Air NZ 2023 Annual Result and Sustainability Report
AIR NEW ZEALAND 2023 ANNUAL RESULTS
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ALL INFORMATION IS PRIVATE AND CONFIDENTIAL
ANNUAL
RESULTS
AIR NEW ZEALAND 2023 ANNUAL RESULTS
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AIR NEW ZEALAND 2023 ANNUAL RESULTS
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This presentation is given on behalf of Air New Zealand Limited (NZX: AIR
and AIR030; 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
annual financial statements for the year ended 30 June 2023, 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 year ended 30 June 2023 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. 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, free cash flow and RASK. Amounts used
within the calculations are derived from the audited Group annual financial
statements and Five-Yea r Statistical Review contained in the 2023 Annual
Report. 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 36 for a glossary of the key terms used in this presentation.
FORWARD-LOOKING STATEMENTS AND DISCLAIMER
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GREG FORAN
CHIEF EXECUTIVE OFFICER
BUSINESS
UPDATE
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1
Visiting friends and relatives.
2
Refer to slide 27 for further details on Other Significant Items of $11 million.
A STRONG 2023 RESULT
4
Delivering
Brilliant Basics
•Restoring our network, flying nearly
16 million passengers
•Customer satisfaction metrics back
at pre-Covid levels
•Returning towards pre-Covid levels
of operational reliability with OTP at
77% (vs 80% in 2019)
•Increasing employees in key areas
to maintain operational resilience and
ease pain points
•Self service capabilities enabled,
removing more than 200k calls from
the system
Extraordinary
operating environment
•Strong demand for international
travel following re-opening of borders
•Strong leisure and VFR
1
demand
across all markets
•Industry-wide supply constraints
driving a high-yield environment
•Global aviation ecosystem remains
under pressure from a labour and
productivity perspective
Restoring
financial metrics
•Restored profitability, recording the
second highest earnings before
other significant items and taxation in
our history of $585 million
2
•Earnings before taxation of $574
million
•Almost $1 billion reduction in net
debt across FY23
•Continue to maintain investment
grade credit rating
•Providing shareholders with a return
earlier than anticipated, with a special
dividend of ~$200 million
DELIVERED IN THE CONTEXT OF AN EXTRAORDINARYOPERATING ENVIRONMENT
AIR NEW ZEALAND 2023 ANNUAL RESULTS
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At 77% for the year despite
floods etc
2H 2023 FOCUS HAS BEEN ON DELIVERING FOR CUSTOMERS
MULTIPLE ACTIONS TAKEN TO EASE PAIN POINTS ACROSS THE OPERATION
Customer
satisfaction
(out of 100)
Mishandled
bags
(per 1,000 bags)
On time
performance
Contact Centre
wait times
(mins)
CSAT levels now back at
pre-Covid levels
Down over 30%, now <4 bags p/1000,
better than industry average
OTP back near pre-Covid
levels
Average wait time now ~6
minutes, down 75%
77%
83
3.5
6.3
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DESPITE MACROECONOMIC CONDITIONS
DEMAND CONTINUES TO BE RESILIENT
Domestic bookings at ~100%
of pre-Covid levels
•Overall market capacity
at 89%, despite Air New
Zealand capacity up at
94%, with higher load
factors
•Leisure and VFR
customers continue to
underpin demand
•Corporate revenue
remains above pre-
Covid levels, with no
current indication of
softening demand
International bookings at
~86% of pre-Covid levels
•North America booking
strongly, however more
market capacity coming
online in FY24
•Tasman capacity back
near pre-Covid levels
•Asia currently exceeding
expectations, especially
with demand out of India
•China demand starting to
recover following border
opening
Domestic
bookings
~
100%
pre-Covid
levels
International
bookings
~
86%
pre-Covid
levels
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ALL INFORMATION IS PRIVATE AND CONFIDENTIAL
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•Growing Domestic with
additional A321neos
•Increasing productivity
and utilisation to deliver
more seats across the
network
Optimised
International network
with deep alliance
partnerships
•22 widebody aircraft
supporting key routes
•Alliance partnerships
enabling international
connectivity to resume
quickly at scale
Strong brand and
service culture
•#1 Corporate Reputation
•#1 Employer in NZ
•Strong brand and service
culture driving improved
customer satisfaction
Airpoints
TM
loyalty
programme
•Engaging with our 4.2
million members, gaining
valuable insights into
customer needs
•More active Airpoints
members in the programme
than ever before
Modern fuel-
efficient fleet &
infrastructure
investments
•Fleet age of 7.9 years
•Fleet investments driving
improved operating
efficiency and utilisation
•Modernisation of ground
service equipment and
engineering facilities
SUPPORTED BY OUR CORE COMPETITIVE ADVANTAGES
Resilient core
Domestic
business
FY24 FOCUS - SUSTAINING PERFORMANCE IN THE FACE OF
HEADWINDS
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RICHARD THOMSON
CHIEF FINANCIAL OFFICER
FINANCIAL
UPDATE
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Earnings/(Loss) before other significant items and taxation
1
($ millions)
• Operating revenue of $6.3 billion, up 9%
compared to pre-Covid
• Cargo revenue of $628 million, down 38% on
last year but up 61% on pre-Covid
• Earnings before other significant items and
taxation
1
of $585 million
• Earnings before taxation of $574 million
• Liquidity of $2.6 billion
2
• Free cash flow of $937 million
• Return on invested capital of 22.3%
• Net debt to EBITDA of 0.3x
• Fully imputed special dividend of 6.0 cents per
share
2023 IS A PIVOTAL TURNING POINT IN THE RECOVERY
387
(88)
(444)
(725)
585
20192020202120222023
Covid-19 impacted period
RETURNING TO PROFITABILITY AFTER THREE YEARS OF PANDEMIC- RELATED LOSSES
1
Refer to slide 27 for further details on Other Significant Items of $11 million.
2
As at 30 June 2023. Includes the $400m undrawn Crown Standby Facility.
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2
Driven by reduction in
cargo support schemes
of $305 million
Includes short-
term wet lease
costs of ~$32m
PROFITABILITY WATERFALL
1
For further details on fuel cost movement, refer to slide 25.
2
Full-time equivalent staff levels increased by 29% to ~11,500, which represents approximately 97% of pre-Covid levels.
FY23 price
change
Maintenance, aircraft
operations and passenger
services
~ 7%
Labour~ 5%
Sales, marketing and other
expenses
~ 2%
•Significant activity increases when
comparing FY23 to FY22 due to 80%
growth in capacity this year.
•A summary of aggregate rate increases is
provided below for key operational cost
areas:
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Direct Labour
1
(price only)
($ millions)
20192023
+15%
20192023
+21%
20192023
+16%
Variable operating costs
2
(price only)
($ millions)
Total cost base
2
(price only)
($ millions)
INFLATION HAS PUT PRESSURE ON THE COST BASE
WITH SOME AREAS SET TO GROW FURTHER IN FY24
1
Includes pilots, crew, airports and engineering & maintenance.
2
Excludes fuel.
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Excluding fuel price movement, foreign exchange, third-party maintenance and reduction in wage support subsidies.
•Reported CASK increased 40.3% compared to pre-Covid,
largely due to fuel price movements
•Excluding the impact of fuel price movement, foreign
exchange, third-party maintenance and the wage support
subsidies in the prior year, underlying CASK increased
26.9% compared to pre-Covid.
•Underlying CASK has increased due to:
–non-fuel price inflation of ~16%
–the change in mix of flying due to a lower proportion of
lower CASK long-haul and cargo flying in FY23
–diseconomies of scale from the phased resumption of
international operations, and reduced productivity due to
increased levels of training
–other inefficiencies associated with ramp-up productivity
PRODUCTIVITY IMPROVEMENTS TO SUPPORT UNIT COST IMPROVEMENT IN FY24
RAMP-UP INEFFICIENCIES & INFLATION DRIVING HIGHER CASK
Reported
CASK increase of
40.3%
Underlying
1
CASK increase of
26.9%
FY19 vs FY23
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Actual and forecast aircraft capital expenditure
1
Historical
Forecast
•Forecast aircraft capital expenditure of $3.6 billion
2
reflects:
−2 additional Domestic ATR aircraft for delivery in FY25
•Chart includes the forecast cost of the interior retrofit of 14 existing
Boeing 787 aircraft from FY24
−Estimated cost phased over the next ~4 years
−First retrofit to commence early FY25
•No committed aircraft capital expenditure beyond FY28 currently
FLEET INVESTMENT UPDATE
Aircraft delivery schedule
Number in
existing fleet
Number on
order
Delivery Dates (financial year)
20242025202620272028
Owned fleet on order
Boeing 787
128-2222
Airbus A320neo / A321neos
1142--2-
ATR 72-600
292-2---
Operating leased aircraft
Boeing 787
2------
Airbus A320neo / A321neos
52-2---
Boeing 777-300ER (three-year lease)
311----
0
200
400
600
800
1,000
202020212022202320242025202620272028
$ millions
Forecast Boeing 787 retrofit
1
Includes progress payments on aircraft and aircraft improvements (e.g., refurbishment).
2
Assumes NZD/USD rate of 0.61.
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Fuel hedging
•Hedging Brent Crude only; exposed to pricing
movements in the crack spread
•Combination of call options and collar structures, with
focus on ensuring downside participation in price
declines
•Assuming an average jet fuel price of US$105 per
barrel for 2024, fuel cost would be ~$1.8 billion
1
•FY24 hedges cover 54% of estimated volumes (~8.5
million barrels)
–1H 2024 is 74% of consumption
–2H 2024 is 35% of consumption
Foreign exchange hedging
•US dollar is ~55% hedged for 2024 at 0.62
MITIGATING FUEL PRICE & FX VOLATILITY THROUGH HEDGING
Fuel hedge position
(as at 4 Aug 2023)
Period
Hedged volume
(in barrels)
% hedged
Net compensation
from hedging
(USD)
2
1H FY243,140,00074%(~$1 million)
2H FY241,460,00035%~$7 million
1,100
1,300
1,500
1,700
1,900
2,100
2,300
758595105115125135
NZD Cost of Fuel (millions)
Singapore Jet (USD/barrel)
UnhedgedHedged
1
2024 Fuel Cost** sensitivity
1
Includes cost of carbon (NZU’s) and the associated hedging portfolio, in addition to SAF purchases.
2
Net compensation from fuel hedges represents the unrealised gains/losses on fuel hedges, including the cost of the hedges and is in USD.
** Assumes NZD/USD rate of 0.61.
.
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~$200 MILLION SHAREHOLDER RETURN VIA SPECIAL DIVIDEND
•A fully imputed, one-off special dividend of 6.0
cents per share has been declared for FY23
–Reflects the unique market dynamics that
have contributed to the strong result
–Provides shareholders with a return earlier
than anticipated
•From FY24, the newly announced dividend policy
within the revised capital management
framework applies
1
–The airline does not expect to have
imputation credits to attach to any future
dividends declared until such time as the
company absorbs cumulative tax losses and
begins paying cash tax
1
See slide 16 for the revised capital management framework.
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Invest in core operations
Maintain financial resilience and flexibility
DistributionsGrowth capex
Underpinned by our commitment to maintain investment grade credit rating metrics
• Target liquidity range of $1.2 billion to $1.5 billion
• Net Debt to EBITDA ratio of 1.5x to 2.5x
• Fleet and infrastructure investments above WACC through the cycle
• Investment to support the airline’s decarbonisation ambitions
• Ordinary dividend pay-out ratio of 40% to 70% of
underlying net profit after tax (NPAT)
• Return excess capital via special dividends or
share buybacks
• Disciplined investment in value accretive capex
• Target ROIC above pre-tax WACC
REVISED CAPITAL MANAGEMENT FRAMEWORK FROM FY24
ENABLING FINANCIAL RESILIENCE AND FLEXIBILITY TO DELIVER ON STRATEGY
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GREG FORAN
CHIEF EXECUTIVE OFFICER
OUTLOOK
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WELL- POSITIONED TO FACE INTO INCREASING LEVELS OF
COMPETITION
TASMAN
PACIFIC ISLANDS
ASIA
NORTH AMERICA
NEW ZEALAND
•Competition expected to increase in
major markets, including China
•Strong demand from Indian market
•Deep alliance relationships in these
markets support scale and depth
•Strong leisure demand expected to remain
•Virgin Australia and Samoa Airways not
currently operating - previously 33% of pre-
Covid market.
•Fiji market remains competitive
•High levels of supply expected to
remain
•Impact of 5
th
freedom carriers re-
entering likely to put pressure on yields
•Significant additional capacity from major US
carriers in FY24, particularly in coming
Northern Winter season
•Not currently impacting pricing or demand
•Strong traffic from New Zealand to Europe via
our US ports
•Deep alliance relationship in this market
supports scale and depth
•Air New Zealand operating close to pre-Covid levels of capacity
•Macro-economic conditions tightening, but demand currently
holding up
•Corporate demand strong due to higher proportion of small and
medium enterprise (SME) customers
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WITH SUBSTANTIAL LONG- HAUL CAPACITY GROWTH IN THE FIRST HALF
Sector
2023 ASKs
(millions)
1
1H 2024
(vs 1H 2023)
2H 2024
(vs 2H 2023)
FY24 Estimated
Capacity
2
Domestic6,685+0% to 5%+0% to 5%+0% to 5%
Tasman and Pacific
Islands
10,237+20% to 25%+15% to 20%+15% to 20%
International long-haul
3
19,039+50% to 55%+10% to 15%+40% to 45%
Group
35,961+30% to 35%+10% to 15%+20% to 25%
1
Includes Cargo-only flights.
2
Compared to FY23 levels, including Cargo-only flights.
3
From FY23 onwards International long-haul includes Denpasar and Honolulu, which was reported under Tasman and Pacific Islands previously.
FY24 CAPACITY OUTLOOK
Equates to ~95%
of FY19 capacity
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2024 OUTLOOK
• The airline notes that the 2023 financial year was particularly unique with significant customer
demand, constrained market capacity and lower fuel prices in the second half, and as such, we
believe the 2024 financial year will be more reflective of future financial performance.
• Looking ahead to the first half of the 2024 financial year, customer demand remains strong across
our markets. We are mindful of the uncertain economic environment however and acknowledge
there are a number of factors that may impact future customer demand and profitability. These
factors include increased international competition, volatile fuel prices, a weaker New Zealand dollar,
ongoing wage inflation and increased airport charges.
• Given the uncertainty and volatility of some of these macroeconomic factors, the airline will not be
providing guidance at this time.
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ALL INFORMATION IS PRIVATE AND CONFIDENTIAL
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SUPPLEMENTARY
INFORMATION
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$ millions30 Jun 202330 Jun 2022
Prior capital
management targets
Revised capital
management targets
(effective from FY24)
1
Gross debt(3,335)(3,568)
Cash, restricted deposits and net
open derivatives
2,9282,176
Net debt(407)(1,392)
Gross debt/EBITDA2.4n/a
Net debt/EBITDA0.3n/a
Net Debt to EBITDA ratio of 1.5x
to 2.5x
Gearing16.4%45.4%
Gearing ratio of
45% to 55%
Return on invested capital (ROIC)22.3%(21.2%)
Pre-tax ROIC target of
10 to 15%
Target ROIC above pre-tax
WACC
Total liquidity2,6272,193
Target liquidity range of
$700 million to $1 billion
Target liquidity range of $1.2
billion to $1.5 billion
Liquidity (% of 2019 revenue)45.4%37.9%
Moody's rating
Baa2
(investment grade)
Baa2
(investment grade)
Baa2 (investment grade)Baa2 (investment grade)
Shareholder distributions6 cps special dividend-
Committed to consistently
paying a sustainable
ordinary dividend
Ordinary dividend payout ratio of
40% to 70% of net profit after
taxation (NPAT)
KEY CAPITAL MANAGEMENT METRICS
1
Please see slide16 for more information on the revised capital management framework.
