rounding
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. Nothing in
this presentation constitutes financial, legal, regulatory, tax or other advice.
Non-GAAP financial information
The following non-GAAP measures are not audited: CASK, Gearing, Net
Debt, Gross Debt, EBITDA and RASK. 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.
Refer to slide 34 for a glossary of the key terms used in this presentation.
Forward-looking statements and disclaimer
All information is private and confidential
Greg Foran, Chief Executive Officer
Business
update
AIR NEW ZEALAND 2022 INTERIM RESULT
Business Update
1H 2022 summary
•Reporting a loss before other significant items and taxation of $367 million,
statutory loss before taxation of $376 million and a statutory loss after taxation
of $272 million
•Passenger revenue down 26% due to the national alert level restrictions and 107
days of Auckland lockdown
•Cargo revenue up 29% driven by increase to ~100 flights per week under the
MIAC
1
scheme from ~55 in the prior period
Near-term demand observations
•Domestic demand subdued in February and March 2022 particularly for business
travel with Omicron outbreak, while April 2022 holidays continue to see bookings
•International bookings have increased following recent announcement on removal
of managed isolation
Balance sheet update
•Liquidity of ~$1.4 billion as at23 February 2022, including cash of ~$170 million,
$240 million of available funds on the Crown Standby Loan Facility (Crown Facility)
and $1 billion on the Redeemable Shares
•Planning to launch a capital raise before the end of March 2022 or shortly
thereafter, subject to market conditions
1MIAC refers to the New Zealand Government's Maintaining International Air Connectivity scheme, which supports the cost of flying for
all airlines awarded flights under the scheme. The airline flies ~100 flights per week to international ports under the current agreement
which is in place through to 31 March 2022.
2New Zealand Government’s announcement on 3 February 2022 regarding reconnecting New Zealand outlines a five-phased plan to lift
various border restrictions from 27 February to October 2022.
Significant financial loss reported due to extended domestic lockdown, ongoing border restrictions and
reduced levels of Government subsidy support
Overview
4
AIR NEW ZEALAND 2022 INTERIM RESULT
5
1H 2022 domestic network performance impacted by
prolonged Auckland lockdown
1
Pre-Covid levels defined as first half of the 2020 financial year, or period from July 2019 to December 2019.
Lockdowns driven by Delta variant adversely impacted domestic network for majority of the half-year period
Impact of Covid-19 on Domestic passenger revenue
During Covid-19
Pre Covid-19
Initial Covid-19
outbreak and
nationwide lockdown
in New Zealand
Auckland-region
lockdowns
Auckland-region
lockdowns
Following outbreak
of Delta variant,
nationwide lockdown
followed by Auckland-
region restrictions
•Domestic capacity varied significantly throughout the six months
ending December 2021 as a result of Covid-related restrictions
−Overall, capacity was 23% lower than the prior period and 41%
lower than pre-Covid levels
1
−Prior to latest nationwide lockdown, Domestic performance had
been strong, reaching record levels in July 2021
•Continue to enhance our Domestic proposition to support
customers through near-term uncertainty
•Domestic demand had shown improvementfrom
mid-December to late-Januaryfollowing end of Auckland lockdown
•Domestic demand subdued in February and March 2022 with
Omicron outbreak particularly for business travel, while April 2022
holidays continue to see bookings
AIR NEW ZEALAND 2022 INTERIM RESULT
•Cargo revenue of $482 million increased 29% including FX
•Growth primarily due to the increase of Government supported flights
and heightened seasonal demand, contributing $194 million to cargo
revenue in the period
–Current phase of the Maintaining International Air Connectivity
(MIAC) scheme was extended from October 2021 to March 2022
▪Increased weekly flights to ~100 with the addition of new routes
awarded in late October
▪July through October 2021 operated ~50 flights per week to 16
ports with the trans-Tasman bubble suspended
–International Freight Assistance Mechanism (IFAM) contract
awarded in August 2020 by Australian Government –extended to
31 March 2022
Cargo performance continues to provide a vital service to New Zealand exporters and import crucial goods
Cargo performance a standout in the period, assisted by
continued Government support
6
AIR NEW ZEALAND 2022 INTERIM RESULT
Ensuring pilots, cabin crew and
airport teams are trained and ready
to be brought back in line with
demand
People
Ensuring fleet and airport
infrastructure is serviced and
equipped for action
Infrastructure
Prepared to deploy capacity with
well planned and optimised new
international network schedules and
routes
Network
planning
Continually monitoring Government
travel guidance locally and
internationally and engaging with
relevant stakeholders on border
requirements
Government
engagement
Proven operational agility to support our customers with changing travel requirements
Preparations for recovery well underway
7
Health & Safety
Health & safety focus
•Proactive stance on international vaccination requirement since 1 February 2022;
domestic vaccination or negative test requirement since 14 December 2021
•100% operating aircrew and customer-facing employees fully vaccinated
•Rapid antigen test kits available for frontline employees
•Continuation of Covid-cleaning protocols for aircraft, lounges and workspaces
Operational readiness
•Recalling ~250 cabin crew and pilots
•Training pilots and cabin crew for readiness with expected recovery
•Reanimation of a Boeing 777-300 aircraft initially for cargo flying
•Activation underway for offshore ports across the network
Customer experience
•Seamless integration of Covid-19 vaccination passport into travel app
•Trialling new in-flight product and service offerings across the network
•Reintroduction of credit flexibility for domestic customers and continuation for
international bookings
•Further investment in Contact Centre technology to enhance customer experience
AIR NEW ZEALAND 2022 INTERIM RESULT
8
Other markets seeing encouraging signs of demand for
international air travel
New Zealand
80%
•Despite the beginnings of the Omicron outbreak in
November and December 2021, IATA data shows where
travel restrictions have softened in regions, international
demand through the 2H of calendar year 2021 has improved
•Skewed to reopening of short-haul markets amidst improved
vaccination progress
•IATA data suggests demand for international travel linked to
customers visiting friends and relatives, as leisure and
business-purpose travel lags behind
•Asia-Pacific region key outlier as governments demonstrate
more conservative border opening policies relative to other
markets
•The timing for demand recovery in New Zealand remains
uncertain
AIR NEW ZEALAND 2022 INTERIM RESULT
Profitably grow and enhance
our iconic domestic offering,
providing New Zealanders with
even more choice as the best-
connected country in the world
Connecting New Zealanders
and our exports to the world
through an optimal international
network and premium
leisure product
Increase products and benefits
members value from our
Airpoints
TM
programme,
supercharging the loyalty
ecosystem for the airline
Air New Zealand’s Kia Mau strategy is focused on 3 clear drivers of value creation,
executed through excellence and innovation across 4 key business enablers
Strategic roadmap for the medium-term
Grow
domestic
Optimise
international
Lift
loyalty
Operational excellence that
provides a seamless travel
experience for our customers –
do it right, first time, every time
Brilliant
Basics
Committed to meaningful action
to reduce our carbon impact
Serious about
Sustainability
Technology focused on delivering
a world-class experience for our
people and customers while
driving efficiencies
Digital
Dexterity
Putting people, health and
safety first
Prioritising
People & Safety
Profit drivers
Enabled by strong culture and focused investment
9
Financial
update
Richard Thomson, Chief Financial Officer
AIR NEW ZEALAND 2022 INTERIM RESULT
•Operating revenue $1.1 billion, down 8.8%
•Loss before other significant items and
taxation
1
$367 million
•Loss before taxation $376 million
•Net loss after taxation $272 million
•Short-term cash of $156 million
2
•Gearing at 78.0%
•Dividend suspended until further notice
1
Refer to slide 26 for further details on Other Significant Items of $9 million.
2
As at 31 December 2021, not including remaining undrawn funds from the Crown Facility. Please refer to slide 16 for details on liquidity as at 23 February 2022.
3
Historical earnings have been restated following the International Financial Reporting Interpretations Committee ("IFRIC") issuing an agenda decision on Configuration or Customisation Costs in a Cloud
Computing Arrangement.
1H 2022 financial summary
Covid-19 impact
Earnings/Loss before other significant items and taxation
3
($ millions)
11
325
217
198
1H 20211H 20181H 20191H 20201H 2022
(186)
(367)
AIR NEW ZEALAND 2022 INTERIM RESULT
Additional commentary
•Labour cost increased faster than capacity at
9.9% driven by an employee-wide award in the
period, reduced wage subsidies, a provision for
incentive payments and higher digital staffing
levels aligned with delivering the airline’s
strategic priorities
•Aircraft operations, maintenance and passenger
services costs decreased 4.3% reflecting fewer
departures and the resulting reduction in landing,
meal and lounge costs as well as reduced third-
party work
•Sales and marketing and other expenses
increased 14% driven by brand activity focused
on the Airpoints
TM
loyalty programme and digital
activity
•Ownership costs decreased 6% due to reduced
depreciation on impaired Boeing 777s and lower
utilisation of engine maintenance assets partially
offset by new aircraft deliveries
•Changing levels of Government support in the
current versus prior period drove an adverse
impact to some cost areas (refer to next slide)
1
For further details on fuel cost movement, refer to slide 32.