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• Cargo revenue of $628 million, down 38% on last
year but up 61% on pre-Covid levels
• Includes $98 million in Government supported flights
until March 2023, when the remaining scheme ended
‒Compares to $403 million in supported flights in
the prior year
•Excluding impact of Government supported flights,
cargo yields declined 8% from prior year reflecting
more passenger flying as borders reopen and
competition resumed
•Cargo loads were 67%, compared to 82% last year,
largely due to higher passenger demand and the
resumption of international competition
FY23 CARGO PERFORMANCE
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FUEL COST MOVEMENT
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Engine
maintenance
Digital
transformation
•Spend relates to overhaul
of owned engines across
all fleet types
•Has an enduring benefit
of 5+ years
•Annual expenditure varies
based on utilisation of
aircraft
•Investments in digital
assets linked to Kia Mau
strategy, focused on
ensuring resiliency and
optimising customer and
employee experiences
•Annual expenditure in the
range of ~$50 million to $75
million
Property and
infrastructure
•Investments in buildings and
operational facilities
•Includes expenditure on the
new Auckland engineering
hangar, cargo facilities and
head office relocation
•Elevated annual expenditure
of ~$75 million over the next
4 years
OTHER INVESTMENTS
OTHER CAPITAL EXPENDITURE IS GENERALLY UNCOMMITTED IN NATURE
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Jun 2023
$M
Jun 2022
$M
Earnings/(Loss) before taxation (per NZ IFRS)574(810)
Add back other significant items:
De-designation of hedges-13
FX losses on uncovered foreign currency debt2343
Aircraft impairment (reversal) / expense(12)6
Impairment of intangible asset-24
Reorganisation cost releases-(1)
Earnings/(Loss) before other significant items and taxation585(725)
1
Earnings/(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 underlying financial performance of the Group. Earnings/(Loss) before other significant items and taxation is reported within the Group’s audited annual financial statements. Further details are contained within Note 3 of
the Group’s 2023 annual financial statements.
EARNINGS/(LOSS) BEFORE OTHER SIGNIFICANT ITEMS &
TAXATION
1
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Jun 2023
$M
Jun 2022
$M
Movement
%
Jun 2019
$M
Variance to
pre-Covid
Operating revenue 6,3302,734132%5,7859%
Earnings /(Loss) before other significant items
and taxation
585(725)181%38751%
Earnings /(Loss) before taxation574(810)171%38250%
Net Profit /(Loss) after taxation 412(591)170%27649%
Operating cash flow 1,853574223%99786%
Cash position2,2271,79324%1,055111%
Gearing16.4%45.4%29.0 pts55.9%39.5 pts
FINANCIAL OVERVIEW
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Jun 2023Jun 2022Movement
1
Jun 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
15,7767,745104%17,738(11%)
Available seat kilometres (ASKs, millions)
– passenger flights
34,28110,651222%46,029(26%)
Available seat kilometres (ASKs,
millions) – passenger and cargo-only
flights
35,96120,01980%46,029(22%)
Revenue passenger kilometres (RPKs,
millions)
29,0327,146306%38,573(25%)
Load factor
84.7%67.1%17.6 pts83.8%0.9 pts
Passenger revenue per ASKs as
reported (RASK, cents)
15.613.913%10.845%
Passenger revenue per ASKs, excluding
FX (RASK, cents)
15.513.912%10.844%
1
Calculation based on numbers before rounding.
GROUP PERFORMANCE METRICS
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Jun 2023Jun 2022Movement
1
Jun 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
10,9466,83660.1%11,513(5%)
Available seat kilometres (ASKs,
millions) – passenger flights
6,6854,92936%7,104(6%)
Revenue passenger kilometres
(RPKs, millions)
5,6793,45264%5,957(5%)
Load factor
84.9%70.1%14.8 pts83.9%1.0 pts
Passenger revenue per ASKs as
reported (RASK, cents)
28.719.547%22.528%
Passenger revenue per ASKs,
excluding FX (RASK, cents)
28.519.546%22.527%
1
Calculation based on numbers before rounding.
DOMESTIC
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Jun 2023Jun 2022Movement
2
Jun 2019Variance to
pre-Covid
2
Passengers carried (‘000s)
3,352734356%3,880(14%)
Available seat kilometres (ASKs,
millions) – passenger flights
10,2372,665284%12,215(16%)
Revenue passenger kilometres
(RPKs, millions)
8,7071,937350%10,043(13%)
Load factor
85.1%72.7%12.4 pts82.2%2.9 pts
Passenger revenue per ASKs as
reported (RASK, cents)
14.411.130%9.945%
Passenger revenue per ASKs,
excluding FX (RASK, cents)
14.311.129%9.944%
TASMAN AND PACIFIC ISLANDS
1
1
Historically Honolulu and Denpasar were categorised within Pacific Islands. From 1 July 2022, Honolulu has been reclassified to sit within North America and Denpasar has been reclassified to Asia, both of which are reported under
international long-haul. All historic data has been adjusted to reflect this change.
2
Calculation based on numbers before rounding.
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Jun 2023Jun 2022Movement
1
Jun 2019Variance to
pre-Covid
1
Passengers carried (‘000s)
1,478175747%2,345(37%)
Available seat kilometres (ASKs,
millions) – passenger flights
17,3593,057468%26,710(35%)
Revenue passenger kilometres
(RPKs, millions)
14,6461,757734%22,573(35%)
Load factor
84.4%57.5%26.9 pts84.5%(0.1 pts)
Passenger revenue per ASKs as
reported (RASK, cents)
11.37.257%8.041%
Passenger revenue per ASKs,
excluding FX (RASK, cents)
11.17.255%8.039%
1
Calculation based on numbers before rounding.
INTERNATIONAL
AIR NEW ZEALAND 2023 ANNUAL RESULTS
33
33
AIR NEW ZEALAND 2023 ANNUAL RESULTS
33
1
From 2021 onwards, figures exclude the Boeing 777-200ER fleet. From 2024, figures include an additional leased Boeing 777-300 aircraft for three years.
2023202420252026
Boeing 777-300ER
7887
Boeing 787
14141618
Airbus A320
17171717
Airbus A320/A321neo
16182020
ATR72-600
29293131
Bombardier Q300
23232323
Total Fleet
106109115116
7.17.1
6.7
7.3
7.9
8.8
9.3
9.9
20192020202120222023202420252026
Historical
Forecast
Aircraft fleet age in years
(seat weighted)
1
FLEET DELIVERY AND AGE UPDATE
AIR NEW ZEALAND 2023 ANNUAL RESULTS
34
34
AIR NEW ZEALAND 2023 ANNUAL RESULTS
34
Widebody
Narrowbody
Turboprop
Age
2
~9 years
7.9 years ~10 years
FY23 (5 types) Total – 106FY28 (4 types)
1
Total – 111
787
(22)
A320
(35)
AT R 7 2
(31)
Q300
(23)
777-300ER
787-9/10
A320
A321
787
(14)
777
(7)
787-9
A320
(33)
A320
A321
AT R 7 2
(29)
Q300
(23)
ATR72-600
ATR72-600
FY11 (8 types) Total – 102
747
(5)
767
(5)
777
(11)
A320
(14)
737
(15)
AT R 7 2
(11)
Q300
(23)
1900D
(18)
777-300ER
777-200ER
ATR72-500
1
This represents the expected fleet at the end of the FY28 financial period.
2
Average seat-weighted fleet age.
FLEET SIMPLIFICATION STRATEGY ON TRACK
AIR NEW ZEALAND 2023 ANNUAL RESULTS
35
35
AIR NEW ZEALAND 2023 ANNUAL RESULTS
35
1
Finance leases are lease liabilities with purchase options. Operating leases are lease liabilities without purchase options
2
Weighted average life of secured aircraft debt, finance leases and unsecured debt. Excludes operating leases
Debt maturity profile as at 30 Jun 2023 ($ millions)
•Gross Debt of $3.3 billion
−comprising: ~$1.9 billion secured aircraft debt and finance
leases
1
, $754 million operating leases
1
, $102 million unsecured
NZD bond, $578 million unsecured AUD notes
•Cash of ~$2.2 billion, restricted deposits of $732 million and net
open derivatives of ($31) million
•Net Debt of $0.4 billion
•Undrawn Crown Standby Facility of $400 million expiring 30
January 2026
•Weighted average debt and finance lease maturity of ~3.7 years
2
Capital structure as at 30 Jun 2023
Air New Zealand’s debt structure provides flexibility
•No financial covenants on debt
•Reduced refinancing risk
•Competitive financing costs
•Prepayment optionality
371
333
275
257
127
94
73
160
140
25
46
315
102
263
FY30FY27FY29FY34FY32FY24FY25FY26FY28FY31FY33
Secured Aircraft Debt and Finance Leases
1
NZ Retail BondAustralian Medium Term Notes
DEBT STRUCTURE & MATURITY PROFILE
AIR NEW ZEALAND 2023 ANNUAL RESULTS
36
36
AIR NEW ZEALAND 2023 ANNUAL RESULTS
36
Available Seat Kilometres (ASKs)Number of seats operated multiplied by the distance flown (capacity)
Cost/ASK (CASK)Operating expenses divided by the total ASK for the period
GearingNet Debt / (Net Debt + Equity)
Earnings before interest, tax, depreciation
and amortisation (EBITDA)
Operating earnings before depreciation and amortisation, net finance costs and taxation
Gross DebtInterest-bearing liabilities, lease liabilities and redeemable shares
Free cash flowTotal of net cash flows from operating activities and investing activities
Net Debt
Interest-bearing liabilities, lease liabilities and redeemable shares 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
Liquidity
Cash and cash equivalents (which excludes restricted deposits) plus the outstanding amount of any Crown standby
facility available to be drawn
Passenger Load FactorRPKs as a percentage of ASKs
Passenger Revenue/ASK (RASK)Passenger revenue for 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)
The following non-GAAP measures are not audited: CASK, Gearing, Net Debt, Gross Debt, EBITDA, free cash flow and RASK. Amounts used within the calculations are derived from the audited Group financial statements and Five-Year
Statistical Review contained in the 2023 Annual Report. The non-GAAP measures are used by management and the Board of Directors to assess the underlying financial performance of the Group in order to make decisions around the allocation
of resources.
GLOSSARY OF KEY TERMS
AIR NEW ZEALAND 2023 ANNUAL RESULTS
37
37
AIR NEW ZEALAND 2023 ANNUAL RESULTS
37
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-investor-updates
Corporate governance:
www.airnewzealand.co.nz/corporate-governance
Sustainability: https://www.airnewzealand.co.nz/sustainability
FIND INFORMATION ON AIR NEW ZEALAND
38
ALL INFORMATION IS PRIVATE AND CONFIDENTIAL
---
2023
Annual
Report
AIR NEW ZEALAND ANNUAL REPORT 2023
Kia ora
Front cover,
clockwise from top:
Simon and Christine
Lounge Leaders
Varun and John
Components Production
Coordinator and Engineer
Sam and Natalia
Terminal Manager Cargo and
Customer Service Consultant Cargo
Johnny, Dave, Patricia and Cameron
Chapter Lead SA Customer Direct
Sales and Service, Client Site Manager
Mailroom, Export Channel Manager
and Studio Traffic Manager
Anne-Maree
Inflight Service Manager
Rosie, Maria, Ashleigh and Hahale
Flight Attendants, First Officer and
Flight Attendant
–
03
AIR NEW ZEALAND GROUP
Contents
Letter from the Chair and
Chief Executive Officer 04
Capital Management Framework 09
2023 at a Glance 10
Financial Commentary 12
Change in Profitability 17
Directors’ Statement 18
Statement of Financial
Performance 19
Statement of Comprehensive
Income/(Loss) 20
Statement of Changes In Equity 21
Statement of Financial Position 22
Statement of Cash Flows 23
Statement of Accounting Policies 24
Notes to the Financial
Statements 27 - 61
Independent Auditor’s Report 62
Five Year Statistical Review 66
Corporate Governance Statement 70
Employee Remuneration 87
Remuneration Report 88
Interests Register 91
Directors’ Interests in
Air New Zealand Securities 92
Indemnities and Insurance 92
Subsidiary and Joint Venture
Companies 93
Other Disclosures 94
Operating Fleet Statistics 95
Securities Statistics 96
General Information 98
Shareholder Directory IBC
Left to right:
Rosie, Rosie and Marie
Flight Attendant, Captain
and Flight Attendant
04
Letter from the
Chair and Chief
Executive Officer
AIR NEW ZEALAND ANNUAL REPORT 2023
Our result was delivered in the
context of an extraordinary operating
environment which provided unique
tailwinds for the business.
Following three years of significant
losses, this year marked a return
to profitability. We have hired more
than 3,000 people, returned to all of
our international destinations, and
improved on-board service while
delivering on key initiatives that
differentiate Air New Zealand from
global competitors. All this while
facing a series of operational and
climate change related challenges
that impacted our performance
and disrupted customers.
Kia ora koutou.
In delivering our Annual Report on the first full year of flying since the
Covid-19 pandemic, we are conscious that a strong financial result
for the airline comes at an increasingly uncertain time for many of our
customers and the wider economy.
Dame Therese Walsh
Air New Zealand Chair
Greg Foran
Air New Zealand Chief Executive Officer
05
Letter from the Chair and Chief Executive Officer (continued)
AIR NEW ZEALAND GROUP
We are proud of the Air New
Zealand whānau, who have
produced a well-rounded result
that has seen us deliver on key
areas of our strategy, improve our
customer experience, support our
people and the communities we
serve, and announce innovative
new products and enhancements
for the year ahead.
While this result does not reflect the
new normal, we are delighted to have
achieved so much and to deliver a
special dividend to our shareholders
while also helping fund large aircraft
and infrastructure investments.
When New Zealand’s borders
reopened in July 2022, Kiwis’ desire
to travel exceeded all expectations.
Even though we made an early start
retraining pilots, undertook our
biggest hiring programme ever and
brought aircraft back from desert
storage as quickly as was safely
possible, supply was constrained.
The research and development
undertaken when we could not fly
is improving our on-board service
and there are exciting developments
to come. New menus, a revised
snack offering, and an enhanced
app are now in place, and we have
announced the new cabin layout for
our widebody aircraft arriving in the
2025 financial year, including the
world first Skynest™, offering options
for a great sleep in every cabin.
At our interim results we spoke
candidly about challenges with
contact centre wait times, flying on
time, mishandled baggage and the
time taken to process refunds.
We have not fully resolved these
issues, but performance is much
improved, with contact centre
average wait times decreasing
75 percent since December, a
digitised baggage system including
an enhanced app with baggage
tracking which will be rolled out
in the coming months, and a step
change in on-time performance
of flights. Refunds are being
processed more quickly but still
lag what customers deserve.
This remains a top priority.
Our loyal and hardworking team
deserve a huge thank you. Air New
Zealanders continued to work with
pride and determination, whether
answering calls, flying planes, or
improving the customer experience,
and we thank them for their
dedication. In recognition of this,
all eligible staff will receive an
incentive payment.
Kia Mau
Our Kia Mau strategy, focused on
ensuring resilience and delivering
great customer and employee
experiences, continues to guide us.
Domestically, we are almost at pre-
Covid capacity. We have carried
more than 360,000 customers
Letter from the Chair and Chief Executive Officer (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
on our three new domestic Airbus
A321neos since they started flying.
We have also boosted regional
flights in and out of Auckland and
Christchurch as we fly more often
to many of our regional centres,
and we have announced two
new ATR72 turboprop aircraft for
regional routes.
New Zealand is one of the most well-
connected countries in the world
in terms of domestic air services.
On average, we fly 425 flights a day
across 20 domestic destinations.
And we are aiming to do even more
in the future.
On our international network we are
adding two new Airbus A321neos,
as well as eight new Boeing 787
Dreamliners as we retire our Boeing
777-300’s over time. And we are
retrofitting our existing 14 787s with
our new Business Premier™ Luxe
and refreshed cabins.
We gained more than 368,000
Airpoints™ members over the past
financial year, with 4.2 million people
now part of our loyalty programme,
an all-time high. We are transforming
our Loyalty and Customer Care
platforms to streamline the
customer experience.
Sustainability remains a significant
challenge for our business. This year
we welcomed Kiri Hannifin as our
Chief Sustainability Officer, a newly
created role on the Executive team,
which recognises the importance of
this growing issue. The increasing
frequency of climate events here and
overseas reminds us how critical our
net zero target is. We have provided
detail on our performance and
progress in a separate Sustainability
Report issued alongside this Annual
Report. It details progress being
made toward next generation
aircraft for our domestic fleet and
work with Government to investigate
the viability of sustainable aviation
fuel production in New Zealand.
Left to right:
Tyron, Joshua, Peturi and Whittaker
Certified Engineer QCA RTS Shift, Engineering Trainee,
Aircraft Engineer and 2IC Shift
06
07
Letter from the Chair and Chief Executive Officer (continued)
AIR NEW ZEALAND GROUP
Earnings before other significant items and taxation¹ was $585 million
compared to a loss of $725 million in the prior year. Statutory earnings
before taxation were $574 million compared to a loss of $810 million and
net profit after tax was $412 million.