Profitability waterfall
12
AIR NEW ZEALAND 2022 INTERIM RESULT
Impact to the Profit & Loss
Support programme
1H 2022
($m)
1H 2021
($m)
P&L line item
Airfreight schemes194147Cargo revenue
Wage subsidies4753Labour cost
Air navigation subsidies-40Aircraft operations
Passenger levy relief-18Passenger services
Biosecurity border processing levy-1Other expenses
A series of government support programmes contributed to the 2022 interim result, although not at the
level received in the 2021 corresponding period
1H 2022 result reflects benefit of support programmes
13
Aviation
support
package
AIR NEW ZEALAND 2022 INTERIM RESULT
UNDERLYING
CASK
INCREASED
0.2%
1
Excluding fuel price movement, foreign exchange, third-party maintenance, CASK increased 6.0%.
•Reported CASK
1
increased 3.7%
•Excluding the impact of fuel price movement, foreign exchange, third-party
maintenance and removal of the aviation support subsidy, underlying CASK
increased 0.2%
CASK movement
14
Commentary
•CASK
1
increased due to:
–Lack of aviation support package which
occurred in the prior period; and
–An increase in mix of flying towards
lower cost cargo-only flying in the
period which was offset by
diseconomies of scale and
inefficiencies in the domestic network
–Diseconomies of scale and
inefficiencies driven by moderate level
of cost held to ensure operational
readiness
AIR NEW ZEALAND 2022 INTERIM RESULT
1H 2022 cash burn
Cash burn
1
update
9
(51)
2H 20211H 20211H 2022
(96)
Average monthly cash burn
($ millions)
1H 2022 average cash burn impacted by:
•Reduced bookings from domestic lockdown and suspension of the trans-
Tasman and Cook Islands travel bubbles
•Commencement of regular PAYE and FBT payments of ~$20 million per
month from October 2021
•Includes ~$280 million of amortising debt payments for secured aircraft and
lease payments on operating leased aircraft and property over the six month
period
2H 2022 cash burn expected to reflect:
•~$300 million related to repayment of deferred PAYE and FBT (completed by
March 2022)
•Domestic bookings impacted by current Omicron outbreak in New Zealand
•Increased international bookings as managed isolation requirement is
removed
1
Cash burn is defined as the aggregate of operating, investing and financing cashflow prior to drawings under the Crown Facility, over a specified period of time.
15
AIR NEW ZEALAND 2022 INTERIM RESULT
•Assessment of our capital structure and funding needs is well advanced and
we intend to launch a capital raise before the end of March 2022 or
shortly thereafter subject to market conditions
•The Crown is supportive of this intention and has confirmed its longstanding
commitment to maintaining a majority shareholding, including as part of the
proposed equity raise
•$760 million of the Crown Facility drawn down, resulting in approximately
$1.4 billion in cash and available liquidity as at23 February 2022
–Includes $240 million remaining from $1 billion Crown Facility and $1 billion
available from non-voting redeemable shares announced in December
2021
•Expect to issue redeemable shares to the Crown from March 2022 –expect to
pay these back directly following the capital raise. The redeemable shares
become available and will be accessed incrementally once $850 million has
been drawn underthe Crown Facility
•Due to the ongoing financial impact from Covid-19 and the restrictions of the
Crown Facility dividends remain suspended. Accordingly, there will be no
interim dividend for the 2022 financial year
16
Capital structure, liquidity and dividend
Redeemable Shares
Crown Facility
Cash
~$1.4 billion in available liquidity
(as at 23 February 2022)
AIR NEW ZEALAND 2022 INTERIM RESULT
Air New Zealand’s fuel hedging policy and approach remains unchanged
Fuel hedging update
17
Fuel hedge position
(as at 16 Feb 2022)
Period
Hedged volume
(in barrels)
Net
compensation
from hedging
(USD)
1
2H 20221,342,500~$24 million
1H 2023707,500~$7 million
1
Net compensation from fuel hedges represents the unrealised gains and losses
on fuel hedges and is in USD.
•Current fuel hedging profile based on Domestic and Cargo
operations at a slightly elevated level to 1H 2022
•Represents approximately one-third of pre-Covid hedging levels
•Increased fuel prices partially mitigated by hedge position
•Assuming no change to current network capacity, fuel costs in 2H
2022 expected to exceed 1H 2022 levels
•Hedge portfolio structured to allow full participation to downward
price movements through June 2022
AIR NEW ZEALAND 2022 INTERIM RESULT
0
200
400
600
800
1,000
20152016201720182019202020212022202320242025202620272028
$ millions
18
Actual and committed aircraft capital expenditure
1
HistoricalCommitted
1
•Committed aircraft capital expenditure profile reflects
−Minor deferral of one A321neo domestic aircraft from 2022 to 2023
−Reversal of one Boeing 787 slide right previously assumed to be
exercised, moving delivery from 2027 to 2025
−Delivery flexibility remains in place for a substantial portion of the
Boeing 787 delivery stream
•No committed aircraft capital expenditure currently beyond 2028
−Given the young age of fleet (~7 years
2
) compared to global peers
(10-11 years), Management has the optionality to allow fleet age to
grow
•Interiors retrofit programme for existing 14 Boeing 787 fleet is
anticipated beyond 2023, but timing and quantum have not
been confirmed
Degree of flexibility maintained over timing of aircraft capital expenditure; aircraft capital expenditure
expected to reduce materially once contracted Boeing 787s order received
Fleet investment update
Aircraftdelivery schedule (as at 31 December 2021)
Number in
existing fleet
Number
on order
DeliveryDates (financial year)
2H 20222023202420252026
Owned fleet on order
Boeing 787
144*--211
Airbus A320/A321neos
135**-41--
1
Includes progress payments on aircraft and aircraft improvements (e.g. refurbishment); excludes assumed interiors retrofit capital expenditure for the existing 14 Boeing 787 fleet.
2
Fleet age as at end of 2022 financial year.
* Does not reflect four Boeing 787s planned for delivery beyond 2026 for which slide rights have been assumed.
** Does not reflect two A321neos planned for delivery in 2027.
AIR NEW ZEALAND 2022 INTERIM RESULT
Fleet simplification strategy solidly on track
Air New Zealand has strategically simplified its fleet historically and continues to focus on this
strategy to drive superior operating cost and capital expenditure outcomes
19
Widebody
Narrowbody
Turboprop
H1 FY22 (5 types) Total –103 Age –6.7yrsFY28 (4 types)
1
Total –107Age –~10yrs
B787
(22)
A320
(33)
ATR72
(29)
Q300
(23)
B777-300
B787-9/10
A320
A321
B787
(14)
B777
(7)
B787-9
A320
(31)
A320
A321
ATR72
(28)
Q300
(23)
ATR72-600
ATR72-600
FY11 (8 types) Total –102 Age –9.1yrs
B747
(5)
B767
(5)
B777
(11)
A320
(14)
B737
(15)
ATR72
(11)
Q300
(23)
B1900D
(18)
B777-300
B777-200
1
Note –this represents the fleet at the end of the FY28 financial period.
ATR72-500
Outlook
Greg Foran, Chief Executive Officer
AIR NEW ZEALAND 2022 INTERIM RESULT
Our priorities for 2H 2022
21
Protect safety
and wellbeing
of employees and
customers
Maintain and
strengthen
operational agility
and flexibility
Execute on
strategic
priorities to
further drive our
recovery
Complete capital
raise to position
for recovery
AIR NEW ZEALAND 2022 INTERIM RESULT
22
•There remains a large degree of uncertainty on the impact of the Omicron variant on demand for domestic travel
for the remainder of the financial year
•Additionally, while recent clarity on the phasing of border openings for New Zealand is helpful, the timing of
reduced or removed self-isolation restrictions remains unclear, driving continued uncertainty in the level of
demand for international air travel
•Self-isolation restrictions are expected to continue to have a substantial adverse impact on international demand
in the second half of 2022 financial year, and for as long as those restrictions exist
•Air New Zealand’s current expectations are that the 2022 financial year will incur a loss before taxation and other
significant items that exceeds $800 million
2022 Outlook
Supplementary
information
AIR NEW ZEALAND 2022 INTERIM RESULT
Liquidity and gearing position
$ millions31 Dec 202130 Jun 2021
Medium-term
financial targets
Gross debt(3,366)(3,308)
Cash, restricted deposits and net open
derivatives
485603
Net debt(2,881)(2,705)
Gross debt/EBITDAN/A8.1x<3.3x
Net debt/EBITDAN/A6.6x
Gearing78.0%71.1%45% to 55%
Total liquidity1,6111,416
Minimum liquidity level of
~$700 million
Liquidity (% of 2019 revenue)27.8%24.5%
Moody's ratingBaa2 (investment grade)Baa2 (investment grade)Baa2 (investment grade)
25
AIR NEW ZEALAND 2022 INTERIM RESULT
Dec 2021
$M
Dec 2020
$M
Loss before taxation (per NZ IFRS)(376)(105)
Add back other significant items:
De-designation of hedges-6
FX losses/(gains) on uncovered foreign currency debt6(146)
Aircraft impairment and lease modifications339
Reorganisation costs-41
Gain on sale of airport slots-(21)
Loss before other significant items and taxation(367)(186)
1
Loss before other significant items and taxation represents 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 underlyingfinancial performance
of the Group. Loss before other significant items and taxation is reported within the unaudited condensed Group interim financial statements. Further details are contained within Note 4 of the Group’s 2022 interim financial statements.