Financial summary
Operating revenue for the year was
$6.3 billion, driven by passenger
revenue of $5.3 billion, reflecting
the full reopening of New Zealand’s
borders. The network grew 80
percent compared to the prior
year, with increased capacity in the
second half as the airline returned
its remaining widebody aircraft to
service and resumed flying to all
offshore destinations. The strength
of customer demand, particularly
‘visiting friends and relatives’ and
leisure-based travel, remained over
the course of the year, supporting
higher yields in an environment
where capacity was limited as airlines
around the world worked hard to
ramp-up their operations.
The cargo business was a key
contributor to the result again
this year, with revenue of $628
million. While this represents a
decline from the prior year which
included substantial government
support, it still reflects high levels
of performance.
The ramp-up in flying activity that
occurred this year is reflected in
the airline’s operating costs of
$5.0 billion. Costs increased across
all areas as the airline restored
the international network and
increased operational resilience.
Fuel represented the largest cost
this year at $1.5 billion, driven
primarily by increased flying, higher
average jet fuel prices, and a weaker
New Zealand dollar. Labour was
our second largest cost, at $1.4
billion, reflecting the ramp-up of the
workforce to support the recovery
of the network at scale after three
years of substantially reduced flying
due to Covid-19 related restrictions.
The balance sheet remains
strong, fortified by the prior year’s
capital raise, this year’s operating
performance and continued
strength in customer bookings for
future travel. Liquidity as at 30 June
2023 was $2.6 billion and gearing
was 16.4 percent.
1. Refer to Financial Commentary section on page 12.
08
AIR NEW ZEALAND ANNUAL REPORT 2023
Letter from the Chair and Chief Executive Officer (continued)
Special dividend
and revised capital
management framework
A one-off, fully imputed special
dividend of 6.0 cents per share has
been declared by the Board today,
in recognition of the exceptional
financial result delivered in the
2023 financial year.
The Board believes a special
dividend is the best way to provide
a return to shareholders at this time,
given the unique market dynamics
that have contributed to such a
strong result, and is pleased to be
able to provide shareholders with a
return much earlier than previously
anticipated. However, we do not
expect to have imputation credits
to attach to any future dividends
declared until such time as the airline
absorbs cumulative tax losses and
begins paying cash tax.
The Board has also reviewed the
airline’s capital management
settings to ensure we maintain
financial resilience and flexibility
in a post-Covid world and has
today announced a revised capital
management framework, effective
from the 2024 financial year. Within
this framework the airline has set an
ordinary dividend payout ratio of 40
percent to 70 percent of net profit
after taxation. More information can
be found on page 9 of this report.
Outlook
The airline notes that the 2023
financial year was particularly
unique with significant customer
demand, constrained market
capacity and lower fuel prices in
the second half, and as such, we
believe the 2024 financial year
will be more reflective of future
financial performance.
Looking ahead to the first half of
the 2024 financial year, customer
demand remains strong across
our markets. We are mindful of the
uncertain economic environment
however and acknowledge there
are a number of factors that may
impact future customer demand
and profitability. These factors
include increased international
competition, volatile fuel prices,
a weaker New Zealand dollar,
ongoing wage inflation and
increased airport charges.
Given the uncertainty and volatility
of some of these macroeconomic
factors, the airline will not be
providing guidance at this time.
Thank you
We are proud of the result Air
New Zealand has delivered this
financial year, and of the value we
have created for our shareholders.
We would like to recognise the
hard work and determination of
the remarkable team of Air New
Zealanders who delivered it.
We would also like to thank our
shareholders and our customers
for their ongoing support of the
airline. A strong Air New Zealand
is good for New Zealand and
although there are challenging
times ahead, we are well positioned
to face those challenges.
Ngā mihi nui
Dame Therese Walsh
Air New Zealand Chair
24 August 2023
Left to right:
Peejay and Amrinder
Cargo Airline Clerks
Greg Foran
Air New Zealand Chief Executive Officer
24 August 2023
09
AIR NEW ZEALAND GROUP
1
1AIR NEW ZEALAND 2023 ANNUAL RESULTS
Invest in core operations
Maintain financial resilience and flexibility
DistributionsGrowth capex
Underpinned by our commitment to maintain investment grade credit rating metrics
• Target liquidity range of $1.2 billion to $1.5 billion
• Net Debt to EBITDA ratio of 1.5x to 2.5x
• Fleet and infrastructure investments above WACC through the cycle
• Investment to support the airline’s decarbonisation ambitions
• Ordinary dividend pay-out ratio of 40% to 70% of
underlying net profit after tax (NPAT)
• Return excess capital via special dividends or
share buybacks
• Disciplined investment in value accretive capex
• Target ROIC above pre-tax WACC
REVISED CAPITAL MANAGEMENT FRAMEWORK FROM FY24
ENABLING FINANCIAL RESILIENCE AND FLEXIBILITY TO DELIVER ON STRATEGY
Over the course of the year, the Board reviewed the airline’s capital
management settings, with a particular focus on appropriate liquidity
and leverage targets that would enable the Company to maintain
investment grade credit rating metrics, as well as consideration
of shareholder distribution parameters. The revised capital
management framework is effective from the 2024 financial year.
Capital Management Framework
Dan
Loader
10
2023 at
a Glance
AIR NEW ZEALAND ANNUAL REPORT 2023
Our customers
Kiwi products
submitted in the
Air New Zealand
Great Kiwi Snack Off
400
delicious meals
dished up to
our customers
on our aircraft
5.1
million
Welcomed into our
Business Premier™
and Premium Economy
amenity kits
Aotea
skincare
169,251
flights flown
across our network
Took off to
N e w Yo r k
for the first time
A year in the air
fares under
$150 for Kiwis
4.34m
$150
UNDER
9,184
pets
transported
around
the Globe
including
an owl and
a frog!
customers
carried onboard
our aircraft
15.8m
Our sustainability efforts
$1.5+
committed to the next
phase of a sustainable
aviation fuel study
threatened species and
conservation dogs translocated
through our partnership with DOC
198
Welcomed our
first shipment of
Sustainable Aviation
Fuel into Aotearoa
New Zealand
tonnes of cargo carried into and out
of Aotearoa New Zealand
114,000
million
Our people
Air New Zealanders doing
amazing things
11 , 474
Biggest
recruitment
drive in the
airline’s
history
A refreshed
uniform announced
for our people
Our partnerships
Welcomed the Black Ferns
to our whānau
First full Te Reo Māori
immersion flight for Te Matatini
new Airpoints
™
members
Our Airpoints™ Members
368,331
items bought via the
Airpoints
™
store
290,492
Our aircraft
777-300ER
aircraft returned
to service
maintaining our fleet
1.2m
hours
3 new A321neo
Domestic aircraft
welcomed into
our fleet
Seven
11
AIR NEW ZEALAND GROUP
hours spent training
our people
241,000
Financial
Commentary
Operating revenue for the year
increased 132 percent to $6.3 billion
as a result of the full reopening
of New Zealand’s borders and
ongoing strength in passenger
demand in a capacity constrained
operating environment. There was
a 2.1 percent negative impact from
foreign exchange. Total capacity
(Available Seat Kilometres, ASK)
including cargo-only flights,
increased 80 percent, reflecting
further restoration of the network
as the airline returned its remaining
widebody aircraft back into service
and resumed flying to all remaining
offshore destinations.
Passenger revenue grew to $5.3
billion as capacity, excluding cargo-
only flights, more than doubled
driven primarily by increased
international flying. Demand
(Revenue Passenger Kilometres,
RPK) increased by significantly more
than capacity, resulting in a load
factor of 84.7 percent, an increase
of 17.6 percentage points on the
prior period. Revenue per Available
Seat Kilometre (RASK) increased
11.6 percent excluding FX, as a
combination of capacity constraints
and strong customer demand
contributed to high yields.
International long-haul capacity
increased significantly during
the 2023 financial year following
the removal of the remaining
international border restrictions
and the launch of ultra long-haul
flights to New York. Demand on
long-haul routes relative to capacity
growth saw load factors increase
26.9 percentage points to 84.4
percent. International long-haul
RASK increased by 55 percent
excluding the impact of foreign
exchange. Changes in foreign
exchange provided a 2.1 percent
improvement in RASK during the
period. Compared to pre-Covid,
International long-haul RASK was up
41 percent, or 39 percent excluding
the impact of foreign exchange.
The 2023 financial year represents a pivotal
turning point in Air New Zealand’s recovery,
with the airline returning to profitability after
three years of pandemic related losses.
For the 2023 financial year, Air New Zealand has
reported earnings before other significant items
and taxation¹ of $585 million² which compares to
a loss of $725 million in the prior year. Including
the impact of other significant items, statutory
earnings before taxation were $574 million,
compared to a loss of $810 million last year.
Net profit after taxation was $412 million.
1. Earnings before other significant items and
taxation represent Earnings stated in compliance
with NZ IFRS (Statutory Earnings) after excluding
items which, due to their size or nature, warrant
separate disclosure to assist with the underlying
financial performance of the Group. Earnings before
other significant items and taxation is reported within
the Group financial statements which are audited by
the external auditors. Further details are contained
within Note 3 of the Group financial statements.
2. In the prior year, Covid-19 related travel
restrictions significantly impacted the Airline’s
financial performance. The phased removal of those
restrictions from March to July 2022 has resulted in
significant movements when making comparisons
between periods.
12
AIR NEW ZEALAND ANNUAL REPORT 2023
13
AIR NEW ZEALAND GROUP
International short-haul capacity
increased by almost three times,
as trans-Tasman and Pacific Islands
flights ramped-up, and load factors
increased 12.4 percentage points
to 85.1 percent. International short-
haul RASK was up 30 percent, or
29 percent excluding the impact
of foreign exchange. Compared to
pre-Covid, international short-haul
RASK was up 45 percent, or 44
percent excluding the impact of
foreign exchange.
Domestic capacity increased 36
percent this year, taking into account
that the prior year was impacted by
Covid-19 travel restrictions in New
Zealand, in particular the closure of
Auckland’s regional boundary from
mid-August 2021 to mid-December
2021. Demand increased 64 percent,
with load factors improving 14.8
percentage points to 84.9 percent.
Domestic RASK was up 47 percent,
or 46 percent excluding the impact
of foreign exchange. Compared to
pre-Covid, Domestic RASK is up
28 percent or 27 percent excluding
the impact of foreign exchange.
Cargo revenue was $628 million,
a decrease of 38 percent. The
decrease was driven by a $305
million reduction in cargo subsidies
due to reduced flying under the
New Zealand and Australian
Government’s air freight schemes
as international passenger flights
ramped up. Freight yields declined
8.0 percent, reflecting higher levels
of competition as more international
carriers return to the New Zealand
market. Foreign exchange had a
nominal impact.
Contract services and other
revenue was $353 million, an
increase of 46 percent, driven
primarily by increased passenger
activity including the reopening
of international lounges and
valet operations, which were
closed for the majority of the
prior year, as well as increased
third-party maintenance margins
and ground handling revenue.
This was offset by a decline in
third-party maintenance volumes
in advance of the closure of the
Gas Turbines business, as well as
less charter revenue due to the
absence of Managed Isolation and
Quarantine (MIQ) charter flying
this year. There was no impact
from foreign exchange.
Expenses
Operating expenditure was
substantially higher than last
year at $5.0 billion, reflecting the
significant increase in flying activity.
Costs increased across all areas
as the airline further restored the
international network and increased
operational resilience. Reported
costs per ASK (CASK) increased 2.6
percent, largely as a result of higher
fuel prices. Underlying CASK, which
excludes the impact of fuel price,
foreign exchange and third-party
maintenance as well as the
reduction in wage support
subsidies, improved by 15.0 percent.
This was a result of efficiencies
from greater network activity partly
offset by non-fuel price inflation
of approximately 6 percent and
a change in the flying mix due to
a reduction in lower cost cargo-
only services and a proportionally
greater increase in long-haul and
short-haul passenger flights.
Labour costs were $1.4 billion,
an increase of $465 million or
48 percent from the prior year.
Full-Time Equivalent labour
(FTE) increased 29 percent to
approximately 11,500 compared
to 8,900 in the prior year.
Left to right:
Mali and Jordan
Flight Attendants
14
Financial Commentary (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
The increase in FTE was driven
primarily by the need for increased
levels of operational staff to support
a significant increase in flying activity,
as the airline restored scale to the
international network. Investments
in temporary labour support were
also made in the second half of the
financial year to address operational
challenges across key operational
areas including the contact centre,
airports. In addition to increased
staffing levels, salary increases,
higher provisions for incentive
payments and a reduction in
government wage subsidies also
contributed to higher labour costs.
Fuel costs were $1.5 billion for the
year, increasing by $939 million
compared to last year. Higher levels
of consumption, fuel prices and
unfavourable foreign exchange
movements due to the weaker New
Zealand dollar, all contributed to
the movement. Fuel consumption
increased almost 90 percent due
to greater flying activity, resulting
in an additional $557 million in
costs. A 6 percent increase in the
underlying Singapore Jet fuel price
and, to a lesser extent, increases in
the price of domestic carbon offsets,
along with fewer hedging gains
contributed $262 million of
the additional cost relative to the
prior period. A weaker New Zealand
dollar contributed $120 million to
the increase in fuel costs.
Aircraft operations, passenger
services and maintenance
costs were $1.4 billion, up 81
percent on the prior year driven
primarily by increased flying, the
recommencement of all remaining
international routes and inflationary
pricing impacts driving higher costs
in these areas.
Sales, marketing and other expenses
were $685 million, growing 66
percent primarily due to greater
market development and brand
activity, increased commissions on
higher revenue and digital services
including contact centre costs
related to disrupt support. Also
included within sales, marketing
and other expenses, was about
$30 million of costs related to the
operation of a wet lease aircraft to
support operational resilience from
November 2022 until the end of the
financial year. The lease will remain in
place until the end of October 2023.
Earnings before taxation of
$
574
million
Special dividend of
6.0
cents per share
Net profit after tax of
$
412
million
Tu i
Cargo Warehouse Agent
15
Financial Commentary (continued)
AIR NEW ZEALAND GROUP
Ownership costs were $740 million,
a nominal decrease compared to the
previous financial year. Increased
interest income due to higher cash
levels reduced net interest costs.
This was partially offset by increased
depreciation costs associated
with new aircraft deliveries and the
recommencement of depreciation
following the reversal of impairment
of a previously grounded Boeing
777-300ER widebody aircraft.
The impact of foreign exchange rate
changes on the revenue and cost
base resulted in an unfavourable
foreign exchange movement of
$124 million. After taking into
account a $7 million favourable
movement in hedging, overall
foreign exchange had a net $117
million negative impact on the
Group result for the period.
Share of Earnings
of Associates
Share of earnings of associates
were $39 million, up $12 million
due to an increase in earnings
from the Christchurch Engine
Centre as a result of continued
strong business performance,
favourable foreign exchange
movements and hedging gains.
Other Significant Items
Other significant items of
$11 million relate primarily to
unrealised foreign exchange
losses on foreign denominated
debt offset by the reversal of
impairment on Boeing 777-200ER
aircraft sold during the period.
Passenger revenue of
$
5.3
billion
Liquidity at
$
2.6
billion
Dividend
record date:
8 September
2023
Ex-dividend
date:
7 September
2023
Dividend
payment date:
21 September
2023
Operating revenue of
$
6.3
billion
16
Financial Commentary (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
Cash and Financial
Position
Cash on hand at 30 June 2023
was $2.2 billion, an increase of
$434 million on 30 June 2022. This
increase reflects strong operating
cash flows resulting from increased
flying activity. It also reflects
proceeds from the New Zealand
retail bond issued during the period,
partially offset by the repayment of
$200 million in Redeemable Shares
as well as fixed asset purchases
across the year. In May 2023, $275
million of cash was transferred to
restricted cash (classified “Other
assets” in the Statement of Financial
Position) as part of a commercial
arrangement to provide security
over the airline’s New Zealand-based
credit card obligations.
Cashflow and Debt
Operating cash flows represented
a net inflow of $1.9 billion, reflecting
positive cash earnings. Net gearing
improved 29.0 percentage points
to 16.4 percent, driven by increased
profitability over the year, offset by
cash purchases of aircraft. Net debt
to EBITDA¹ improved significantly
to 0.3 times. While this is outside
the target range of 1.5 times to 2.5
times, Management and the Board
have a number of tools that will be
utilised in the coming period to
prudently transition the metrics
back into the target range.
Further information on liquidity
and leverage targets and the
airline’s new capital management
framework, which is effective from
the 2024 financial year, can be
found on page 9.
Distributions
A one-off, fully imputed special
dividend of 6.0 cents per share
has been declared by the Board,
in recognition of the strong
financial result delivered in the
2023 financial year.
The Board believes a special dividend is the best
way to provide a return to shareholders at this
time, given the unique market dynamics that
have contributed to such a strong result this year.
1. EBITDA refers to earnings before interest, taxation,
depreciation and amortisation.
17
Change in Profitability
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.
June 2022
loss before taxation
Passenger capacity
$2,162m
- Capacity increased by 222 percent (excluding cargo-only flights) due to the relaxation of travel restrictions and
reopening of borders. Including cargo-only flights capacity increased by 80 percent.
- Domestic capacity increased by 36 percent following nationwide lockdowns and extended non-essential
travel restrictions in the Auckland region in the prior year which eased from mid December 2021. The
lockdowns were followed by a period of high infection rates in the second half of the 2022 financial year which
reduced Domestic flying.
- International short-haul capacity increased by 284 percent. The prior year was impacted by travel restrictions
and isolation requirements with staged border reopenings occurring from March 2022. From July 2022 to
early August 2022 fifteen routes were restarted across the Tasman and Pacific Islands network.
- International long-haul capacity increased 468 percent due to the removal of travel restrictions and border
reopenings commencing in the latter half of the 2022 financial year. In July 2022 Covid related border restrictions
for non-visa waiver visitors into New Zealand were removed and there was a significant build-back of capacity.
Passenger RASK
$1,664m
- Overall Group RASK increased by 11.6 percent excluding FX and was impacted by strong recovery of
passenger demand and greater flight activity compared to the prior year when there was limited international
flying, as well as domestic travel restrictions following closure of the Auckland boundary in the first half of the
2022 year. A change in mix of flying impacted Group RASK due to a higher proportion of International flying
having a lower RASK than Domestic due to the difference in sector length. Loads increased by 17.6 percentage
points to 84.7 percent.
- Domestic Revenue per Available Seat Kilometre (RASK) increased by 46 percent excluding FX with load
factors increasing 14.8 percentage points to 84.9 percent. There was strong demand from New Zealanders
reconnecting with friends and family as well as the return of international visitors and business travellers.
- International short-haul RASK improved by 29 percent excluding FX with load factor increasing 12.4 percentage
points to 85.1 percent. Strong demand particularly from the Visiting Friends and Relatives segment increased
load factors and RASK as demand exceeded supply.
- International long-haul RASK increased by 55 percent excluding FX with load factors increasing 26.9
percentage points to 84.4 percent. Prior to March 2022 there were limited passenger services which were
primarily for essential travel and repatriations, that supplemented cargo services. Strong demand in the current
year resulted in higher load factors and fares as market demand outstripped supply.
Cargo revenue
-$390m
- Cargo revenue declined following a reduction in cargo subsidies ($305 million) provided under the New Zealand
Government Maintaining International Air Connectivity scheme (MIAC) and Australian International Freight
Assistance Mechanism (IFAM) scheme, as borders reopened and passenger demand recovered. Yield reduced
due to an increase in market capacity and softening demand.
Contract services and
other revenue
$101m
- Recovery of ancilliary revenue following an increase in customer activity, including reopening of international
lounges and valet parking which were closed for the majority of the prior period as well as higher third-party
maintenance and ground handling offset by a reduction in charter revenue.
Labour
-$415m
- Higher labour costs due to a significant increase in operating activity as borders reopened and customer
demand recovered strongly, wage inflation and an increase in staff incentive provisions. As scale was restored
to the network investments were made in temporary labour support to address operational challenges.
Wage subsidy support
-$47m
- Receipt of wage subsidies in the prior period as a result of regional lockdowns and national Covid-19 restrictions.
Fuel
-$819m
- The average fuel price net of hedging increased 31 percent compared to the prior year resulting in an increase in
costs of $262 million. MOPS price increased by 6 percent. Consumption increased by 87 percent ($557 million)
compared to an increase in capacity of 80 percent.
Maintenance, aircraft
operations and
passenger services
-$597m
- Higher costs related to an increase in flying activity, maintenance checks on B773 widebodies returning to
service and recommencement of international routes.
Sales and marketing
and other expenses
-$252m
- Higher market development and brand spend to support sales activity, increased sales commissions, costs
associated with a wet lease aircraft brought in to ensure operational surety during aircraft maintenance checks,
higher customer activity related to customer contact centre and increased digital investment.
Ownership costs
$8m
- Increased interest income on higher cash holdings offset by recommencement of depreciation on a grounded
widebody aircraft fully impaired in the prior year and new aircraft deliveries.
Net impact of foreign
exchange movements
-$117m
- Net unfavourable impact of foreign exchange movements on revenue and costs offset by hedging gains.
Share of earnings
of associates
$12m
- Increase in earnings from Christchurch Engine Centre driven by hedging gains and foreign exchange movements.
Other significant items
$ 74 m
- Reversal of aircraft impairment on disposed widebody aircraft, software impairment and de-designation of
hedges as a result of forecast transactions no longer being expected to occur recognised in the prior year which
did not repeat, and lower foreign exchange losses on uncovered debt.
June 2023
profit before taxation
$ 574m
-$810m
AIR NEW ZEALAND GROUP
18
AIR NEW ZEALAND ANNUAL REPORT 2023
Directors’ Statement
The directors of Air New Zealand
Limited are pleased to present to
shareholders the Annual Report
and financial statements for Air New
Zealand and its controlled entities
(together the “Group”) for the year
to 30 June 2023.
The directors are responsible for
presenting financial statements in
accordance with New Zealand law and
generally accepted accounting practice,
which give a true and fair view of the
financial position of the Group as at
30 June 2023 and the results of the
Group’s operations and cash flows for
the year ended on that date.
The directors consider the financial
statements of the Group have
been prepared using accounting
policies which have been
consistently applied and supported
by reasonable judgements and
estimates and that all relevant
financial reporting and accounting
standards have been followed.
The directors believe that proper
accounting records have been kept
in accordance with the requirements
of the Financial Markets Conduct
Act 2013.
The directors consider that they
have taken adequate steps to
safeguard the assets of the Group,
and to prevent and detect fraud and
other irregularities. Internal control
procedures are also considered to
be sufficient to provide a reasonable
assurance as to the integrity and
reliability of the financial statements.
This Annual Report is signed on
behalf of the Board by:
Dame Therese Walsh
Chair
24 August 2023
Alison Gerry
Director
The accompanying accounting policies and notes form part of these financial statements.
19
AIR NEW ZEALAND GROUP
NOTES
2023
$M
2022
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
5,349
628
133
220
1,476
1,016
117
125
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange gains/(losses)
Other expenses
1 6,330
(1,4 41)
(1,499)
(395)
(694)
(334)
(291)
4
(394)
2,73 4
(976)
(560)
(259)
(412)
(116)
(131)
(3)
(281)
2(5,044) (2,738)
Operating Earnings (excluding items below)
Depreciation and amortisation
1,286
(695)
(4)
(668)
Earnings/(Loss) Before Finance Costs, Associates, Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)13
591
119
(164)
39
(672)
14
(94)
27
Earnings/(Loss) Before Other Significant Items and Taxation
Other significant items3
585
(11)
(725)
(85)
Earnings/(Loss) Before Taxation
Ta xation (expense)/credit4
5 74
(162)
(810)
219
Net Profit/(Loss) Attributable to Shareholders of Parent Company 412 (591)
Per Share Information:
Basic and diluted earnings per share (cents)
Special dividend declared per share (cents)
Net tangible assets per share (cents)
5
20
12.2
6.0
55
(40.8)
-
39
Statement of Financial Performance
For the year to 30 June 2023
The accompanying accounting policies and notes form part of these financial statements.
20
AIR NEW ZEALAND ANNUAL REPORT 2023
NOTE
2023
$M
2022
$M
Net Profit/(Loss) for the Year
Other Comprehensive Income/(Loss):
Items that will not be reclassified to profit or loss:
Actuarial gains/(losses) on defined benefit plans
Taxation on above reserve movements4
412
3
(1)
(591)
(5)
1
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss:
Changes in fair value of cash flow hedges
Transfers to net profit/(loss) from cash flow hedge reserve
Net translation gain on investment in foreign operations
Changes in cost of hedging reserve
Taxation on above reserve movements
2
17
(28)
1
(13)
7
(4)
111
(96)
3
(5)
1
Total items that may be reclassified subsequently to profit or loss(16) 14
Total Other Comprehensive (Loss)/Income for the Year, Net of Taxation(14) 10
Total Comprehensive Income/(Loss) for the Year, Attributable to Shareholders of the Parent Company 398 (581)
Statement of Comprehensive Income/(Loss)
For the year to 30 June 2023
The accompanying accounting policies and notes form part of these financial statements.
21
AIR NEW ZEALAND GROUP
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 20223,373(42)(10)(1,644)1,677
Net profit for the year
Other comprehensive loss for the year
-
-
-
(17)
-
1
412
2
412
(14)
Total Comprehensive Income for the Year - (17) 1414398
Transactions with Owners:
Equity-settled share-based payments (net of taxation)
Equity settlements of staff share award obligations
4, 21
21
6
(2)
-
-
-
-
-
-
6
(2)
Total Transactions with Owners 4 - - -4
Balance as at 30 June 2023 3,377 (59) (9) (1,230) 2,079
NOTES
SHARE
CAPITAL
$M
HEDGE
RESERVES
$M
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$M
GENERAL
RESERVES
$M
TOTAL
EQUITY
$M
Balance as at 1 July 20212,213(49)(17)(1,049)1,098
Net loss for the year
Other comprehensive income for the year
-
-
-
7
-
7
(591)
(4)
(591)
10
Total Comprehensive Loss for the Year - 77(595) (581)
Transactions with Owners:
Shares issued
Equity-settled share-based payments (net of taxation)
Equity settlements of staff share award obligations
21
4, 21
21
1,156
8
(4)
-
-
-
-
-
-
-
-
-
1,156
8
(4)
Total Transactions with Owners1,160 - - -1,160
Balance as at 30 June 2022 3,373 (42) (10) (1,644) 1,677
Statement of Changes in Equity
For the year to 30 June 2023
The accompanying accounting policies and notes form part of these financial statements.
22
AIR NEW ZEALAND ANNUAL REPORT 2023
NOTES
2023
$M
R E S TAT E D
2022
$M
Current Assets
Bank and short-term deposits
Trade and other receivables
Inventories
Derivative financial assets
Intangible assets
Income taxation
Other assets
6
7
8
25
12
9
2,227
496
119
90
35
2
300
1,793
363
98
165
21
-
57
Total Current Assets 3,269 2,497
Non-Current Assets
Trade and other receivables
Property, plant and equipment
Right of use assets
Intangible assets
Investments in other entities
Derivative financial assets
Deferred taxation
Other assets
7
10
11
12
13
25
4
9
23
3,261
1,687
172
190
122
8
463
36
3,190
1,617
174
164
143
164
365
Total Non-Current Assets 5,926 5,853
Total Assets 9,195 8,350
Current Liabilities
Trade and other payables
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Derivative financial liabilities
Provisions
Income taxation
Other liabilities
14
15
16
25
18
19
780
2,050
193
352
76
65
7
313
497
1,635
248
342
63
169
2
215
Total Current Liabilities 3,836 3,171
Non-Current Liabilities
Revenue in advance
Interest-bearing liabilities
Lease liabilities
Redeemable shares
Derivative financial liabilities
Provisions
Other liabilities
14
15
16
17
25
18
19
185
1,485
1,305
-
137
133
35
219
1,595
1,183
200
159
118
28
Total Non-Current Liabilities 3,280 3,502
Total Liabilities 7,116 6,673
Net Assets 2,079 1,677
Equity
Share capital
Reserves
21
22
3,377
(1,298)
3,373
(1,696)
Total Equity 2,079 1,677
Dame Therese Walsh
Chair
For and on behalf of the Board, 24 August 2023
Alison Gerry
Director
Statement of Financial Position
As at 30 June 2023
The accompanying accounting policies and notes form part of these financial statements.
23
AIR NEW ZEALAND GROUP
NOTES
2023
$M
R E S TAT E D
2022
$M
Cash Flows from Operating Activities
Receipts from customers
Payments to suppliers and employees
Income tax refunded
Interest paid
Interest received
6,635
(4,729)
3
(145)
89
3,353
(2,712)
-
( 74)
7
Net Cash Flow from Operating Activities6 1,853 5 74
Cash Flows used in Investing Activities
Disposal of property, plant and equipment, intangibles and assets held for sale
Distribution from associates
Acquisition of property, plant and equipment, right of use assets and intangibles
Interest-bearing assets
Investment in associates
Investment in other entities
13, 27
13, 27
27
16
(602)
(357)
-
-
28
32
(365)
(34)
(12)
(4)
Net Cash Flow used in Investing Activities(916) (355)
Cash Flows (used in)/from Financing Activities
Ordinary shares issued
Redeemable shares issued
Interest-bearing liabilities drawdowns
Lease liabilities drawdowns
Rollover of foreign exchange contracts*
Redemption of redeemable shares
Equity settlements of staff share award obligations
Interest-bearing liabilities payments
Lease liabilities payments
21
27
16
17, 2 7
21
16
-
-
100
186
31
(200)
(2)
(250)
(368)
1,156
600
1,277
-
36
(400)
(4)
(1,030)
(327)
Net Cash Flow (used in)/from Financing Activities(503) 1,308
Increase in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the year
434
1,793
1,527
266
Cash and Cash Equivalents at the End of the Year6 2,227 1,793
*Relates to gains/losses on rollover of foreign exchange contracts that hedge exposures in other financial periods.
Statement of Cash Flows
For the year to 30 June 2023
24
Statement of Accounting Policies
For the year to 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
Reporting entity
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.
Air New Zealand’s primary business is the transportation of passengers and cargo on scheduled airline services.
Statutory base
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. Air New Zealand Limited is a FMC Reporting Entity under the
Financial Markets Conduct Act 2013 and the Financial Reporting Act 2013.
Basis of preparation
Air New Zealand prepares its financial statements in accordance with New Zealand Generally Accepted Accounting Practice (“NZ GAAP”).
NZ GAAP consists of New Zealand equivalents to International Financial Reporting Standards (“NZ IFRS”) and other applicable financial
reporting standards as appropriate to profit-oriented entities. These financial statements comply with NZ IFRS and International Financial
Reporting Standards (“IFRS”).
The financial statements were approved by the Board of Directors on 24 August 2023.
Rebuild from Covid-19 pandemic
During the Covid-19 pandemic the Group significantly reduced its network as demand declined following border closures and international
travel restrictions. In response to the impact, the Group took a number of actions resulting in a reduction in flight capacity and labour,
being awarded grants for providing international airfreight services and received wage subsidies. The Government began to relax
travel restrictions into New Zealand from March 2022. Following the removal of these restrictions, along with other international border
relaxations, the airline experienced increased bookings, which has resulted in stronger net cash inflows from customer activity compared
to the 2022 financial year, and a significant improvement in operating performance. The Group also strengthened the balance sheet by
undertaking an equity capital raise and entering into debt funding arrangements in the latter half of the 2022 financial year, as well as
arranging an unsecured 4-year loan facility with the New Zealand government (which remains undrawn).
Basis of measurement
The financial statements have been prepared on the historical cost basis with the exception of certain items as identified in specific
accounting policies and are presented in New Zealand Dollars, which is the functional currency.
Use of accounting estimates and judgements
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Board of Directors to
exercise their judgement in the process of applying the Group’s accounting policies. Estimates and associated assumptions are based on
historical experience and other factors, as appropriate to the particular circumstances. The Group reviews the estimates and assumptions
on an ongoing basis.
Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial
statements are disclosed within the specific accounting policy or note as shown below:
Area of estimate or judgement Note
Revenue in advance Note 1 Revenue recognition and segmental information
Note 14 Revenue in advance
Aircraft lease return provisions Note 18 Provisions
Estimated recoverable amount of non-financial assets ‘Impairment’ accounting policy
Note 10 Property, plant and equipment
Note 11 Right of use assets
Residual values and useful lives of aircraft related assets Note 10 Property, plant and equipment
Note 11 Right of use assets
Reassessment of probability of forecast hedged cash flows Note 25 Financial risk management
Taxation Note 4 Taxation
Significant estimates are designated by an
symbol in the notes to the financial statements.
25
Statement of Accounting Policies (continued)
For the year to 30 June 2023
AIR NEW ZEALAND GROUP
Impact of climate change on financial reporting
The Group recognises that climate change presents a significant issue for the aviation industry and is committed to reducing its
emissions in-line with the Paris Agreement. In 2020 the Group announced its commitment to net zero carbon emissions by 2050.