Loss before other significant items and taxation
1
26
AIR NEW ZEALAND 2022 INTERIM RESULT
Dec 2021
$M
Dec 2020
$M
Movement
$M
Movement
%
Operating revenue
1,125
1,234
(109)(9%)
Loss before other significant items and taxation
(367)
(186)
(181)(97%)
Loss before taxation
(376)
(105)
(271)(258%)
Net loss after taxation
(272)
(73)
(199)(273%)
Operating cash flow
40
(136)
176129%
Cash position*
156
266
(110)(41%)
Gearing*
78.0%
71.1%
–(6.9%)
Financial overview
* Comparative is 30 June 2021.
27
AIR NEW ZEALAND 2022 INTERIM RESULT
Dec 2021Dec 2020Movement
1
Dec 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
3,203
4,003
(20%)
9,040
(65%)
Available seat kilometres (ASKs, millions)
–passenger flights
3,704
4,991
(26%)
23,741
(84%)
Available seat kilometres (ASKs,
millions) –passenger and cargo-only
flights
8,7728,2246.7%
23,741
(63%)
Revenue passenger kilometres (RPKs,
millions)
2,166
2,678
(19%)
20,021
(89%)
Load factor
58.5%
53.7%
4.8 pts
84.3%
(25.8 pts)
Passengerrevenue per ASKs as
reported (RASK, cents)
14.1
14.2
(0.5%)
10.8
31%
Passengerrevenue per ASKs, excluding
FX (RASK, cents)
14.2
14.2
(0.2%)
10.8
31%
Group performance metrics
1
Calculation based on numbers before rounding.
28
AIR NEW ZEALAND 2022 INTERIM RESULT
Domestic
Dec 2021
Dec 2020
Movement
1
Dec 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
3,033
3,868
(22%)
5,787
(48%)
Available seat kilometres (ASKs,
millions) –passenger flights
2,051
2,658
(23%)
3,506
(41%)
Revenue passenger kilometres
(RPKs, millions)
1,488
2,032
(27%)
2,973
(50%)
Load factor
72.6%
76.4%
(3.8 pts)
84.8%
(12.2 pts)
Passengerrevenue per ASKs as
reported (RASK, cents)
20.6
21.6
(4.7%)
24.3
(15%)
Passengerrevenue per ASKs,
excluding FX (RASK, cents)
20.6
21.6
(4.7%)
24.3
(15%)
1
Calculation based on numbers before rounding.
29
AIR NEW ZEALAND 2022 INTERIM RESULT
Tasman & Pacific Islands
1
1
Pacific Islands including Bali and Hawaii.
2
Calculation based on numbers before rounding.
30
Dec 2021
Dec 2020
Movement
2
Dec 2019Variance to
pre-Covid
2
Passengers carried (‘000s)
143
89
61%
2,111
(93%)
Available seat kilometres (ASKs,
millions) –passenger flights
759
725
4.7%
7,093
(89%)
Revenue passenger kilometres
(RPKs, millions)
410
198
107%
5,852
(93%)
Load factor
54.0%
27.4%
26.6 pts
82.5%
(28.5 pts)
Passengerrevenue per ASKs as
reported (RASK, cents)
7.4
5.6
30%
9.7
(24%)
Passengerrevenue per ASKs,
excluding FX (RASK, cents)
7.4
5.6
30%
9.7
(24%)
AIR NEW ZEALAND 2022 INTERIM RESULT
Dec 2021
Dec 2020
Movement
1
Dec 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
27
46
(42%)
1,142
(98%)
Available seat kilometres (ASKs,
millions) –passenger flights
894
1,608
(44%)
13,142
(93%)
Revenue passenger kilometres
(RPKs, millions)
268
448
(40%)
11,196
(98%)
Load factor
30.0%
27.8%
2.2 pts
85.2%
(55.2 pts)
Passengerrevenue per ASKs as
reported (RASK, cents)
5.0
5.8
(13%)
7.9
(37%)
Passengerrevenue per ASKs,
excluding FX (RASK, cents)
5.1
5.8
(11%)
7.9
(35%)
International
31
1
Calculation based on numbers before rounding.
AIR NEW ZEALAND 2022 INTERIM RESULT
152
4
97
(68)
(11)
174
0
50
100
150
200
250
300
DEC 2020
FUEL COST
VOLUMEUNDERLYING
PRICE
NET HEDGING
IMPACT
FX
MOVEMENTS
DEC 2021
FUEL COST
$ millions
Fuel cost movement
$29 million
effective increase
in fuel price
19%
Increase in
jet fuel price
US$44 to
US$82
per barrel
Dec 2021
hedge gain
of $44m
vs
Dec 2020
hedge loss
of $24m
32
AIR NEW ZEALAND 2022 INTERIM RESULT
1
From 2021 onwards, excludes the Boeing 777-200ER fleet and one leased Boeing 777-300ER that are not expected to be returned toservice.
* Excludes short-term leases which provided cover for the global Rolls-Royce engine issues.
20222023202420252026
Boeing 777-300ER66654
Boeing 787-9/787-101414161718
Airbus A3201817151515
Airbus A320/A321neo1317181818
ATR72-6002929292929
Bombardier Q3002323232323
Total Fleet103106107107107
Fleet delivery and age update
33
7.0
HistoricalForecast
7.5
7.17.1
6.7
7.2
7.7
8.3
9.1
9.9
Aircraft fleet age in years
(seat weighted)
1
*
*
AIR NEW ZEALAND 2022 INTERIM RESULT
Available Seat Kilometres (ASKs)Number of seats operated multiplied by the distance flown (capacity)
Cost/ASK (CASK)Operatingexpenses divided by the total ASK for the period
GearingNet Debt / (NetDebt + Equity)
Earnings before interest, tax,
depreciation and amortisation (EBITDA)
Operating earnings/(losses) (before depreciation and amortisation, net finance costs, associate earnings, other
significant items and taxation) plus finance income and cash dividends received from associates less foreign
exchange gains/losses
Gross DebtInterest-bearing liabilities and lease liabilities
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
Cash, restricted deposits and net open
derivatives
Bank and short-term deposits, interest-bearing assets and net open derivatives held in relation to interest-bearing
liabilities and lease liabilities
Passenger Load FactorRPKs as a percentage of ASKs
PassengerRevenue/ASK (RASK)Passenger revenuefor the period divided by the total ASK on passenger flights for the period
Revenue Passenger Kilometres (RPKs)Number of revenue passengers carried multiplied by the distance flown (demand)
Glossary of key terms
The following non-GAAP measures are not audited: CASK,Gearing, Net Debt, Gross Debt, EBITDA and RASK. 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.
34
AIR NEW ZEALAND 2022 INTERIM 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
Corporate governance: www.airnewzealand.co.nz/corporate-governance
Sustainability: https://www.airnewzealand.co.nz/sustainability
Find more information about Air New Zealand
35
---
Air New Zealand Limited
Preliminary Half Year Results
24 February 2022
CONTENTS
NZX Appendix 2 Results Announcement, pursuant to NZX Listing Rule 3.5.1
Air New Zealand Limited
NZX Preliminary Interim Report
Amount (000s)
1,128,000
1,128,000
(272,000)
(272,000)
N/A
N/A
N/A
NZ$ AmountReporting Period
0.57
Contact person for this announcement
Unaudited interim financial statements accompany this announcement.
Contact phone number+64 9 336 2607
Contact email addressinvestor@airnz.co.nz
Date of release through MAP24 February 2022
Leila Peters, General Manager Corporate Finance
Record Date
Dividend Payment Date
Prior Comparative Period
Net tangible assets per Quoted Equity
Security
0.97
A brief explanation of any of the figures
above necessary to enable the figures to be
understood
Refer to media release.
Authority for this announcement
Name of person authorised to make this
announcement
Jennifer Page, General Counsel and Company
Secretary
Interim Dividend (NZ$)
Amount per Quoted Equity SecurityNo interim dividend will be paid
Imputed amount per sec Quoted Equity
Security
Total Revenue(8.9%)
Net loss from continuing operations272.6%
Total net loss272.6%
Revenue from continuing operations(8.9%)
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Results for announcement to the market
Name of issuerAir New Zealand
Reporting Period6 months to 31 December 2021
Previous Reporting Period6 months to 31 December 2020
CurrencyNew Zealand Dollars
Percentage change
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2021 (referred to in this report as the "current half year")
1 Information prescribed by NZX
(a) A Statement of Financial Performance
Refer to the Interim Financial Statements.
(b) A Statement of Financial Position
Refer to the Interim Financial Statements.
(c) A Statement of Cash Flows
Refer to the Interim Financial Statements.
(e) A Statement of Movements in Equity
Refer to the Interim Financial Statements.
Ordinary Shares5797
(g) Commentary on the results
MeasurementCurrent period
Prior
comparable
period
(i)Basic and diluted earnings per shareNZ cents per share(24.2)(6.5)
(ii)Returns to shareholders (see also section (d) above)$NZ'm- -
(iii)Significant features of operating performance:
(iv)Discussion of trends in performance:
(v)The Issuer's dividend policy
(vi)
(h) Audit of financial statements
Basis of preparation
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 (Revised) 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 the media release.