In 2022 the Group announced an interim, science-aligned carbon reduction target that guides the Group towards reducing its emissions
intensity (based on “well-to-wake” emissions per revenue tonne kilometre) by 28.9 percent by 2030 (against a 2019 baseline).
The following initiatives are expected to contribute to the Group’s progress towards its targets:
• Sustainable Aviation Fuels (SAF)
• Next generation aircraft technologies – potential use of novel propulsion technologies; including battery electric, hydrogen fuel cell
and/or hybrid concepts
• Continued fleet renewal – rollover of the current fleet to newer aircraft that achieve greater fuel efficiency
• Operational efficiency – optimising carbon efficiency from flight and ground operations
• Carbon removal solutions
In preparing the financial statements, management considers climate-related risks, particularly in relation to financial reporting
judgements and estimates, where these could potentially impact reported amounts materially. The areas in which the Group has
assessed climate-related risks in the 2023 financial year are disclosed within Note 4 - Taxation, Note 10 - Property, plant and equipment
and Note 11 - Right of use assets.
Significant accounting policies
Accounting policies are disclosed within each of the applicable notes to the financial statements and are designated by a symbol.
The principal accounting policies applied in the preparation of these financial statements have been consistently applied to all periods
presented, except as detailed below.
Comparative information has been reclassified to achieve consistency in disclosure with the current financial period. Within the Statement
of Financial Position, carbon credits of $21 million (current assets) and $27 million (non-current assets) have been reclassified from Other
Assets to Intangible Assets as at 30 June 2022. In addition, purchases of $38 million and disposals of $14 million were reclassified in the
Statement of Cash Flows from Payments to suppliers and employees to Acquisition of property, plant and equipment, right of use assets
and intangibles and Disposals of property, plant and equipment, intangibles and assets held for sale. The reclassification is considered to
better reflect the underlying nature of carbon credit units held.
The following NZ IFRSs and Interpretations, which have been issued but are not yet effective, have been identified as those that may
impact Air New Zealand in the period of their initial application, and have not yet been adopted by the Group:
NZ IFRS 17 - Insurance Contracts has not been adopted early. It provides consistent principles for all aspects of accounting for insurance
contracts. This standard, which became effective for annual periods commencing on or after 1 January 2023, will not have a significant
impact on the financial statements.
The External Reporting Board (‘XRB’) of New Zealand issued three Climate Standards that set requirements for: Climate-related
Disclosures (Aotearoa New Zealand Climate Standard 1 (NZ CS 1)); First-time adoption of Aotearoa New Zealand Climate Standards
(NZ CS 2); and General Requirements for climate-related Disclosures (NZ CS 3). The Climate Standards are effective from 1 January 2023,
with mandatory assurance required on the Greenhouse Gas emissions included in the Climate Statements for the 2025 Group Annual
Report. The Group expects to adopt the Climate Standards for the year ended 30 June 2024. Voluntary Climate-related Disclosures are
currently prepared that follow the principles outlined in the international Task Force on Climate-related Financial Disclosures (TCFD) which
are reported within the Group’s Sustainability Report. The Group has commenced work to build upon the TCFD disclosures to ensure full
compliance with the new Climate Standards.
The significant accounting policies that are pervasive throughout the financial statements are set out below. Other significant accounting
policies that are specific to certain transactions or balances are set out within the particular note to which they relate.
Basis of consolidation
The consolidated financial statements include those of Air New Zealand Limited and its subsidiaries, accounted for using the
acquisition method, and the results of its associates and joint ventures, accounted for using the equity method.
All material intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Unrealised gains on transactions between the Group, joint ventures and its associates are eliminated to the extent of the Group’s
interest in the joint ventures and associates.
Where a business combination is achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the
acquisition date and any corresponding gain or loss is recognised in the Statement of Financial Performance.
26
Statement of Accounting Policies (continued)
For the year to 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
Foreign currency translation
Functional currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”).
Transactions and balances
Foreign currency transactions are converted into the relevant functional currency using exchange rates approximating those at transaction
date. Monetary assets and liabilities denominated in foreign currencies at balance date are translated at the exchange rate at that date.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Foreign exchange gains or losses are recognised in the Statement of Financial Performance, except
when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Group companies
The results and financial position of all Group entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows:
(a) assets and liabilities are translated at the closing rate at the reporting date;
(b) income and expenses are translated at exchange rates approximating those at transaction date; and
(c) all resulting exchange differences are recognised as a separate component of equity and in Other Comprehensive Income (within
Foreign Currency Translation Reserve).
Exchange differences arising from the translation of borrowings and other currency instruments designated as hedges of investments in
foreign entities, are taken to equity within Foreign Currency Translation Reserve.
Impairment
Non-financial assets are reviewed at each reporting date to determine whether there are any indicators that the carrying amount may
not be recoverable. If any such indicators exist, the asset’s recoverable amount is estimated. The recoverable amount is the higher of an
asset’s fair value less costs to dispose and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
An impairment loss is recognised in the Statement of Financial Performance for the amount by which the asset’s carrying amount exceeds
its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately
identifiable cash flows.
The carrying value of financial assets is assessed at each reporting date to determine whether there is any objective evidence of
impairment. Where necessary, the Group recognises provisions for expected credit losses based on 12-month or lifetime losses,
depending whether there has been a significant increase in credit risk since initial recognition. The Group considers reasonable and
supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative
information, based on the Group’s historical experience and informed credit assessment, including forward-looking information.
27
Notes to the Financial Statements
For the year to 30 June 2023
AIR NEW ZEALAND GROUP
1. Revenue Recognition and Segmental Information
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured, regardless of when payment is made. Revenue is measured at the fair value of the consideration
received or receivable. Specific accounting policies are as follows:
Passenger and cargo revenue
Passenger and cargo sales revenue is recognised in revenue in advance at the fair value of the consideration received and
allocated to each flight sector based on industry agreements. Amounts for each sector of the ticket are transferred to revenue
in the Statement of Financial Performance when the actual carriage is performed. Unused tickets are recognised as revenue
using estimates regarding the timing of recognition based on the terms and conditions of the ticket and historical trends.
The Group operates various code share and alliance arrangements. Revenue under these arrangements is recognised when
the Group performs the carriage or otherwise fulfils all relevant contractual commitments.
Where one or more sectors are operated by another carrier the amount of the consideration received from the customer less
any amount payable to the other carrier is recognised in revenue on a net basis unless the Group has primary responsibility
for providing the service. Where the Group has primary responsibility for providing the service the amounts are recognised
gross within revenue and expenses.
Government grants that provide financial support to maintain certain transportation services are recognised within revenue
in the Statement of Financial Performance when the service is provided and the grant conditions are satisfied.
Loyalty programmes
Revenue associated with the award of Airpoints Dollars to Airpoints members as part of the initial sales transaction is
determined by reference to the relative standalone selling prices. These revenues as well as consideration received in respect
of sales of Airpoints Dollars to third-parties is deferred to revenue in advance (net of estimated expiry) until such time as the
Airpoints member has redeemed their points. The estimate of expiry is based upon historical experience, assessments of
changes in customer behaviour and availability of redemption opportunities and is recognised in net passenger revenue in
proportion to the pattern of rights exercised by the customer.
Contract services revenue
Where contract related services are performed over a contractually agreed period, and the amount of revenue and related
costs can be reliably measured, revenue is recognised based on the proportion of contract costs for work performed to date
relative to the estimated total costs. Other contract related revenue is recognised as services are performed.
Other revenue
Other revenue includes lounge revenue, Koru membership subscriptions, commissions and fees and is recognised at the
time the service is provided.
Finance income
Interest revenue from investments and fixed deposits is recognised as it accrues, using the effective interest method
where appropriate.
Cargo revenue – Government grants and assistance
2023
$M
2022
$M
Cargo government grants and assistance:
- New Zealand
- Other regions
98
-
370
33
Total cargo grants and assistance 98403
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 were for a period from 30 April 2020 through to 31 March 2023 and were negotiated
on an arm’s length basis using standard commercial terms. The Group was also awarded contracts from August 2020 to June 2022 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 were satisfied at the time of recognition.
28
Notes to the Financial Statements (continued)
For the year to 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
1. Revenue Recognition and Segmental Information (continued)
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.
2023
$M
2022
$M
Analysis of revenue by geographical region of original sale
New Zealand
Australia and Pacific Islands
Asia, United Kingdom and Europe
America
3,873
838
710
909
2,031
221
247
235
Total operating revenue6,330 2,734
The principal non-current assets of the Group are 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.
2. Expenses
Additional information in respect of expenses included within the Statement of Financial Performance is as follows:
2023
$M
2022
$M
Superannuation expense
Audit and review of financial statements*
55
1
42
1
* In addition to fees paid for the audit and review of the financial statements of $1,363k (30 June 2022: $1,422k), other fees were paid
for assurance engagements including a student fee protection audit of $6k (30 June 2022: $5k), a passenger facility charge audit of
$28k (30 June 2022: Nil) and Greenhouse Gas inventory review of $30k (30 June 2022: $20k). The Group also paid $14k to Deloitte
for administrative and other advisory services provided to the Corporate Taxpayers Group for which Air New Zealand, alongside a
number of other organisations, is a member (30 June 2022: $17k).
Government grants and subsidies
Government grants and subsidies that compensate the Group for expenses incurred are recognised in the Statement of
Financial Performance on a systematic basis over the period in which the related costs are recognised when they become
unconditional. Grants and subsidies are reported on a net basis in the same line as the related expense.
2023
$M
2022
$M
Government grants and subsidies recognised in the Statement of Financial Performance include:
Wage subsidies (recognised within ‘Labour’)
- New Zealand
- Other regions
2
-
48
1
Total wage subsidies 2 49
Given the significant impact that Covid-19 had on the New Zealand economy, the New Zealand Government, through the Ministry
of Social Development, provided wage subsidies for periods where there were alert level restrictions and businesses could
demonstrate a decline in revenues as a result of the pandemic. Additional subsidies were received from other governments in the
prior year related to offshore offices including 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 subsidies, which have
been recognised in the Statement of Financial Performance, have been satisfied.
29
Notes to the Financial Statements (continued)
For the year to 30 June 2023
AIR NEW ZEALAND GROUP
3. Other Significant Items
Other significant items are items of revenue or expenditure which due to their size and nature, warrant separate
disclosure to assist with the understanding of the underlying financial performance of the Group.
2023
$M
2022
$M
Foreign exchange losses on uncovered interest-bearing liabilities and lease liabilities
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast transaction
was no longer expected to occur
Aircraft impairment reversal/(expense)
Impairment of intangible asset
Reorganisation costs release
(23)
-
12
-
-
(43)
(13)
(6)
(24)
1
(11) (85)
Foreign exchange losses 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
2020 financial year which resulted in certain foreign currency debt and lease obligations becoming unhedged. Foreign currency
translation gains/losses arising on these obligations were recognised in the Statement of Financial Performance.
Following the phased reopening of borders into New Zealand and other overseas ports, and recovery of international passenger
demand, in November 2022 the Group established new USD and EUR forecast foreign currency revenue hedges, and in April 2023
the Group established new JPY forecast foreign currency revenue hedges. From the date of designation of the hedges, the translation
gains/losses arising on the obligations were recognised in Other Comprehensive Income and accumulated within the cash flow
hedge reserve. Amounts accumulated in the cash flow hedge reserve will be transferred to Earnings at the time of the respective
interest-bearing liabilities and lease liabilities repayments. No further amounts will be recognised within Other Significant Items.
Foreign exchange amounts transferred from the cash flow hedge reserve where the forecast transaction was 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 in the prior years due to border closures and domestic travel
restrictions. The airline significantly reduced operating capacity, affecting revenues and operating expenditure. A number of revenue
hedges in relation to 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 the Statement of Financial Performance.
Aircraft impairment reversal/(expense)
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 in prior years, the Boeing
777-200ER fleet and one Boeing 777-300ER aircraft were grounded for an indefinite period into the future. The Group has since
reactivated the Boeing 777-300ER aircraft and an impairment provision held in relation to this aircraft was partially reversed as at
30 June 2022. Four owned Boeing 777-200ER aircraft and related assets were disposed of in the 2023 financial year. In the
comparative financial year the fair values were determined based on expressions of interest from third-parties. An impairment
reversal of $12 million was recognised in the Statement of Financial Performance in relation to these assets (30 June 2022: net
impairment expense of $4 million was recognised in relation to the Boeing 777-200ER and Boeing 777-300ER assets).
In prior years the Company exited from service the ATR72-500 fleet following a scheduled fleet replacement. Five aircraft were
disposed or parted-out in the 2022 financial year. An impairment expense of $2 million was recognised during the year ended
30 June 2022.
Impairment of intangible asset
The Group undertook, over a number of years, a software development project related to implementing an aircrew management
system. During the 2022 financial year the Group ceased development of a software programme associated with turboprop-related
aspects of aircrew management due to the high degree of complexity and expected delivery timeframes. The asset was fully written
down with an impairment expense of $24 million recognised against the capital work in progress (within Intangible Assets).
Reorganisation costs release
Due to the unprecedented impact of Covid-19 on the airline, a reorganisation programme was undertaken to realign the cost base.
In the 2022 financial year redundancy provisions of $1 million were released following the recall of staff as a result of a recovery in
customer demand.
4 . Ta x a t i o n
Current and deferred taxation are calculated on the basis of tax rates enacted or substantively enacted at reporting
date, and are recognised in the income statement except when the tax relates to items charged or credited to other
comprehensive income, in which case the tax is also recognised in other comprehensive income.
Deferred income taxation is recognised in respect of temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
Deferred income tax assets and unused tax losses are only recognised to the extent that it is probable that future
taxable amounts will be available against which to utilise those temporary differences and losses.
30
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
4. Taxation (continued)
Judgements are required about the application of income tax legislation. These judgements and assumptions are subject
to risk and uncertainty. There is therefore a possibility that changes in circumstances will alter expectations, which may
impact the amount of current and deferred tax assets and liabilities recognised in the Statement of Financial Position and
the amount of other tax losses and temporary differences not yet recognised. In such circumstances, some or all of the
carrying amounts of recognised tax assets and liabilities may require adjustment, resulting in a corresponding credit or
charge to the Statement of Financial Performance. Assumptions underlying the forecast of future taxable income that
supports the recoverability of deferred tax assets consider the financial impacts of the Group’s decarbonisation strategy.
2023
$M
2022
$M
Current taxation expense
Current year - (2)
Deferred taxation (expense)/credit
Origination of temporary differences
Unused tax losses
-
(34)
(128)
(2)
29
192
(162) 221
Total taxation (expense)/credit recognised in earnings (162) 219
Reconciliation of effective tax rate
Earnings/(Loss) before taxation 5 74 (810)
Taxation at 28%
Adjustments
Non-deductible expenses
Non-taxable income
Under provided in prior periods
Foreign tax paid
Other
(161)
(3)
1
(1)
(1)
3
227
(4)
1
-
-
(5)
Taxation (expense)/credit (162) 219
The Group has $48 million of imputation credits as at 30 June 2023 (30 June 2022: $40 million).
Deferred taxation
Deferred tax assets and liabilities are attributable to the following:
NON-
AIRCRAFT
ASSETS
$M
AIRCRAFT
RELATED
$M
PROVISIONS
AND
ACCRUALS
$M
FINANCIAL
INSTRUMENTS
$M
PENSION
OBLIGATIONS
$M
EQUITY
SETTLEMENTS
$M
UNUSED
TA X LO S S E S
$M
TOTAL
$M
As at 1 July 2021(4) 318(59) (20)-(2) (175)58
Amounts recognised in Other
Comprehensive Income
Amounts recognised in earnings
-
(10)
-
(17)
-
(4)
-
-
(1)
-
-
2
-
(192)
(1)
(221)
As at 30 June 2022 (14) 301(63) (20) (1) -(367)(164)
Amounts recognised in Other
Comprehensive Income
Amounts recognised in earnings
-
(10)
(1)
52
-
(7)
(6)
-
1
-
-
(1)
-
128
(6)
162
As at 30 June 2023 (24)352(70)(26)-(1)(239)(8)
Deferred tax assets and liabilities are offset on the face of the Statement of Financial Position where they relate to entities within the
same taxation authority.
The Group is carrying forward $854 million of tax losses (30 June 2022: $1,311 million) that are available indefinitely for offsetting
against future taxable income. A deferred tax asset of $239 million (30 June 2022: $367 million) has been recognised in respect of
these losses as there are taxable temporary differences against which the tax losses can be offset. The Board of Directors consider
it probable that there will be sufficient future taxable profits against which the carried forward tax losses can be utilised.
The Organisation of Economic Co-operation and Development’s (OECD’s) Pillar Two rules are currently being introduced in New
Zealand through the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill. It is not expected that there
will be any significant impact on the Group.
31
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND GROUP
5. Earnings Per Share
Basic earnings per share is calculated by dividing the profit/(loss) attributable to shareholders of the Parent by the
weighted average number of ordinary shares on issue during the year, excluding shares held as treasury stock. Diluted
earnings per share assumes conversion of all dilutive potential ordinary shares in determining the denominator.
2023
$M
2022
$M
Earnings for the purpose of basic and diluted earnings per share:
Net profit/(loss) attributable to shareholders 412 (591)
Weighted average number of shares (in millions of shares)
Weighted average number of Ordinary Shares for basic earnings per share
Effect of dilutive ordinary shares:
- Performance rights
3,368
9
1,449
-
Weighted average number of Ordinary Shares for diluted earnings per share3,377 1,449
Basic and diluted earnings per share
12.2(40.8)
6. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, current accounts in banks net of overdrafts and other
short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Cash flows are included in the Statement of Cash Flows net of Goods and Services Tax.
Cash and cash equivalents, as stated in the Statement of Cash Flows, are reconciled to the Bank and short-term deposits balance in
the Statement of Financial Position as follows:
2023
$M
R E S TAT E D
2022
$M
Cash balances
Short-term deposits and short-term bills
103
2,124
73
1,720
Total cash and cash equivalents 2,227 1,793
Reconciliation of Net Profit/(Loss) Attributable to Shareholders to Net Cash Flows from Operating Activities:
Net profit/(loss) attributable to shareholders
Plus/(less) non-cash items:
Depreciation and amortisation
Loss on disposal of property, plant and equipment, intangibles and assets held for sale
Impairment (reversal)/expense on property, plant and equipment, right of use assets, intangibles and
assets held for sale
Share of earnings of associates
Movements on fuel derivatives
Foreign exchange losses 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
Foreign exchange losses
Other non-cash items
412
695
10
(14)
(39)
(15)
23
-
20
11
(591)
668
11
30
(27)
(10)
43
13
8
13
Net working capital movements:
Assets
Revenue in advance
Liabilities
1,103
(122)
381
491
158
(28)
662
(218)
750 416
Net cash flow from operating activities 1,853 5 74
32
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
7. Trade and Other Receivables
Trade and other receivables are recognised at cost less any provision for lifetime expected credit losses. Bad debts are
written-off when they are considered to have become uncollectable.
2023
$M
2022
$M
Current
Trade and other receivables
Prepayments
422
74
313
50
496 363
Non-current
Prepayments 23 36
2336
Expected credit loss provisions of $1 million were recognised as at 30 June 2023 (30 June 2022: $4 million).
8. Inventories
Inventories are measured at the lower of cost and net realisable value. Cost is determined using the first-in, first-out
(FIFO) cost method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable
selling expenses.
2023
$M
2022
$M
Engineering expendables
Consumable stores
93
26
81
17
119 98
Held at cost
Held initially at cost
Less provision for inventory obsolescence
105
69
(55)
83
73
(58)
Held at net realisable value 14 15
11998
33
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
9. Other Assets
Contract work in progress
Contract work in progress is stated at cost plus the profit recognised to date, using the cost input method, less any
amounts invoiced to customers. Cost includes all expenses directly related to specific contracts and an allocation of direct
production overhead expenses incurred. Amounts are invoiced as work progresses in accordance with contractual terms,
either at periodic intervals or upon achievement of contractual milestones.
Interest-bearing assets
Interest-bearing assets are measured at amortised cost using the effective interest method, less any impairment.
Assets held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction
rather than through continuing use. The sale must be highly probable and the asset available for immediate sale in its
present condition. Non-current assets held for sale are measured at the lower of the asset’s previous carrying amount
and its fair value less costs to sell.
2023
$M
2022
$M
Current
Contract work in progress
Interest-bearing assets
Assets held for sale
Other assets
22
275
1
2
40
-
13
4
30057
Non-current
Interest-bearing assets
Other assets
457
6
360
5
463365
The carrying value of the assets held for sale reflects the lower of their previous carrying value at the date of transfer or external
market assessments of the fair value, less costs to dispose. Spares related to exited fleets are being marketed for sale and it is
expected that proceeds will be received over the next year. As a result of the impact of Covid-19 on international travel, the Group
exited from service four Boeing 777-200ER aircraft, three spare engines and other associated assets that were not expected to
return to operation in the Air New Zealand fleet. The fleet assets were disposed of in the 2023 financial year. The market values
for the 2022 financial year were obtained from an external valuer which equated to a level 2 input on the fair value hierarchy. Key
inputs into the external valuations included economic factors, the age and manufacture type of the aircraft and engines, and the
maintenance condition of the aircraft. An impairment expense of $21 million was recognised in relation to these assets in the 2022
financial year.
Interest-bearing assets include fixed rate Term Deposits and floating rate Certificates of Deposits that have been provided as
security over credit card obligations incurred by Air New Zealand and standby letters of credit and other financial guarantees issued
to third-parties. Certain deposits are subject to offsetting under a security deed and remain in force until specifically released by
the secured party. For other deposits, a minimum notification period of twelve months is required to be given prior to the security
deposits being released. These deposits are subject to potential offsetting under master netting arrangements. In addition, the
Group holds Euro fixed rate deposits that mature between September 2030 and September 2031 held as part of aircraft financing
arrangements. Fixed interest rates in the year to 30 June 2023 were between 0.6% and 6.1% per annum (30 June 2022: 0.04% to
3.6% per annum). The fair value of interest-bearing assets as at 30 June 2023 was $729 million (30 June 2022: $373 million).
34
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
10. Property, Plant and Equipment
Owned assets
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and accumulated
impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item and in bringing the
asset to the location and working condition for its intended use. Cost may also include transfers from equity of any gains
or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.
Where significant parts of an item of property, plant and equipment have different useful lives, they are accounted for
separately. A portion of the cost of an acquired aircraft is attributed to its service potential (reflecting the maintenance
condition of its engines) and is depreciated over the shorter of the period to the next major inspection event, overhaul,
or the remaining life of the asset. The cost of major engine overhauls for aircraft owned by the Group is capitalised and
depreciated over the period to the next expected inspection or overhaul.
Capital work in progress includes the cost of materials, services, labour and direct production overheads.
Manufacturing credits
Where the Group receives credits and other contributions from manufacturers in connection with the acquisition of certain
aircraft and engines, these are either recorded as a reduction to the cost of the related aircraft and engines, or offset against
the associated operating expense, according to the reason for which they were received.
Depreciation
Depreciation is calculated to write down the cost of assets on a straight line basis to an estimated residual value over their
economic lives as follows:
Airframes 18 years
Engines 6 – 15 years
Engine overhauls period to next overhaul
Aircraft specific plant and equipment (including simulators and spares) 10 – 25 years
Buildings 50 – 100 years
Non-aircraft specific leasehold improvements, plant, equipment, furniture and vehicles 2 - 10 years
AIRFRAMES,
ENGINES AND
SIMULATORS
$M
SPARE S
$M
PLANT AND
EQUIPMENT
$M
LAND AND
BUILDINGS
$M
CAPITAL WORK
IN PROGRESS
$M
TOTAL
$M
2023
Carrying value as at 1 July 2022
2,720 81 113 197 79 3,190
Additions
Disposals
Depreciation
Impairment reversal
Transfers of capital work in progress
Transfers from right of use assets
207
(13)
(277)
-
24
57
31
(9)
(10)
-
-
-
3
-
(28)
-
17
-
-
-
(33)
2
7
-
142
(1)
-
-
(48)
-
383
(23)
(348)
2
-
57
Carrying value as at 30 June 2023
Represented by:
Cost
Accumulated depreciation
Provision for impairment
2,718
4,74 4
(2,023)
(3)
93
174
(81)
-
105
511
(406)
-
173
554
(371)
(10)
172
172
-
-
3,261
6,155
(2,881)
(13)
Carrying value as at 30 June 2023 2,718 93105173172 3,261
35
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
10. Property, Plant and Equipment (continued)
AIRFRAMES,
ENGINES AND
SIMULATORS
$M
SPARE S
$M
PLANT AND
EQUIPMENT
$M
LAND AND
BUILDINGS
$M
CAPITAL WORK
IN PROGRESS
$M
TOTAL
$M
2022
Cost
Accumulated depreciation
Provision for impairment
3,939
(1,295)
(5)
143
(70)
-
497
(367)
-
531
(309)
(12)
76
-
-
5,186
(2,041)
(17)
Carrying value as at 1 July 2021 2,639 7313021076 3,128
Additions
Disposals
Depreciation
Impairment reversal/(expense)
Transfers of capital work in progress
Transfer to assets held for resale
193
(1)
(259)
2
22
124
26
(10)
(8)
-
-
-
1
-
(30)
-
12
-
10
-
(33)
-
10
-
48
-
-
(1)
(44)
-
278
(11)
(330)
1
-
124
Carrying value as at 30 June 2022
Represented by:
Cost
Accumulated depreciation
Provision for impairment
2,720
4,403
(1,680)
(3)
81
156
(75)
-
113
502
(389)
-
197
550
(341)
(12)
79
79
-
-
3,190
5,690
(2,485)
(15)
Carrying value as at 30 June 2022 2,720 81113197793,190
2023
$M
2022
$M
Airframes, engines and simulators comprise:
Owned airframes, engines and simulators
Progress payments
2,502
216
2,490
230
2,718 2,720
Land and buildings comprise:
Leasehold properties
Freehold properties
162
11
185
12
173197
Certain aircraft and aircraft related assets with a carrying value of $1,546 million as at 30 June 2023 are pledged as specific security
over secured borrowings (30 June 2022: $1,665 million).
Impairment
Assets are required to be carried at no more than their recoverable amount either through use or sale of the asset. During
the 2023 financial year no indicators of impairment were identified that would require a formal impairment test to be
undertaken (other than for Air New Zealand Gas Turbines assets which were tested individually). In the 2022 financial year,
due to uncertainty surrounding the expected recovery period of global demand as a result of the Covid-19 pandemic, the
Group undertook impairment testing to ensure the carrying value of assets was appropriate.
Fleet
In the 2023 financial year the recoverability of aircraft assets was supported by the market values which were above the
carrying values. A value-in-use model was not required to be prepared as no indications of impairment were identified.
For the 2022 financial year the carrying value of assets (excluding those individually tested) was 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 10-year period, on the basis of detailed shorter-term forecasts which incorporated recovery towards
pre-Covid-19 capacity, followed by extrapolation at a growth rate of 2.00% per annum from the 2027 financial year. The
cash flow projections were discounted using a pre-tax rate of 12.6%, which reflected a market estimate of the weighted
average cost of capital for the Group with sensitivities performed within the range of 11.6% to 13.9%. This pre-tax weighted
average cost of capital equated to a post tax rate of 10.0%.
Cash flow projections used in the discounted cash flow models reflected the Board of Director’s and management’s view
at the time of network growth following the impact of the Covid-19 pandemic. The projections incorporated key inputs and
assumptions including the recovery of passenger demand for domestic and international travel, expected fleet usage,
network operations and investment profile. In assessing the cash flow projections, the directors 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 2027 financial year were revenue per available seat kilometre and fuel
price. Consideration was 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.
36
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
10. Property, Plant and Equipment (continued)
Fleet (continued)
The majority of the enterprise value within the value-in-use model was derived from the terminal value as opposed to
short-term detailed cashflow projections to the 2027 financial year. Potential short-term variances in the Group’s cashflow
projections, while impacting the measurement of the recoverable amount, did not materially impact the headroom
identified. The discounted cash flows from the cash generating unit confirmed for the 2022 financial year that there was
no impairment to the remaining cash generating unit assets (including the aircraft fleet) as, in the opinion of the directors,
the recoverable value from value-in-use exceeded the book value of the assets, based on the Board of Directors’
assessment of the Group’s future operations.
Land and buildings
Air New Zealand Gas Turbines (ANZGT) provides overhaul services to aero derivative engines that are applied to energy
production and marine industries. In prior years a downturn in the market resulted in a decline in activity and profitability
of the business resulting in an impairment provision of $12 million being recognised against the land and building assets
of the business. During the year ended 30 June 2023 the assets were assessed for impairment based on a value-in-use
discounted cash flow valuation. The Group will cease operations of all customer work of ANZGT from 30 September 2023.
Key assumptions applied in the value-in-use model include the timing of realisation of cashflows (and in the prior year
exchange rates, customer demand and market supply which was derived off historic data and market information). Given
the proximity to closure of the business and realisation of the cash flows the projections were not discounted in the 2023
financial year (30 June 2022: 10%). The cashflow valuation supported a reversal of impairment of $2 million for the year
ended 30 June 2023 (30 June 2022: Nil).
Residual values and useful lives
Estimates and judgements are applied by management to determine the expected useful lives of aircraft related assets.
The useful lives are determined based on the expected service potential of the asset and lease term for leasehold
improvements. The residual value, at the expected date of disposal, is estimated by reference to external projected values
and is influenced by external changes to economic conditions, demand, competition and new technology. Residual values
are denominated in United States dollars and are therefore sensitive to exchange fluctuations as well as movements in
projected values. The impact of decarbonisation and climate-related risks on the Group’s aircraft related assets has also
been considered when assessing residual values and useful lives. Residual values and useful lives are reviewed each
year to ensure they remain appropriate. During the year ended 30 June 2023 the residual values of the aircraft were
reassessed and depreciation expense was increased by $13 million (30 June 2022: decreased by $6 million).
11. Right of Use Assets
Right of use assets are initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred, less any lease incentives
received and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site
on which it is located.
The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the end
of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term
or the cost of the right of use asset reflects that the Group is likely to exercise a purchase option. In that case, the right of
use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of
property, plant and equipment. In addition, the right of use asset is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.
AIRFRAME
AND ENGINES
WITH
PURCHASE
OPTION*
$M
AIRFRAME
AND ENGINES
WITH NO
PURCHASE
OPTION
$M
LAND AND
BUILDINGS
$M
TOTAL
$M
2023
Carrying value as at 1 July 2022
1,023 352 242 1,617
Additions
Disposals
Depreciation
Impairment expense
Transfers to property, plant and equipment
155
(7)
(127)
-
(57)
199
-
(124)
(1)
-
85
-
(53)
-
-
439
(7)
(304)
(1)
(57)
Carrying value as at 30 June 2023
Represented by:
Cost
Accumulated depreciation
Provision for impairment
987
1,978
(991)
-
426
940
(488)
(26)
2 74
465
(191)
-
1,687
3,383
(1,670)
(26)
Carrying value as at 30 June 2023987 426 2 741,687
* Airframes and engines where a purchase option is assessed as reasonably certain to be exercised.
37
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
11. Right of Use Assets (continued)
AIRFRAME
AND ENGINES
WITH
PURCHASE
OPTION*
$M
AIRFRAME
AND ENGINES
WITH NO
PURCHASE
OPTION
$M
LAND AND
BUILDINGS
$M
TOTAL
$M
2022
Cost
Accumulated depreciation
Provision for impairment
2,283
(999)
-
821
(295)
(89)
361
(93)
-
3,465
(1,387)
(89)
Carrying value as at 1 July 2021
Additions
Disposals
Depreciation
Impairment reversal
Transfers to property, plant and equipment
1,284
-
-
(137)
-
(124)
437
5
-
(105)
15
-
268
25
(2)
(49)
-
-
1,989
30
(2)
(291)
15
(124)
Carrying value as at 30 June 2022
Represented by:
Cost
Accumulated depreciation
Provision for impairment
1,023
2,000
(977)
-
352
806
(387)
(67)
242
382
(140)
-
1,617
3,188
(1,504)
(67)
Carrying value as at 30 June 2022 1,023 352242 1,617
* Airframes and engines where a purchase option is assessed as reasonably certain to be exercised.
Certain aircraft and aircraft related assets with a carrying value of $960 million as at 30 June 2023 (30 June 2022: $990 million)
are pledged as security over lease liabilities.
Impairment
In prior years, the severity of the impact of the Covid-19 pandemic resulted in the grounding of the Boeing 777-200ER fleet
in which four leased aircraft were put into long-term storage for an indefinite period of time and the right of use assets were
fully impaired. In the 2022 financial year one of these aircraft was returned to the lessor and an impairment provision of
$41 million was held for the three remaining aircraft. In the 2023 financial year all of the remaining aircraft were returned.
An impairment provision reversal of $15 million was recognised in the 2022 financial year for one Boeing 777-300ER aircraft
that was previously not expected to return to service and was subsequently reactivated in August 2022. A remaining
impairment provision of $26 million was held for the aircraft representing the period of time in which the aircraft was not
expected to return to service.