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) Details of individual and total dividends or distributions and dividend or distribution payments, which:
(i) have been declared, and
(ii) relate to the period (in the case of ordinary dividends or ordinary dividends and special dividends declared at the same time) or were
declared within the period (in the case of special dividends).
No interim dividend is recognised in respect of the 2022 financial year or final dividend in relation to the 2021 financial year.
(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 the media release.
Page 3
Air New Zealand Limited
NZX Preliminary Interim Report
PRELIMINARY HALF YEAR REPORT ANNOUNCEMENT
AIR NEW ZEALAND LIMITED
Half Year Ended 31 December 2021 (referred to in this report as the "current half year")
Accounting policies
Refer to Note 1 and 7 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 24 February 2022.
Dame Therese Walsh
Chair
Refer to Note 7 of the Interim Financial Statements.
Page 4
Air New Zealand Limited
NZX Preliminary Interim Report
=== IR PAGE TRANSCRIPT: 2022 Interim Results Analyst Call Transcript ===
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 1 of 23
Start of Transcript
Operator: Good day and thank you for standing by. Welcome to the Air New Zealand 2022
Interim Results Investor Briefing. At this time, all participants are in a listen only mode.
After the speaker’s presentation, there’ll be a question and answer session. If you wish to
ask a question during the session, you will need to press star one on your telephone.
Please be advised that today’s conference is being recorded.
If you require any further assistance, please press star zero. I would now like to hand the
conference over to our first speaker today, to Ms Leila Peters. Thank you. Please go ahead.
Leila Peters: 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.airnz.co.nz/investorcentre. Also on the website, you can find our Interim Results
Presentation, financial report and media release. Speaking on the call today will be Chief
Executive Officer, Greg Foran and Chief Financial Officer, Richard Thomson.
I’d like to take a moment to remind you our comments today will include certain forward
looking statements regarding our future expectations, which may differ from actual results.
We ask you read through the disclaimer and, in particular, the forward looking cautionary
statement provided on slide 2 of the presentation. I will now hand the call over to Greg.
Greg Foran: Thank you, Leila. Kia ora and good morning, everyone. Thanks for joining us
on today’s call. Earlier this morning, we released Air New Zealand’s Interim Financial
Results for the 2022 Financial Year. We reported a loss before other significant items and
taxation of $367 million. The statutory loss before taxation was $376 million and the
statutory loss after taxation was $272 million.
These results are a reflection of the substantial impact the COVID-19 pandemic continues
to have on the airline. As we reflect on the past 24 months of COVID, it would be easy to
believe those first 12 months would be the hardest on the airline financially. However,
when you look at the figures and timing, only the final quarter of the 2020 financial year
was impacted.
During the 2021 financial year, lockdowns were more sporadic and we had the advantage
of the trans-Tasman and Cook Island bubbles. The domestic network was also making a
strong recovery and we had significant relief support from government. This financial year
has and will continue to be different again with the effect of COVID impacting across all
quarters, suppressing domestic demand.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 2 of 23
This first half saw the airline’s operating revenue decline 9% to $1.1 billion as passenger
flying was substantially reduced by 26% compared to the same period last year. Our cargo
operation has continued to play an essential role in connecting New Zealand to the world
with revenue increasing by 29%, supported in part by the continued government Air
Freight Connectivity Schemes in New Zealand and Australia.
We’re now in the early stages of our battle with the Omicron outbreak, something we knew
was coming and have prepared as much as we can for. It’s led to softening of domestic
demand. The government’s announcements of border openings to allow Kiwis to come
home and travel again later this year is a solid step towards our revived stage, as we start
to build back. We are very excited about welcoming home our fellow Kiwis from next week
and have already started bringing back cabin crew and airport employees and pilots to
scale up the operation.
We’ve also continued making great strides with our strategic priorities, setting us on the
right path for the future. Kiwis love travelling and the recent holiday period was no
different with more than 1.3 million of them taking to the skies to explore New Zealand. A
number have also taken the opportunity to visit the Cook Islands since its re-opening on
the 14 January.
The resilience, agility and dedication of our people continues to be our key to success, as
we face into these challenges. I’m acutely aware of the sacrifices they have made. We
wouldn’t be here without them and I couldn’t be prouder of all they have achieved. So,
thank you Air New Zealanders for your exceptional efforts.
Richard will talk more about liquidity later on. But top line, we have liquidity of
approximately $1.4 billion, which includes $500 million of additional liquidity support from
the New Zealand Government, which was announced late last year. To date, we’ve drawn
down $760 million from the Crown’s Standby Loan Facility.
As you are aware, the decision was made to postpone our capital raise until early in the
2022 calendar year, due to the continued uncertainty in Australia with a Delta variant of
COVID. The Crown has a long standing commitment to maintaining a majority
shareholding in the airline and as such - subject to Cabinet approval - will participate in the
capital raise plan to be launched by the end of March 2022, or shortly thereafter, subject
to market conditions.
The national alert level restrictions and subsequent extended Auckland lockdown had a
huge impact on our domestic performance following high levels of demand early in the
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 3 of 23
financial year. The graph on this slide paints a vivid picture. It highlights domestic
passenger revenue numbers from pre-COVID to now. You can see the drastic drop when
COVID first hit in March 2020, followed by more dips with the next lockdowns. Then
another more significant drop last August covering an almost four month period.
As you can see, the first half of 2022 performed lower than the same time last year and
was around half of what we would experience pre-COVID. However, it was fantastic to see
the holiday period pick up quickly once Auckland opened up. I’m particularly proud of the
way our teams – in record time – developed the vaccine pass and seamlessly integrated it
into the Air New Zealand app, enabling these customers to travel safely.
We also reinstated our domestic credit flexibility for customers in anticipation of the
Omicron variant and the likely impact on people’s travel plans. We are starting to see a
softening of travel demand, as Omicron is becoming more widely spread in the community
and people are having to self-isolate. Bookings have seen a reduction in business purpose
travel, as well as leisure. Although, I would note that we are seeing demand for travel into
the April period, which is encouraging.
Cargo has continued to achieve strong results for the airline, contributing $482 million of
revenue. This represents nearly half of our total revenue for the half year. It’s been a
privilege to continue moving essential exports and imports around the globe, keeping our
economy running and our country connected. Our cargo team has gone above and beyond
and I want to thank them for their incredible effort and the outcomes they have achieved
for the business.
It is amazing to think about the many thousands of tonnes of food we carry in our cargo
holds, including 12,200 tonnes of fresh produce, 6300 tonnes of chilled meat and 10,700
tonnes of seafood in the 2021 calendar year. We still have support through the
government Air Freight Support Schemes, including the New Zealand Maintaining
International Connectivity, or MIAC scheme, and the Australian International Freight
Assistance Mechanism Scheme.
Through these schemes, we’ve been able to add new cargo routes, including direct flights
from Australia to North America. The MIAC support scheme - as it is currently structured -
concludes at the end of March. Rest assured, we haven’t wasted any time while we have
been flying less. We’ve spent our time preparing for the future and laid out a clear path for
our recovery.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 4 of 23
From a health and safety perspective, we’ve been proactive in our approach to protecting
our customers and Air New Zealanders. This includes taking a leadership position with our
vaccine mandates for customer facing employees and the no jab, no flight policy for
international travellers, which came into effect on the 1 February.
We have made rapid antigen tests available for our front line teams, so they feel confident
to come to work. This also supports our ability to keep flying by removing the requirement
for isolation for close contacts of those with COVID, as agreed with the government.
In addition to recalling approximately 250 crew and pilots, we’ve brought a Boeing 777-
300 back into service to support our cargo business and started reactivating some of our
overseas airport operations, so we’re ready to welcome customers.
In the customer service space, investments continue to enhance the customer experience.
The improvements made last year to our customer proposition were an exciting start and
we’ve continued to build on this. As mentioned, we updated the Air New Zealand app so
customers can easily upload vaccine passes for domestic travel and also, put mobile
devices in our people’s hands to enable them to support customers better.
We introduced a new tool for our customer service team to make it quicker and easier for
customers to connect with them. We’ve also reinstated our credit flexibility for domestic
customers and extended it for international customers. These are just a few of the many
preparations we’ve been making over the past six months to get us in good shape to
recover.
It is heartening to see that in other regions where travel restrictions have been reduced or
removed, demand is picking up. This gives me confidence that once the Asia Pacific region
sees restrictions relaxed, people will choose to travel again. Or be it we might see that
demand build back slowly as travellers navigate how to travel again in the post-COVID
environment where rules and restrictions differ and are changing in various markets. We
would expect to see – based on the experience from overseas – the domestic and short-
haul markets to recover first as our customers look to reconnect with family and friends.
Our Kia Mau strategy has continued to guide us. We’re focused on delivering our three
profit drivers, growing domestic, optimising international and lifting loyalty. These are
underpinned by our enablers of brilliant basics, being serious about sustainability, digital
dexterity and prioritising people and safety. Some great work has taken place to bring this
to life and head us in the right direction.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 5 of 23
We’ve trialled working in new ways to drive and speed up innovation. You will have seen
some of this in our trials with the new food and beverage offerings on domestic flights. Our
digital team has been making great strides, starting with getting digital tools in the hands
of our crew and employees on the ground.