Residual values and useful lives
Estimates and judgements are applied by management to determine the expected useful lives of aircraft related assets.
The useful lives are determined based on the expected service potential of the asset and lease term. The residual value,
at the expected date of disposal, is estimated by reference to external projected values and are influenced by external
changes to economic conditions, demand, competition and new technology. Residual values are denominated in United
States dollars and are therefore sensitive to exchange fluctuations as well as movements in projected values. The impact
of decarbonisation and climate-related risks on the Group’s leased assets has been considered when assessing residual
values and useful lives. Residual values and useful lives are reviewed each year to ensure they remain appropriate. During
the year ended 30 June 2023 the residual values of the aircraft were reassessed and depreciation expense was increased
by $1 million (30 June 2022: decreased by $7 million).
38
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
12. Intangible Assets
Computer software acquired, which is not an integral part of a related hardware item, is recognised as an intangible asset.
The costs incurred internally in developing computer software are also recognised as intangible assets where the Group
has a legal right to use the software and the ability to obtain future economic benefits from that software. Acquired software
licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Cloud based
software as a service arrangements are recognised as an asset where the Group has the right to use and the ability to
control and obtain future economic benefits. These assets have a finite life and are amortised on a straight-line basis over
their estimated useful lives of two to ten years.
Carbon credit units are recognised at cost less accumulated impairment losses. Carbon credits are based on a first-
in, first-out cost method. Carbon credits are classified as current assets where they are expected to be used to offset
obligations under the Emissions Trading Scheme within 12 months of balance date.
INTERNALLY
DEVELOPED
SOFTWARE
$M
EXTERNALLY
PURCHASED
SOFTWARE
$M
CAPITAL
WORK IN
PROGRESS
$M
CARBON
CREDITS
$M
OTHER
$M
TOTAL
$M
2023
Restated carrying value as at 1 July 2022
118 1
27
48
1
195
Additions
Disposals
Amortisation
Transfers of capital work in progress
-
-
(42)
44
-
-
(1)
-
35
(1)
-
(44)
48
(27)
-
-
-
-
-
-
83
(28)
(43)
-
Carrying value as at 30 June 2023
Represented by:
Cost
Accumulated depreciation
120
569
(449)
-
152
(152)
17
17
-
69
69
-
1
1
-
207
808
(601)
Carrying value as at 30 June 2023 120 -17 691207
Current assets
Non-current assets
-
120
-
-
-
17
35
34
-
1
35
172
Carrying value as at 30 June 2023120-17 691207
2022
Cost
Accumulated depreciation
502
(366)
153
(151)
30
-
-
-
1
-
686
(517)
Carrying value as at 1 July 2021
Restatement for reclassification of Carbon Credits
from ‘Other Assets’:
Cost
136
-
2
-
30
-
-
24
1
-
169
24
Restated carrying value as at 1 July 2021
Additions
Disposals
Amortisation
Impairment expense
Transfers of capital work in progress
136
-
(1)
(46)
-
29
2
-
-
(1)
-
-
30
50
-
-
(24)
(29)
24
38
(14)
-
-
-
1
-
-
-
-
-
193
88
(15)
(47 )
(24)
-
Restated carrying value as at 30 June 2022
Represented by:
Cost
Accumulated depreciation
118
524
(406)
1
151
(150)
27
27
-
48
48
-
1
1
-
195
751
(556)
Restated carrying value as at 30 June 2022 118 127 481195
Current assets
Non-current assets
-
118
-
1
-
27
21
27
-
1
21
174
Carrying value as at 30 June 2022118127 481195
39
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND GROUP
13. Investments in Other Entities
2023
$M
2022
$M
Investments in associates
Investments in other entities
184
6
158
6
190164
Subsidiaries
Significant subsidiaries comprise:
NAME PRINCIPAL ACTIVITY COUNTRY OF INCORPORATION
Air Nelson Limited Aviation services New Zealand
Air New Zealand Aircraft Holdings Limited Aircraft leasing and financing New Zealand
Air New Zealand Associated Companies Limited Investment New Zealand
Air New Zealand Regional Maintenance Limited Engineering services New Zealand
Mount Cook Airline Limited Aviation services New Zealand
TEAL Insurance Limited Captive insurer New Zealand
All subsidiary entities above have a balance date of 30 June and are 100% owned.
An associate company is an entity in which the Group has significant influence, but not control or joint control, over the
financial and operating policies. A joint venture is an arrangement in which the Group has joint control and rights to the net
assets. Significant influence is presumed to exist when the Group holds 20 percent or more of the voting power of an entity.
Investments in associates and joint ventures are accounted for using the equity method and are measured in the
Statement of Financial Position at cost plus post-acquisition changes in the Group’s share of net assets, less dividends.
If the carrying amount of the equity accounted investment exceeds its recoverable amount, it is written down to the latter.
When the Group’s share of accumulated losses in an associate or joint venture equals or exceeds its carrying value, the
Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate
or joint venture.
Associates
Significant associates and joint ventures comprise:
NAME % OWNED PRINCIPAL ACTIVITY COUNTRY OF BALANCE DATE
INCORPORATION
Christchurch Engine Centre (CEC) 49 Engineering services New Zealand 31 December
Drylandcarbon One Limited Partnership 21 Carbon credit generation New Zealand 30 June
Summary financial information of associates
CEC
2023
$M
DRYLAND
2023
$M
TOTAL
2023
$M
CEC
2022
$M
DRYLAND
2022
$M
TOTAL
2022
$M
Assets and liabilities of associates are as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
485
58
(197)
(18)
15
101
(3)
-
500
159
(200)
(18)
3 74
54
(127)
(27)
23
105
(13)
-
397
159
(140)
(27)
Net identifiable assets (100% share)328113441274115389
Group share of net identifiable assets1612318413424158
Carrying value of investment in associates1612318413424158
Results of associates
Revenue
Earnings after taxation
1,169
79
4
1
1,173
80
877
56
3
(1)
880
55
Total comprehensive income (100% share)7918056(1)55
Group share of net earnings after taxation39 -3927 -27
Group share of total comprehensive income39-3927-27
40
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
14. Revenue in Advance
Transportation sales in advance (including held in credit balances) includes consideration received in respect of
passenger and cargo sales for which the actual carriage has not yet been performed. It also includes amounts due for
sectors operated by other carriers for which the Group collects consideration from the customer and makes payments to
the other carrier based on industry agreements at the time the carriage is performed.
Loyalty programme revenue in advance includes revenues associated with both the award of Airpoints Dollars to Airpoints
members as part of the initial sales transaction and with sales of Airpoints Dollars to third-parties, net of estimated expiry
(non-redeemed Airpoints Dollars), in respect of which the Airpoints member has not yet redeemed their points.
Other revenue in advance includes membership subscriptions and contract related services revenue which relate to
future periods.
Transportation sales in advance
As a result of the impact that Covid-19 had on international border closures and domestic travel restrictions the Group’s
airline operating schedule was severely impacted resulting in a significant number of flight reschedules and cancellations.
Passenger ticket sales that are no longer assigned to a specific scheduled service are held in credit and are available to be
assigned to a specific flight. The carriage will be performed within 12 months of assignment. Estimates have been applied
to the expected availment profile of the credits in determining the term allocation of the liability. Key judgements included
assumptions around passenger demand, forecasted operating capacity and revenue per available seat kilometre.
2023
$M
2022
$M
Current
Transportation sales in advance
Loyalty programme
Other
1,793
232
25
1,422
194
19
2,0501,635
Non-current
Transportation sales in advance
Loyalty programme
Other
21
158
6
21
195
3
185219
Summary financial information of associates (continued)
CEC
2023
$M
DRYLAND
2023
$M
TOTAL
2023
$M
CEC
2022
$M
DRYLAND
2022
$M
TOTAL
2022
$M
Reconciliation to carrying amounts:
Opening carrying value
Share of net earnings after taxation
Distributions received
Investment in associate
Foreign currency movements
134
39
(16)
-
4
24
-
(1)
-
-
158
39
(17)
-
4
125
27
(32)
-
14
12
-
-
12
-
137
27
(32)
12
14
Closing carrying value1612318413424158
13. Investments in Other Entities (continued)
41
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
15. Interest-Bearing Liabilities
Borrowings, medium term notes and bonds are initially recognised at fair value, net of transaction costs incurred. They are
subsequently stated at amortised cost using the effective interest rate method, with changes in market interest rates on
certain interest-bearing liabilities measured at fair value. Medium term notes and an unsecured bond issued in October
2022 were designated in fair value hedge relationships, which results in changes in market interest rates being reflected in
fair value adjustments of those liabilities.
Borrowings, medium term notes and bonds are classified as current liabilities unless the Group has an unconditional right
to defer settlement of the liability for more than 12 months after the balance date.
2023
$M
2022
$M
Current
Secured borrowings
Unsecured bonds
193
-
198
50
193 248
Non-current
Secured borrowings
Medium term notes
Unsecured bonds
805
578
102
987
608
-
1,485 1,595
Interest rates basis:
Fixed rate
Floating rate
741
937
732
1,111
At carrying amount 1,678 1,843
At fair value1,721 1,852
Non-cash movements in interest-bearing liabilities during the year ended 30 June 2023 included foreign exchange losses of
$4 million (30 June 2022: losses of $49 million) and fair value hedge adjustments of $19 million (30 June 2022: Nil).
The fair value of interest-bearing liabilities for disclosure purposes is calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest for similar liabilities at reporting date.
Secured borrowings with third-parties are secured over aircraft and are subject to both fixed and floating interest rates. Fixed
interest rates were 1.0% per annum (30 June 2022: 1.0% per annum).
On 25 May 2022, the Group issued AUD550 million of unsecured, unsubordinated Australian Medium Term Notes in two tranches.
The first tranche, of AUD300 million, was a four year fixed rate note maturing on 25 May 2026 with a fixed coupon of 5.7% per annum
payable semi-annually. The second tranche, of AUD250 million, was a seven year fixed rate bonds maturing on 25 May 2029 with
a fixed coupon of 6.5% per annum payable semi-annually.
On 27 October 2022, the Group issued $100 million of unsecured, unsubordinated fixed rate bonds with a maturity date of 27 April
2028 and an interest rate of 6.61% per annum payable semi-annually.
The Group repaid $50 million of five year unsecured unsubordinated fixed rate bonds at the maturity date of 28 October 2022.
The bonds had a fixed interest rate of 4.25% per annum which was payable semi-annually.
16. Lease Liabilities
At inception of the contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains,
a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. Control is conveyed where the Group has both the right to direct the use of the identified asset and to obtain
substantially all of the economic benefits from the use of the asset throughout the lease term.
The Group recognises a right of use asset and a lease liability at the lease commencement date. Details regarding right of
use assets are set out in Note 11.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration
in the contract to each lease component on the basis of its relative standalone prices.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s
incremental borrowing rate. Generally, the Group uses the incremental borrowing rate as the discount rate.
42
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
16. Lease Liabilities (continued)
Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or a rate, initially measured using the index or rates as at the
commencement date; and
- the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an
optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early
termination of a lease unless the Group is reasonably certain not to terminate early.
After the commencement date, the amount of the lease liability is increased to reflect the accretion of interest and reduced
for the lease payments made. The liability is remeasured when there is a change in future lease payments arising from a
change in an index or a rate and if the Group revises its assessment as to whether it will exercise a purchase, extension or
termination option. A corresponding adjustment is made to the carrying amount of the right of use asset, or is recognised
in the Statement of Financial Performance if the carrying amount of the right of use asset has been reduced to zero.
Leases are classified as current liabilities when the lease payments are due to be settled within twelve months after the
reporting period. The Group classifies all other lease liabilities as non-current.
The Group adopted the requirements of Covid-19-Related Rent Concessions with effect from 1 July 2019 which allowed
lessees not to assess whether particular Covid-related rent concessions were lease modifications. During the 2022 financial
year, amounts of $1 million were recognised within ‘Other revenue’ with respect to Covid-19 related rent concessions.
Short-term leases
The Group has elected not to recognise right of use assets and lease liabilities for short-term leases. Short-term leases
are leases with a lease term of 12 months or less without a purchase option. The Group recognises the lease payments
associated with the leases as an expense (recognised within ‘Other expenses’ in the Statement of Financial Performance)
on a straight-line basis over the lease term.
Variable lease payments not included in the measurement of the lease liability
Variable lease payments that do not depend on an index or a rate are excluded from the measurement of the lease liability
and recognised as an expense in the period in which the event or condition that triggers those payments occurs. These
typically arise from the Group’s property leases where lease payments are calculated based on usage.
Sale and leaseback arrangements
Where the transfer of an asset meets the conditions for a sale, the right of use asset arising from the leaseback is measured
at the proportion of the previous carrying amount that relates to the right of use retained by the Group. The Group only
recognises the proportion of any gain or loss that relates to the rights transferred to the buyer-lessor. Any below market
terms are accounted for as a prepayment of lease payments and any above market terms are accounted for as additional
financing provided by the buyer-lessor.
Leasing activities
The Group’s leases are mainly comprised of aircraft, spare engines, airport lounges, offices and hangars, other office buildings and
storage space. Aircraft leases are typically for 12 to 14 years with a series of early termination options. Rent is either fixed or reset
periodically based on an index or rate. Property leases are typically 3 to 5 years, with a number of renewal options, together with a
small number of longer term strategic leases. Rent may increase on the basis of annual fixed percentage increases, CPI movements,
rent negotiations or market reviews. Extension and termination options are used to maximise operational flexibility.
Determination of lease term
The lease term is the non-cancellable period of a lease, together with periods covered by an option (available to the
lessee only) to extend or terminate the lease if the lessee is reasonably certain to exercise/not to exercise that option. In
determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise/
not exercise an option. This may include the existence of large penalties for early termination, the incurrence of significant
maintenance costs in meeting early return obligations or consideration as to whether leasehold improvements still carry
significant value. Such assessment is reviewed if a significant event or change in circumstances occurs which affects
this assessment and is within the control of the Group. Certain property leases, for which there is no readily identifiable
alternative property available, include an additional renewal period where one is available under the lease contract.
Determination of incremental borrowing rate
The Group determines the incremental borrowing rate by obtaining interest rates from various external financing
sources and makes certain adjustments to reflect the term and currency of the lease and the type of asset being leased.
43
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
16. Lease Liabilities (continued)
Sale and leasebacks
During the 2020 financial year, four owned Airbus A320 aircraft were sold and leased back. Lease terms under this arrangement
ranged from 15 to 26 months at fair market rentals with a weighted average discount rate of 2.4%. Cash outflows during the 2023
financial year as a result of this transaction were $1 million (30 June 2022: $4 million).
Such transactions are considered on an aircraft by aircraft basis as fleets near exit. This transaction was in preparation for the exit of
the aircraft and provided certainty to the Group of the residual proceeds. No such transactions were entered into in the current year.
Movements in lease liabilities during the year, are presented below.
AIRFRAME
AND ENGINE
LEASES WITH
PURCHASE
OPTION*
$M
AIRFRAME
AND ENGINE
LEASES WITH
NO PURCHASE
OPTION
$M
BUILDING
LEASES WITH
NO PURCHASE
PURCHASE
OPTION
$M
TOTAL
$M
2023
Carrying value as at 1 July 2022
Additions
Interest cost
Capitalised interest
Repayments**
Foreign currency movements
869
186
-
7
(172)
13
399
199
14
-
(158)
8
257
86
11
-
(63)
1
1,525
471
25
7
(393)
22
Carrying value as at 30 June 2023
Represented by:
Current
Non-current
903
178
725
462
134
328
292
40
252
1,657
352
1,305
Carrying value as at 30 June 20239034622921,657
2022
Carrying value as at 1 July 2021
Additions
Interest cost
Capitalised interest
Repayments**
Terminations
Foreign currency movements
989
-
-
7
(138)
-
11
491
4
9
-
(153)
-
48
281
21
10
-
(55)
(2)
2
1,761
25
19
7
(346)
(2)
61
Carrying value as at 30 June 2022
Represented by:
Current
Non-current
869
169
700
399
131
268
257
42
215
1,525
342
1,183
Carrying value as at 30 June 2022869 399 257 1,525
2023
$M
2022
$M
Interest rates basis:
Fixed rate
Floating rate
1,088
569
1,013
512
At amortised cost1,6571,525
* Airframes and engines where a purchase option is assessed as reasonably certain to be exercised.
** The principal amount of $368 million (30 June 2022: $327 million) is presented in the Statement of Cash Flows within ‘Financing
Activities’, and interest payments of $25 million (30 June 2022: $19 million) are presented in ‘Operating Activities’.