We have a number of new platforms to streamline processes and improve the customer
experience, including our new customer service tool and supplier chain system, as well as
the latest cybersecurity tool to protect our data and systems.
And we're introducing flight keys, a new way to route an aircraft that saves time, money,
and reduces carbon emissions. And don’t forget the vaccine pass that was developed at
pace and integrated into the Air New Zealand app. All amazing digital advancements to
take us into the future.
We are investing in our hangars and airport properties. We're confident about our future so
will continue investing capital in and for our people. We announced late last year we're
launching our own Airpoints credit card. We've also had record sales on our Airpoints store
as we introduced new partners and Flexipay.
We've optimised our long haul networks, focusing on the routes that make the most sense.
Working closely with our large partners for when borders open. We are lucky we have had
a head start on this with our cargo flights keeping our international connections warm.
We're looking forward to reintroducing more flights to the USA and most excitingly,
commencing flights to New York city later this year. And from our top secret bunker in
Auckland, we're putting the finishing touches on a new plane fit out that I'm sure
customers will love. It's incredibly exciting.
We've entered into partnerships to look at how we introduce sustainable aviation fuels and
next generation aircraft into New Zealand. This will go a long way with our net zero
emissions by 2050 goal.
We were pleased with the government's recent announcement highlighting its commitment
to border reopenings. And as I mentioned, we're thrilled to be able to welcome Kiwis home
MIQ free from next week.
So although we're not expecting a swift recovery of pre-COVID international demand in the
near term, we are confident that when demand returns, Air New Zealand is well positioned
with the right strategy to succeed.
I'll now hand over to Richard to go through the financial results.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 6 of 23
Richard Thomson: Thank you, Greg, and Kia ora to everyone on the call. As Greg
mentioned, operating revenue for the first half was $1.1 billion, down 8.8% on the prior
year, reflecting the impact COVID continues to have on the airline.
Passenger flights were significantly reduced, down 26% on the prior year and down 84%
compared to pre-COVID levels. Overall, we're reporting a loss before other significant
items and taxation of $367 million and a statutory loss before taxation of $376 million.
The statutory net loss after taxation for the period was $272 million. Due to ongoing
financial impact from COVID-19 and the restrictions of the Crown facility, there will be no
interim dividend for the 2022 financial year.
Turning now to slide 12. Looking at the profitability waterfall chart on this slide, and I
won't go into each of these, you can see quite clearly the decline in profitability this year is
driven by the reduction in revenue, increased labour cost, and reduced level of supports
from the government versus the prior period.
Sales and marketing and fuel costs also increased during the period. We had some gains
with reductions in aircraft operational costs, maintenance, and passenger services costs,
reflecting the reduced flying. Ownership costs decreased due to the impairment in the prior
year of some 777 aircraft and reduced utilisation of engine maintenance assets due to less
flying during the period.
Turning now to slide 13. A series of government support programs, including wage
subsidies and the government's MIAC, maintaining international air connectivity scheme,
contributed to the 2022 interim result. Although not at the same levels received in the
corresponding 2021 period.
In this first half, the support from these schemes was $241 million across both revenue
and cost line items compared to $259 million in the previous corresponding period. This
support is expected to reduce as borders start to reopen.
Overall reported CASK on the next slide increased by 3.7%. Driven largely by higher fuel
prices, the absence of aviation support packages, and diseconomies of scale as we
maintained operational readiness through the national and Auckland lockdown.
Excluding the impact of fuel price movements, foreign exchange, third party maintenance,
and the discontinuation of the aviation support subsidy, CASK increased marginally by
0.2%.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 7 of 23
While we have traditionally reported CASK in the current COVID environment, we have
seen some significant effects on CASK in the domestic network and also a distortionary
effect caused by a pivot towards long haul cargo flying which comes at an inherently lower
CASK.
In the domestic network over the past six months, we've carried surplus capacity to enable
a return to more normal operations. The effect of this is around a 9% cost increase on a
per ASK basis at the Group wide level. However, this has largely been offset by the change
in the mix of flying toward cargo, as I mentioned earlier.
As we look forward to the second half, we expect the level of flying on the domestic
network to increase which will utilise that surplus capacity. At the same time, the
proportion of cargo flying will reduce as the international passenger network is expected to
start ramping up which will reverse much of the effect on CASK of the change in flying
mix.
Turning now to slide 15. The first half cash burn increased compared with the second half
of financial year 2021. This is due to reduced bookings related to the suspension of the
Trans-Tasman bubble and the recent domestic lockdown, as well as recommencement of
PAYE and fringe benefit tax payments.
I'd also note that includes approximately $280 million in debt amortisation repayments on
our secured aircraft and lease payments on operating leased aircraft and property. This
level is not dissimilar from prior period financing payments which we have estimated in
other results calls as being approximately $45 million per month on average.
While it is difficult to provide guidance on expected levels of cash burn in the second half
of the year, I would remind people that we will have repaid approximately $300 million
between January and March of this year related to deferred PAYE and fringe benefit tax
payments.
And while we are seeing domestic bookings currently impacted by the Omicron outbreak in
New Zealand, we are encouraged with the increase in international bookings that have
occurred following the government's five phase announcement on 3 February.
Turning now to page 16. Assessment of our capital structure and funding needs is well
advanced as Greg already has touched upon. As at 23 February, $760 million of the Crown
standby facility has been drawn down, resulting in approximately $1.4 billion in cash and
available liquidity.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 8 of 23
This includes $240 million, remaining from the $1 billion Crown standby facility and $1
billion from non-voting redeemable shares negotiated with the Crown in December 2021,
as well as current cash balances.
We have continued to engage with the Crown and it remains committed to maintaining its
majority shareholding in Air New Zealand and has indicated it will participate in the equity
capital raise.
As mentioned earlier, the interim dividend remains suspended due to the financial
performance of the airline, as well as restrictions of the Crown standby facility. As such,
there will be no interim dividend for the 2022 financial year.
Our fuel hedging approach remains the same. Where we continue to assess the best way
of managing fuel price risk using a mix of fixed prices and optionality. The amount we have
hedged has reduced compared with pre-COVID levels as we have based it on cargo and
domestic uplift only.
So essentially, we're at around one third of our pre-COVID hedging levels. It is difficult
with the current environment to provide specifics on what percentage of fuel consumption
is hedged. But based on our current expectations, we're approximately 60% to 70%
hedged over the next few months.
The increased fuel prices we are seeing have been mitigated somewhat by our hedged
position but we expect to see fuel costs rise in the second half. Although the level will
depend on our flying schedule which remains somewhat uncertain in the current
environment. Our hedge portfolio has been structured to allow full participation to
downward pricing movements through to June 2022.
Turning now to slide 18 and looking at our expected fleet CapEx. You can see that the
expected phasing of our aircraft capital expenditures through to 2028, with no
commitment at this stage beyond then.
We welcomed two A320neos for Tasman and Pacific Island operations, along with our final
ATR72-600 in the first half. We also entered into an arrangement to sell our four owned
Boeing 777-200s which you may recall were permanently grounded and impaired in the
fourth quarter of the 2020 financial year with the onset of the pandemic.
We have managed to maintain a degree of flexibility over the timing of our aircraft capital
expenditure with a minor deferral of one A321neo domestic aeroplane from 2022 to 2023.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 9 of 23
Given the young age of our fleet compared to our peers, we have the ability to allow the
fleet age to grow.
We anticipate an interiors refit program for our existing 14 Boeing 787 aircraft will take
place beyond 2023. But the timing has not been confirmed as we consider our longer term
maintenance schedule. The additional CapEx required for this program is therefore not
reflected here.
Turning now to slide 19. We've shared this slide in the past but it's a good reminder of the
journey we've been on to strategically simplify our fleet. Moving from eight aircraft types
with 10 different engines in the 2011 financial year, to four types with six engines
expected in the 2028 financial year.
Our fleet will comprise the best in currently available technology and allow us to
significantly simplify our operations. We're well on track with this and already starting to
see the benefits and economies of scale generated by this.
I'll now pass you back over to Greg who is going to discuss the outlook and leave you with
some closing remarks.
Greg Foran: Thanks Richard. We have some clear areas of focus in the second half to
ensure we stay on track to build back better once those borders open and tourists start
visiting our shores again.
First and foremost is protecting the safety and wellbeing of our people and customers.
We've proven we are leaders in this space with our international no jab no fly policy, our
domestic jab or test policy, as well as the many processes we have in place to maintain
onboard safety and support the wellbeing of our team.
Maintaining and strengthening our operational agility and flexibility will allow us to
continue adapting to changes. From a resilience and readiness perspective, we've started
recalling some cabin crew and pilots to strengthen our domestic network and prepare for
international borders to reopen.
And our modern fuel-efficient fleet optimise network that leverages the strengths of our
cargo business, enhance loyalty program and right-size cost base will support our long-
term ability to generate sustainable levels of earnings.
We have talked about our intention to launch a capital raise shortly, and the Crown's
commitment to participating in this to maintain its majority shareholding in the Airline.
Once complete this will give us financial strength and flexibility as we head into 2023.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 10 of 23
Over the past six months we have continued to refine and deepen our strategy. We will
continue executing our strategic priorities, controlling what we can, to speed up our
recovery and be ready to face the future. I believe we are in a strong position to compete
and win once travel opens up again.
Thank you again to our customers and shareholders for sticking with us through these
turbulent times. Thank you also to our people who remain resilient and dedicated to our
customers. As we head into the second half I am optimistic about our future and believe
we will have a clearer picture of how borders and international demand is looking by the
end of the financial year. We know COVID-19 will run its course, and we are ready to
welcome back customers and crew when it does.
Looking now to our outlook for the financial year 2022. There remains a large degree of
uncertainty on the impact of the Omicron variant on demand for domestic travel for the
remainder of the financial year. Additionally, while recent clarity on the phasing of border
openings for New Zealand is very helpful, the timing of reduced or removed self-isolation
restrictions remains unclear. Driving continued uncertainty in the level of demand for
international air travel.
The Airline does not expect international demand to recover substantially until self-
isolation restrictions are removed. Air New Zealand's current expectations are that the
2022 financial year will incur a loss before taxation and other significant items for the full
year that exceeds $800 million.
Thank you for your time today and listening as we shared our results. I know you will have
questions, so Operator, please open up the line.
Operator: Thank you very much. We will now begin the question and answer session. If
you wish to ask a question please press star-one on your telephone and wait for your
name to be announced. If you wish to cancel your request please press the pound or hash
key. Once again, it is star-one and wait for your name to be announced. Thank you.
There are multiple questions in the queue. Our first telephone question comes from the
line of Andy Bowley from Forsyth Barr. Andy, please ask your question.
Andy Bowley: (Forsyth Barr, Analyst) Thanks Operator, and good morning Greg, Richard,
Leila. I'll kick off with a couple of questions here, the first of which is around cargo income,
which was clearly the stand-out of the result as government support increased the
volumes that you managed. But with both the MIAC and [IFAM] schemes ending at least
31 March at this stage, and Richard, your comment that overall government support will
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 11 of 23
fall as the recovery continues. How do you see cargo income evolving from both a volume
and pricing perspective over the next year or two?
Richard Thomson: Hi Andy, thanks very much for the question, Richard here. So yes, the
current MIAC arrangements are in place until the end of March. Capacity, or cargo air
freight capacity into and out of New Zealand has clearly been sort of constrained through
the Covid period. That is likely to remain the case until we see self-isolations restrictions
lifted. As Greg mentioned in his opening comments, a sort of a resurgence or a recovery in
international passenger travel.
Our sense, and it is just a sense at the moment, is that it will take the remainder of this
calendar year for the passenger recovery to start to emerge. We are unclear currently on
when self-isolation requirements might be lifted, albeit the government has put out their
sort of five-step border reopening plan. Which sees the New Zealand residents, and non-
residents from visa-waiver countries, allowed to leave and enter the country without MIQ
from July. So it will be a relatively long slow recovery.
I think maintaining air connectivity, particularly air freight, is very important to the
government. I suspect what we'll see is a sort of a tapering of that arrangement as air
passenger services start to recover. So I don’t know whether that answers your question
adequately, Andy, or not, but we would be surprised I think if the MIAC arrangements, or
current air cargo connectivity arrangements, sort of stopped dead in their tracks in March.
Greg Foran: I think that’s right, Richard. Hi Andy, Greg here. The bits that I would add
into that is that, for sure the subsidy scheme has been a massive tail wind for us and our
business, and we acknowledge that. I agree with you, Richard, that it will be a tapering
effect most likely.
But I'd have to say it's also renewed I guess our thoughts around cargo, and we've built
that into our strategy and Kia Mau. Looking at investment in this area in time. That would
be a combination of facilities and digital capability. But as recently as last weekend I was
out around the business, spend quite a bit of time in cargo, and there's opportunities that
we can take and are taking, and can continue to take to ensure that cargo continues to be
a good addition to the business.
Even today with our Dreamliners operating doing cargo, and we've obviously got the 777
back doing a bit at the moment, we still have capacity to do more. Not every single plane
that’s going out is full. There's an ability for us to grow this business.
Air New Zealand 2022 Interim Financial Results
24 February 2020
Page 12 of 23
I think as the subsidy comes off we'll see that impact. But I don’t want to go back to where
we were in 2019. I want us to actually have cargo as a good additional revenue source into
the business. Obviously some of that will depend if the competitors have come back. But
some of it also rests in our hands in terms of how good we are at improving our business
so we get more.
Andy Bowley: (Forsyth Barr, Analyst) Great, thanks. I appreciate that, very thorough.
From a pricing point of view though, can you provide any sense of how it may evolve and
how market rates into play with the government subsidies?
Greg Foran: Yes, it is, like a lot of things, averages can be quite misleading on this one,
Andy. Look, and as I say, averages are misleading. But on average people are paying sort
of circa 50% more at the moment. But some people are paying 100% and some people
are paying nothing. But there's no doubt that if you are exporting at the moment you're
paying more generally. As the subsidy waves works its way out, we'll have to see what
happens with pricing.
There's moving parts here, it depends on what happens with shipping lines. Are they going
to open up capacity as Covid winds its way out? The ships are there, but they're not
necessarily all sailing. Obviously I keep across what's happening with little brown boxes in
terms of e-commerce and retail that are moving around the world. Increasingly customers
are demanding things quicker. We're bearing that in mind as we think about our cargo
business and the role that we can play in that.
So it's really hard to look into the crystal ball and say, all of those moving pieces, what
happens with pricing. But I would expect that over a period of years the pricing will come
back a bit. But it may not come back to the extent that it was in 2019, but there's lots of
assumptions upon assumptions.
Richard Thomson: Yes, I think, just to add to that Andy...
Andy Bowley: (Forsyth Barr, Analyst) Yes, and the clear message being...
Richard Thomson: Yes, it's sort of the classic, high prices cure high prices I think. So over
the medium-term, to Greg's point, I'd just reiterate the point that Greg made on that.
Andy Bowley: (Forsyth Barr, Analyst) The message being that kind of come a sustainable
place and time, and a point in time in the future, cargo will be a bigger proportion of
overall business than what it was pre-COVID?
Richard Thomson: Correct.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Greg Foran: Yes, so look, at a high level, I can't remember whether I said this, about 60%
of the planes go out not full. Now that doesn't mean that there's 40% extra capacity. But
there is plenty of opportunity for us to grow our cargo business, both domestically and
internationally, by filling the bellies of our planes.
It also plays completely into the sustainability piece, because one of the prizes to get to
2050 is not just going to be doing SAF, which is half the equation. Or doing hydrogen,
green hydrogen, or hydrogen-electric planes. It's also, how do you fly efficiently? Which is
a combination of having a reasonably young fleet internationally, with really efficient
engines. But most importantly, having those things full with passengers and with cargo.
So it is integral to the way that we think about Air New Zealand and what we want to do
going forward.
Andy Bowley: (Forsyth Barr, Analyst) Great, time to move onto next question. We've got a
pretty tight labour market in New Zealand at the moment. You're a pretty big employer. I
recognise that a large part of your workforce is unionised. What are you experiencing
currently in terms of, (1) churn, and (2) labour inflation?
Greg Foran: Yes, so churn at the moment, and I was just looking at this last week actually
at the Board meeting with our PRDC. It's actually almost exactly the same as what it was
pre-Covid. So it had dropped during the effectively the last two years, and it's now come
back a bit. It varies a bit across the business. We get literally no churn in pilots, it's like
1%. We've got higher churn in digital. But the average, averages can be misleading, is
we're about where we were.
We're seeing pressure just like every other business, by the way, and the world is seeing
in terms of the labour market. Inflation is putting pressure on us in terms of labour costs,
and also input costs and fuel no doubt will come up some point during the discussion. All of
that means is that we've got a really interesting pricing matrix in front of us.
We’re not going to sit on our hands here and say, there are no increases for our staff.
We’re in the middle of negotiating nine CEAs at the moment, Collective Employment
Agreements. We're being very sensible about how we negotiate that. We’re trying to
thread the needle of doing what's right for our people and keeping them engaged in the
business. Ensuring that we've got good productivity.
At the same time we recognise that we are going to lose over $800 million this year, and
next year is also going to have a period of bumpiness. So we are trying to thread this
Air New Zealand 2022 Interim Financial Results
24 February 2020
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needle of ensuring we've got a great business going forward, but we keep our costs
relatively in control.
You're seeing our costs increase at the moment because we've got to begin to get
organised to open to fly. So there's 600-to-700 people that have come back since we took
a significant head count reduction two years ago. Three hundred of those are sort of cabin
crew, and 200-plus sitting in airports, and 50 pilots. There'll be a few people in Head Office
positions. But we're trying to meter it in.
It will be ahead of when revenue comes back, but hopefully not too far ahead. We’ll have
to deal with inflation, and we'll have to deal with the labour market, we'll have to deal with
what's going to happen with the mix in our planes. I can't predict accurately what's going
to happen with business travel.
But as we start to see that evolve we'll have to include all of these things into our pricing
matrix and work out how we ensure that we get a return on the investment. So interesting
times ahead for us.
Andy Bowley: (Forsyth Barr, Analyst) Great, thanks, much appreciated.
Operator: Our next telephone question is from Andrew Steele from Jarden. Andrew, please
ask your question.
Andrew Steele (Jarden, Analyst): Good morning everyone. The first one for me is on your
comment in the outlook statement about the ongoing impact of self-isolation, and I take
that this might be quite difficult to answer, but could you give us a sense about how you
are thinking about the impact of ongoing self-isolation requirements for international
travel? And if you could provide some sort of numbers if that’s possible? Are you thinking
sort of down 90%, down 80% versus FY19 for Tasman and long haul?
Richard Thomson: Hi Andrew, Richard here, that is a very complicated question to answer.
I’ll put [unclear] and I don’t say upfront – we’re not in the business of speculating when
those self-isolation restrictions will be lifted and exactly what the pace of the recovery will
be beyond there.
What I would say is that we find ourselves in a slightly different situation to where we were
at the very beginning of the half in July where we essentially had a domestic business
without Omicron and sort of a cargo business that was largely unimpacted by the
pandemic. So it was largely international travel that was affected.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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The challenge we’ve had in the first half, as Greg mentioned, is we’ve had, well Auckland,
which is about 60% of our domestic flying, in lockdown. And the remaining 40% of the
domestic business, south of the Bombay Hills, was running at 90% of pre-COVID capacity,
so it was quite strong.
I guess the advantage of the traffic light setting, if you want to call it an advantage, is that
we’ve got the whole of the network operating. So as opposed to having 90% of 40% going
and 0% of 100 in the first half. It will be better than that in the second half under the red
light because we have got the Auckland domestic network running.
But of course over the next month or two, there’s a lot of uncertainty about the extent to
which either the red light setting prohibits people from travelling because they’re obliged
under the rules to self-isolate, or actually people just choose to act more cautiously
regardless of the setting over the next couple of months. So very hard to predict
domestically quite how the next 6 to 8 weeks is going to play out.
Internationally, to my earlier point, we don’t know when those self-isolation restrictions
are going to lift. And unless and until they do, we will get an influx probably of VFR travel
initially, as Kiwi residents that have been stuck overseas in particular look to come home.
But the precise timing of that self-isolation requirement lifting is not yet known. and the
recovery profile from there we will have to wait and see what happens.
What I would say is that based on what we’ve seen in the northern hemisphere and based
on what IATA has observed is, they are expecting international travel to get back to pre-
COVID levels by as early as 2024. So that’s not our view necessarily, but it is an
independent view based on what’s been seen in other markets on the road to recovery.
We’re 2022 now, IATA thinks it’s two years before you’re back at pre-COVID and quite
what the path looks like between now and then remains to be seen.
Greg Foran: Yes I think that’s right Richard. Like we’ve done right through this, we have a
look at what we think is a base plan and then we will run scenarios or sensitivity analysis
on either side.
We can see when we look at the data that countries can sort of broadly fall under three
buckets. There can be countries that have very low friction, countries that are medium
friction, countries that are high friction. We’re in the high friction bucket at the moment
and you don’t really get up and operating until you get in the low friction bucket. The low
friction bucket is effectively you’ve got to do a COVID test before you go and when you
come back.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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As soon as you start putting more things on the customer, and importantly any concerns
that maybe the rules could change while you’re away, you begin to stifle demand. So we’re
looking forward to a point, which we think will happen, where that friction is reserved. And
sure there may be some COVID testing, but maybe it’s as simple as a rapid antigen test
you buy at a supermarket. Then we really will start to open up.
As Richard said, when we talk to people overseas in the US and Australia and even IATA
themselves, it varies a bit by country. But we’re pretty confident that, and I’m not sure
exactly on timelines, that, give or take, 70% to 80% is a realistic figure at some point that
we get back to. As I said, we run sensitivities on when those sort of things can occur.
Leila Peters: Sorry, just for clarity, Greg was referring to demand being impacted 70% to
80% decline while self-isolation remains in place and that’s obviously just an estimate.
Andrew Steele (Jarden, Analyst): Thanks team. Just a couple questions on balance sheets.
Your lease liabilities on balance sheets have shrunk over the last six months. Should we be
expecting a similar decline through to the end of the year and in terms of revenue and
advance liability, I would have thought just a modest pick-up from here or - and how
you’re thinking about that balance sheet item as well by year end?
Richard Thomson: Yes, I think just on - I’ll answer your second point first, Andrew, which
is the TSA balance. Look, I think that will creep up, clearly, as the five point plan for re-
opening the borders is implemented. So the first stage of which, I think we’re leaning into
on 28 February, from memory.
So I think you’ll see TSA drift up and in the short dates, that will be tickets purchased in
anticipation of travel later in the year. So the TSA’ll be coming in but we won’t be
operating the flights for a period so that will be - or should be supportive of working capital
tailwinds in the short dates.
In terms of the lease liabilities and the reduction in that, I think the primary contributor to
that was a reduction in the right of use assets. We had a 777-300 that was part of a
Japanese operating lease structure that came to its natural conclusion during the course of
the first half, which involves us effectively buying that aircraft out of the Jolco structure.
So that comes out of right-of-use assets but goes into fixed assets. So I think that is the
question you were asking and the answer to that. So it was very transaction-specific.
Andrew Steele: (Jarden, Analyst) Okay, so in terms of the lease liability through to the
year end, that should remain relatively stable?
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Leila Peters: Correct.
Richard Thomson: Yes.
Andrew Steele: (Jarden, Analyst) Just in terms of the balance sheet more generally, other
than the well-flagged capital raise, that should be - there should be no sort of particularly
unusual changes to any of the other line items?
Richard Thomson: No, I don’t believe so, Andrew. We took delivery of three new aircraft -
four new aircraft, in fact, in the - three new aircraft in the first half. We’re not anticipating
taking delivery of anything else in the second half of the year.
Andrew Steele: (Jarden, Analyst) Okay, that’s all from me. Thank you.
Operator: Once again, if you do wish to ask the question, it is star one. Our next telephone
question is from Marcus Curley from UBS. Marcus, please ask your question.
Marcus Curley: (UBS, Analyst) Good morning. I just again wanted to go back to the
demand or capacity outlook. I just wondered, Richard, if you can give us some colour on
what capacity you’ve committed for the winter schedule at this stage? So you know, I
know that obviously it can be subject to change but just to give us a feel in terms of what
you have budgeted?
Leila Peters: Sorry, Marcus, are you referring to northern winter ’22? The next peak
season?
Marcus Curley: (UBS, Analyst) No, I’m talking about, I suppose, our winter, I suppose.
Leila Peters: Our winter, yes, okay. Good.
Marcus Curley: (UBS, Analyst) Yes, so - and specifically I’m obviously referring to
international here so some sort of reference in terms of how much capacity you’re planning
on bringing back?
Leila Peters: Sure. I’ll start and then Richard will probably flesh it out because he’s the
networks expert. I think the schedule that’s probably for sale now, if you were looking at
it, Marcus, would show maybe about 50% to 60% of our pre-COVID capacity for Australia
and Pacific Islands.
As you can imagine, that’s where we would anticipate more of the demand coming in the
near term. Then the long haul market’s probably more in the 15% to 20% of pre-COVID
levels.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Richard Thomson: I think that’s right, Marcus, the only thing I’d add to that, I know you’re
focussed on international but just to complete the circle. Domestically, certainly for the
next three months, we are running at sort of 65%, 70% of normal capacity, domestically.
I’ll just support the comments later made on international, it is somewhat fluid, clearly and
will be influenced, as we’ve said many times on this call, ultimately by the timing of any
self-isolation restrictions being lifted.
Marcus Curley: (UBS, Analyst) Sure and when do you have to make a call on our summer?
Richard Thomson: Well we’re evaluating that currently. So the slots conference, if you like
- not that we design the business necessarily around that but when our team, our Network
Team, goes cap in hand to the Slot Committee internationally, asking for landing rights at
the various airports, that activity typically happens in May each year. So it’s two or three
months away.
We are selling a schedule at any particular point in time out to 12 months but it - the
pointy end of the assumptions we’re making that dictates the slots and frequency timing,
of which we we’re asking for, is typically a decision we make around May each year.
Marcus Curley: (UBS, Analyst) Okay. So obviously some colour from the government on
home isolation before May would be pretty important for you?
Richard Thomson: It would be very helpful indeed.
Marcus Curley: (UBS, Analyst) Secondly, I just - with regard to probably the Tasman, can
you talk a little bit about your approach to airfare pricing? I suppose maybe even just
directionally in terms of I suppose would we be expecting to see airfares start significantly
above what we used to have pre-COVID? To cover potential additional costs?
Richard Thomson: Yes, well there’s sort of two...
Greg Foran: Yes, I was going to say, you can’t tell until actually everyone gets up and
operating to get a sense of what’s going on. I was looking at pricing in Australia yesterday
and Jetstar a couple of days ago, decided to run a whole bunch of flights for $22.
Initially as Qantas were trying to get capacity up on international routes, they dropped the
heck out of their pricing. Equally today, there’s people in there bitterly complaining about
the price to get from Longreach down to Brisbane. So I think it’s hard to tell exactly how
this will play out.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Generally, what happens is that as the flights go on, there’ll be some capacity to be met.
So probably pricing will come down and then over a period of months, you’ll get some
adjustment of pricing to reflect the fact that a lot of the input prices have gone up.
So I think it’s going to be bumpy for a period and of course fuel is what, $107 or
something at the moment so we’ll just have to see what that - what happens there.
Richard Thomson: Yes, so Marcus...
Greg Foran: What do you think?
Richard Thomson: No, two other comments. I think when the Tasman bubble was
operating, it feels like a distant memory now, but nine months ago, what we did see in the
recovery there is that pricing was very - or yields were very similar to what we’d
experience in a pre-COVID environment.
So I think the starting point is to expect that as the starting point for the resumption but
just picking up on the comment Greg made and has been asked about twice this morning,
fuel prices, at least in the short-term, are high and there’s inflation cost pressure running
across not just our business but sort of many businesses around the world.
We have reflected the impact of those cost increases in a modest increase across our
international fare structure, which we have put in the market relatively recently. As I say,
it’s modest increase on average. It’s around 5% but just in an attempt to ensure that we
have a fare structure that reflects the realities of the current fuel price in inflationary
environment.
Greg Foran: One of the differences that I think we’ll see this time as we open up is back in
April, I think it was the 19th last year that we opened up to Australia, that was the only
destination you could go to for a few weeks and then there followed a couple of weeks
later with Rarotonga.
So you only had a choice of two. Not likely to occur like that this time, probably, so
therefore I think that some of the experiences we saw as the green travel lane opened up
to Australia won’t necessarily play out quite the same but who knows?
It’ll be an interesting period as people think about what they do and one of the things that
crosses my mind consistently is China remains shut. China is such a big market for many
carriers and so therefore, are there - is there some capacity that other people have got
that they may say, well if China’s not going to open, do I use planes elsewhere? Hard to
tell.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Marcus Curley: (UBS, Analyst) Okay, thanks and then just finally from me, you’ve given
earnings guidance or I suppose the $800 million number but you haven’t given cash
burden guidance. I suppose again for you, Richard, what’s the moving piece in there that
stops you from giving a cash burden number for the second half?
Richard Thomson: I think there - well there’s two or three elements to it, Marcus. So you
would have noticed in the first half, operating cash or statutory operating cash flow, I think
it was positive $40 million. That benefit - so it was - that was marginally positive. That did
benefit from a $46 million, $47 million wage subsidy.
So if you normalise for the wage subsidy, which we’re not expecting to see any of in the
second half, you’ve got operating cashflow at or around break even. We expect that to
improve, certainly, by the tail end of the first half but over the next couple of months it’ll
remain - likely remain around that level, point one.
Point two is, we are now two-thirds of the way through a $300 million PAYE deferral
repayment program so the three equal instalments of just under $100 million. We made
the first of those on 14 January, second of those on 14 February. We’ve got one to go.
So that is a one-off, if you like, [$3 million] drag on cash flow that will find - that we’ll
experience in the second half that we saw the benefit of back at the beginning of the
pandemic when we were offered that relief.
Then the third point I’d make or reiterate, in fact, we’ve got no aircraft-related CapEx in
the second half of the year. There’ll be some PDPs through that period and then non-
aircraft related CapEx around digital and property and infrastructure. So it’ll be the usual
sort of non-aircraft related CapEx through the second half.
So three elements to it. Operating cashflow, balancing around break even, adjusted for
$300 million of PAYE. That’s obviously a significant, albeit one off, drain. Then that sort of
very typical run rate on non-aircraft related CapEx. Hope that answers your question.
Marcus Curley: (UBS, Analyst) Yes, I think it does. Yes. But if I put all that - if I add all
that up, Richard, it sort of sounds like $300 million.
Richard Thomson: Plus non-aircraft related CapEx.
Marcus Curley: (UBS, Analyst) CapEx?
Richard Thomson: Correct.
Marcus Curley: (UBS, Analyst) Which will be relatively small?
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Richard Thomson: We don’t typically split it out. Leila, I don’t know whether you want to
make any comments on that?
Leila Peter: It’d probably be a bit less in the second half than in the first half in terms of
investing cashflows, Marcus. That’s just normal phasing for us in terms of our properties
and infrastructure and digital spend is typically skewed to the second half.
Then I’ll just add on, the last bit I would say is in terms of the lack of cash burn guidance
is previously when we do provide it, is when we have a somewhat stable domestic
operating environment and I would say that we are in this period, most certainly not in
that situation.
So that’s what’s foregoing the cash burn guidance but we’ve tried to give you some sense
of elements that are going to be moving in and out of the cashflow in the half. There are
some chunky ones, notwithstanding, of course, the capital raise that we’ve discussed in
our release announcement. But happy to take any of those offline with you if you need.
Marcus Curley: (UBS, Analyst) Okay. Sure. Thank you.
Operator: Our next telephone question is from the line of Jason Familton from ACC. Jason,
please ask your question.
Jason Familton: (ACC, Analyst) Morning, guys. I just want to focus back on the cargo
business, if I can? Can I - just got two or three - so I just focus back on the cargo
business, if I can? Just two or three questions.
The first one, can you just give a little bit more detail and perhaps be great to see some
increased disclosure with the greater strategic focus on cargo but can you just talk about
volumes and price in this half, perhaps, versus last half? What the volumes are from price
up?
Just trying to get a little bit more detail.
Leila Peters: I mean, the volumes were significantly up, Jason, as we mentioned. The
flights in at least the second quarter of the half almost doubled. So I don’t have the
particular tonne volume at hand but can get that for you. As Richard and Greg both said,
the pricing, they yields did increase. I can take that with you - up with you offline. I just
don’t have those numbers at my fingertips.
Greg Foran: It went from about 55 flights a week up to basically around 100.
Jason Familton: (ACC, Analyst) Okay. Secondly, just how are you thinking about
competition in that cargo space and I’m thinking to and from New Zealand...
Air New Zealand 2022 Interim Financial Results
24 February 2020
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Greg Foran: I think it will depend entirely...
Jason Familton: (ACC, Analyst) ...[unclear] over that period?
Greg Foran: I think it’s going to depend entirely on how the border, home isolation piece
plays out and what competitors are seeing and how - what sort of routes they’re going to
fly back to New Zealand. So it’s a little bit unknown at the moment, to be honest with you
but clearly, we intend to be up and running and clearly we will continue to be competitive
on our pricing.
So if we see a lot of competitors re-enter New Zealand with passenger flying and they’re
looking to fill their bellies up with some cargo, then we’re going to have to review pricing.
And equally, if there’s not going to be quite so many come back so quickly then there
could be a period where we’re allowed to keep pricing a little bit heavier than what might
otherwise be the case. So until we see what actually eventuates and so much of that’s
going to be driven on (a) home isolation and (b) how quickly airlines might pivot to come
back, it’s hard to tell.
Jason Familton: (ACC, Analyst) Okay and then thirdly just from my understanding, can you
just talk to just the relative attractiveness from a cargo perspective of 777s versus the 787
fleet decisions you’ve made? Just thinking from a more longer-term strategic perspective.
Richard Thomson: Yes. No, a very good question. The 777-300s are a fantastic cargo
aeroplane. You’ve got below-the-wing 40 tonnes of cargo, typically, with a full passenger
load. The 787-9 is a smaller aeroplane than that. It’s still got significant cargo capacity and
we’re very comfortable with it.
I think just to reiterate or underscore some of the comments Leila and Greg have made on
cargo, we can offer cargo, particularly when - or especially when the passenger business is
operating normally, at very effective rates. It’s a by-product of our operation so they’re
both the 787 and 777 offer very competitive cargo cask, which we are able to offer to our
customers.
I think we’re comfortable going forward, continuing to be a below-the-wing cargo operator.
We’ve got no intention of operating dedicated cargo freighters. Back to the comment I
made earlier, high prices will cure high prices and certainly we’re aware internationally of a
lot - of some of the 777 aircraft and others that have been retired early through COVID,
going through cargo conversions.
Air New Zealand 2022 Interim Financial Results
24 February 2020
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So we remain very comfortable. I don’t know if it answers your question but very
comfortable continuing to offer cargo as a sort of a below-the-wing cost competitive
product to New Zealand importers and exporters.
Greg Foran: We also see some benefits of going to a single fleet. So it - all these things
become trade-offs. The 777 is great for cargo but is it good enough for cargo versus taking
a fleet to a single fleet? Our view is, we see our business as being a mix of passengers and
cargo and the benefit of heading to a single fleet outweighs the benefit that you get out of
a 777 just on its own in terms of cargo.
Jason Familton: (ACC, Analyst) Okay, thanks for that. That’s all I had today.
Leila Peter: Thank you, Jason.
Operator: Great, there’s no further questions at this time. I would now like to hand the call
back to today’s presenters for closing remarks. Please continue.
Greg Foran: Well thank you, everyone, again for joining us today and we appreciate your
listening in and for your time and interest and all your support of Air New Zealand. If you’d
like to schedule a call or a meeting for any follow up questions, please direct those
requests through to Leila and the Investor Relations Team. Thank you again, everyone,
have a great day.
End of Transcript
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