Lease liabilities with purchase options which are reasonably certain of being exercised are secured over aircraft and are subject
to both fixed and floating interest rates. Fixed interest rates ranged from 0.3% to 3.6% per annum (30 June 2022: 0.5% to 3.6%
per annum). The weighted average discount rates used for leases which have no purchase option, or one which is not likely to be
exercised, is 3.7% per annum (30 June 2022: 2.9% per annum).
2023
$M
2022
$M
Amounts recognised in earnings (within ‘Other expenses’)
Expenses relating to short-term leases
Expenses relating to variable lease payments, not included in the measurement of lease liabilities
4
4
4
3
87
44
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
17. Redeemable Shares
Redeemable shares are initially recognised at fair value, net of transaction costs incurred. They are subsequently stated at
amortised cost using the effective interest rate method, where appropriate.
2023
$M
2022
$M
Non-current:
Redeemable shares - 200
At amortised cost-200
At fair value -217
Redeemable shares issued to the New Zealand Government in the 2022 financial year were redeemable at the option of the Group, in
part or in full, at any time with 20 days’ written notice with an unconditional right to defer redemption until the scheduled redemption
date of 14 December 2046. Dividends were payable quarterly in arrears and accrued at the rate of 5.2% per annum. The Group could
elect to defer the payment of dividends, in which case they would accrue on a cumulative compound basis to the next payment date.
On 28 November 2022 the Group redeemed all of the redeemable shares on issue. No further amounts can be issued under the
subscription agreement. Further details are provided in Note 27.
18. Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event,
it is probable that an outflow of economic benefits will be required to settle the obligation, and the provision can be
reliably measured.
AIRCRAFT
LEASE
RETURN COSTS
$M
RESTRUCTURING
$M
OTHER
$M
TOTAL
$M
Balance as at 1 July 2022
Amount provided
Utilised during the year
Amount released
Foreign exchange movement
266
49
(113)
(22)
3
8
2
(4)
(2)
-
13
1
(1)
(2)
-
287
52
(118)
(26)
3
Balance as at 30 June 2023183411198
Represented by:
Current
Non-current
53
130
4
-
8
3
65
133
Balance as at 30 June 2023 183 411198
Nature and purpose of provisions
Aircraft lease return costs
Where a commitment exists to maintain aircraft held under lease arrangements, a provision is made during the lease term
for the lease return obligations specified within those lease agreements. The provision is calculated taking into account
a number of variables and assumptions including the number of future hours or cycles expected to be operated, the
expected cost of maintenance and the lifespan of limited life parts. The estimate of the provision is based upon historical
experience, manufacturers’ advice and, where appropriate, contractual obligations in determining the present value of
the estimated future costs of major airframe inspections and engine overhauls by making appropriate charges to the
Statement of Financial Performance, calculated by reference to the number of hours or cycles operated during the year.
The provision is expected to be utilised at the next inspection or overhaul.
Restructuring
Restructuring provisions are recognised when the Group is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Costs relating to
ongoing activities are not provided for.
Other
Other provisions include insurance provisions and make good provisions. Insurance provisions are expected to be utilised
within 12 months and are based on historical claim experience. Make good provisions are based on cost estimates
provided by third-party suppliers and are expected to be utilised within two years (30 June 2022: three years).
45
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
19. Other Liabilities
Employee entitlements
Liabilities in respect of employee entitlements are recognised in exchange for services rendered during the accounting
period that have not yet been compensated as at reporting date. These include annual leave, long service leave,
retirement leave and accrued compensation.
Defined benefit pension
Air New Zealand’s net obligation in respect of defined benefit pension plans is calculated by an independent actuary, by
estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that
amount and deducting the fair value of the plan’s assets. The discount rate reflects the yield on government bonds that
have maturity dates approximating the terms of Air New Zealand’s obligations.
When the calculation results in an asset, the value of the asset is limited to the present value of economic benefits
available in the form of any future refunds from the plan or reductions in future contributions from the plan.
2023
$M
2022
$M
Current
Employee entitlements
Amounts owing to associates
Other liabilities (including defined benefit liabilities)
307
1
5
206
-
9
313 215
Non-current
Employee entitlements
Other liabilities
15
20
14
14
35 28
The Group operates one defined benefit plan for qualifying employees in New Zealand which is closed to new members. Defined
benefit plans provide a benefit on retirement or resignation based upon the employee’s length of membership and final average salary.
Each year an actuarial calculation is undertaken using the Projected Unit Credit Method to calculate the present value of the defined
benefit obligation and the related current service cost. A liability was recognised of $1 million (30 June 2022: $3 million). The current
service cost recognised through earnings was $1 million (30 June 2022: $1 million).
20. Distributions to Owners
On 24 August 2023, the Board of Directors declared a special dividend for the 2023 financial year of 6.0 cents per Ordinary Share,
payable on 21 September 2023 to registered shareholders at 8 September 2023. The total dividend payable will be $202 million.
Imputation credits will be attached and supplementary dividends paid to non-resident shareholders. The dividend has not been
recognised in the June 2023 financial statements.
46
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
21. Share Capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or rights are
shown in equity as a deduction, net of taxation, from the proceeds.
When shares are acquired by a member of the Group, the amount of consideration paid is recognised directly in equity.
Acquired shares are classified as treasury stock and presented as a deduction from share capital. When treasury stock
is subsequently sold or reissued pursuant to equity compensation plans, the cost of treasury stock is reversed and
the realised gain or loss on sale or reissue, net of any directly attributable incremental transaction costs, is recognised
within Share Capital.
Where the Group funds the on-market purchase of shares to settle obligations under staff share awards or long-term
incentive plans the total cost of the purchase (including transaction costs) is deducted from Share Capital.
2023
$M
2022
$M
Share Capital comprises:
Authorised, issued and fully paid in capital
Equity-settled share-based payments (net of taxation)
3,347
30
3,349
24
3,377 3,373
Balance at the beginning of the year
Shares issued (net of transaction costs)
Equity settlements of staff share award obligations*
Equity-settled share-based payments
3,373
-
(2)
6
2,213
1,156
(4)
8
Balance at the end of the year 3,377 3,373
* During the year ended 30 June 2023 the Group funded the on-market purchase of 2,016,383 shares (30 June 2022: 2,279,412).
The shares were used to settle obligations under staff share award schemes.
Number of Ordinary Shares authorised, fully paid and on issue
Balance at the beginning of the year
Shares issued
2023
3,368,464,315
-
2022
1,122,844,227
2,245,620,088
Balance at the end of the year** 3,368,464,315 3,368,464,315
** Includes treasury stock of 34,183 shares (30 June 2022: 34,183 shares).
Ordinary Shares
On 6 April 2022 the Group launched a $1.2 billion pro rata renounceable rights offer to eligible shareholders at a ratio of 2 for 1. The
offer price on the new shares was NZD$0.53 and AUD$0.49. The new Ordinary Shares were alloted on 9 May 2022. Transaction costs
of $36 million were recognised against the share issue.
Restrictions on dividend declarations on Ordinary Shares
The Group is restricted from paying dividends on its Ordinary Shares if at any time there are any amounts drawn under a New Zealand
Government unsecured committed revolving standby facility (CSF2 Loan Facility). The Group has not drawn any amounts under the
CSF2 Loan Facility.
Kiwi Share
One fully paid special rights convertible share (the Kiwi Share) is held by the Crown. While the Kiwi Share does not carry any general Voting
Rights, the consent of the Crown as holder is required for certain prescribed actions of the Company as specified in the Constitution.
Non-New Zealand nationals are restricted from holding or having an interest in 10% or more of voting shares unless the prior written
consent of the Kiwi Shareholder is obtained. In addition, any person that owns or operates an airline business is restricted from
holding any shares in the Company without the Kiwi Shareholder’s prior written consent.
Voting rights
On a show of hands or by a vote of voices, each holder of Ordinary Shares has one vote. On a poll, each holder of Ordinary Shares has
one vote for each fully paid share. All Ordinary Shares carry equal rights to dividends and equal distribution rights on wind up.
Application of treasury stock method
Share repurchase
The Group utilises treasury stock acquired under a buy-back programme to fulfil obligations under employee share-based
compensation plans. No treasury stock was utilised in the 2023 financial year (30 June 2022: Nil). Total treasury stock held as at 30
June 2023 is 34,090 shares (30 June 2022: 34,090 shares).
Staff Share Scheme
Unallocated shares of the Air New Zealand Staff Share Schemes are accounted for under the Treasury Stock method, and deducted
from Ordinary Share capital on consolidation. The number of unallocated shares as at 30 June 2023 was 93 (30 June 2022: 93).
47
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND GROUP
21. Share Capital (continued)
Share-Based Payments
The fair value (at grant date) of share rights granted to employees is recognised as an expense, within the Statement of
Financial Performance, over the vesting period of the rights, with a corresponding entry to ‘Share Capital’. The amount
recognised as an expense is adjusted at each reporting date to reflect the extent to which the vesting period has expired and
management’s best estimate of the number of rights that will ultimately vest.
The total expense recognised in the year ended 30 June 2023 in respect of equity-settled share-based payment transactions related
to performance share rights was $4 million (30 June 2022: $3 million). An additional $2 million of expense was recognised in relation to
an Exceptional Contributor incentive scheme (30 June 2022: $1 million). In the 2022 financial year a ‘Thank You’ staff share award was
recognised of $4 million.
Performance share rights
Performance share rights have been offered to a number of senior executives on attainment of predetermined performance objectives.
20232022
Number outstanding
Outstanding at beginning of the year
Granted during year
Forfeited during year
12,421,918
14,788,362
(4, 2 17,10 9)
11 , 9 7 7,6 16
5,276,405
(4,832,103)
Outstanding at the end of the year 22,993,171 12,421,918
Fair value of rights granted in year ($M)
Unamortised grant date fair value ($M)
6.1
6.4
5.0
5.2
The People, Remuneration & Diversity Committee of the Board will adjust share-based arrangement terms, if necessary, to ensure that the
impact of share issues, share offers or share structure changes is value neutral as between participants and shareholders.
Key inputs and assumptions
The general principles underlying the Black Scholes and Marrabe pricing models have been used to value these rights and options using
a Monte Carlo simulation approach. The key inputs for rights and options granted in the relevant year were as follows:
Performance share rights
WEIGHTED
AVER AG E
SHARE PRICE
(CENTS)
EXPECTED
VOLATILITY OF
SHARE PRICE
(%)
EXPECTED
VOLATILITY OF
PERFORMANCE
BENCHMARK
INDEX
(%)
CORRELATION
OF VOLATILITY
INDICES
CONTRACTUAL
LIFE
(YEARS)
RISK FREE
R AT E
(%)
20236737160.593.53.76
202215537160.593.51.34
202113540160.553.50.31
202028023120.343.50.84
201931925110.513.51.70
The Group has undertaken a stock settled share rights scheme. Performance share rights for a specified value are granted at no cost to
the holder. For each performance share right that vests, one share will be issued. The number granted is determined by an independent
valuation of the fair value at the date of issue. Vesting of performance share rights is subject to the holder remaining an employee and
vesting conditions relating to the Air New Zealand share price being achieved. If vesting is not achieved on the third anniversary of the
issue date, 50% of performance rights will lapse. For the remaining 50%, there will be a further 6 month opportunity for the performance
rights to vest. If they have not vested at the end of this period they will lapse.
In order to vest, the Air New Zealand share price adjusted for distributions made over the period must outperform a comparison index
over a period of three years (or up to a maximum of three and a half years) after the issue date. The index is made up of 50:50 of the NZX
All Gross Index and the Bloomberg World Airline Total Return Index (adjusted for dividends).
48
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
22. Reserves
The Group’s reserves as at the reporting date, are set out below:
2023
$M
2022
$M
Cash flow hedge reserve
Costs of hedging reserve
(46)
(13)
(38)
(4)
Hedge reserves
Foreign currency translation reserve
General reserves
(59)
(9)
(1,230)
(42)
(10)
(1,644)
Total Reserves(1,298) (1,696)
The nature and purpose of reserves is set out below:
HEDGE RESERVES
Cash flow hedge reserve
The cash flow hedge reserve contains the effective portion of the cumulative change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
Costs of hedging reserve
The costs of hedging reserve contains the cumulative change in both the fair value of time value on fuel options and currency basis on
cross currency interest rate swaps which are excluded from hedge designations.
Foreign currency translation reserve
The foreign currency translation reserve contains foreign exchange differences arising on consolidation of foreign operations together
with the translation of foreign currency borrowings designated as a hedge of net investments in those foreign operations.
General reserves
General reserves include the retained deficit net of dividends recognised, remeasurements in respect of the defined benefit liabilities
and the Group’s share of equity accounted associates’ reserves.
23. Commitments
Capital commitments shown are for those asset purchases authorised and contracted for as at reporting date but not
provided for in the financial statements, converted at the year end exchange rate. Where lease arrangements have not yet
commenced, lease commitments are disclosed below.
Capital commitments:
2023
$M
2022
$M
Aircraft and engines
Other property, plant and equipment and intangible assets
2,855
147
2,815
18
3,002 2,833
In December 2022, the Group was advised of a delay in the delivery of one Airbus A321neo aircraft from the 2023 to the 2024
financial year. In February 2023, the delivery dates of eight Boeing 787 aircraft were deferred from the 2024 to 2028 financial years to
the 2025 to 2028 financial years.
On 22 August 2023 the Company entered into an agreement to purchase two ATR72-600 aircraft for delivery in the 2025 financial
year. The commitments relating to this purchase are reflected in the above table.
Capital commitments include eight Boeing 787 aircraft (contractual delivery from 2025 to 2028 financial years, four Airbus A321neo
aircraft (delivery from the 2024 to 2027 financial years) and two ATR aircraft (delivery in the 2025 financial year).
Lease commitments:
2023
$M
2022
$M
Aircraft 181-
181-
Lease commitments include one Boeing 773 aircraft (delivery in 2024 financial year) and two Airbus A321neo aircraft (delivery in the
2025 financial year). The agreement to lease the A321neo aircraft was signed on 18 August 2023.
49
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
24. Contingent Liabilities
Contingent liabilities are subject to uncertainty or cannot be reliably measured and are not provided for. Disclosures
as to the nature of any contingent liabilities are set out below. Judgements and estimates are applied to determine the
probability that an outflow of resources will be required to settle an obligation. These are made based on a review of the
facts and circumstances surrounding the event and advice from both internal and external parties.
2023
$M
2022
$M
Letters of credit2020
All significant legal disputes involving probable loss that can be reliably estimated have been provided for in the financial statements.
There are no other significant contingent liability claims outstanding at balance date.
The Group has a partnership agreement with Pratt and Whitney in relation to the Christchurch Engine Centre (CEC) (Note 13). By the
nature of the agreement, joint and several liability exists between the two parties. Total liabilities of the CEC are $215 million (30 June
2022: $154 million).
25. Financial Risk Management
The Group is subject to credit, foreign currency, interest rate, fuel price and liquidity risks. These risks are managed with various
financial instruments, using a set of policies approved by the Board of Directors. Compliance with these policies is reviewed and
reported monthly to the Board of Directors and is included as part of the internal audit programme. Group policy is not to enter, issue
or hold financial instruments for speculative purposes.
CREDIT RISK
Credit risk is the risk of the potential loss from a transaction in the event of default by a counterparty during the term of the transaction
or on settlement of the transaction. The Group incurs credit risk in respect of trade receivable transactions and other financial
instruments in the normal course of business. The maximum exposure to credit risk is represented by the carrying value of financial
assets and contract work in progress balances.
The Group places cash, short-term deposits and derivative financial instruments with good credit quality counterparties, having a
minimum Standard and Poors’ credit rating of A- or minimum Moodys’ credit rating of A3. Limits are placed on the exposure to any one
financial institution.
Credit evaluations are performed on all customers requiring direct credit. The Group is not exposed to any concentrations of credit risk
within receivables, other assets and derivatives. The Group does not require collateral or other security to support financial instruments
with credit risk. A significant proportion of receivables are settled through the International Air Transport Association (IATA) clearing
mechanism which undertakes its own credit review of members. Over 95% of trade and other receivables are current, with less than
1.3% past due by more than 90 days (30 June 2022: 93% current and less than 1.2% due after more than 90 days). No impairment
expense was recognised in relation to financial assets (30 June 2022: Nil).
MARKET RISK
FOREIGN CURRENCY RISK
Foreign currency risk is the risk of loss to the Group arising from adverse fluctuations in exchange rates.
The Group has exposure to foreign exchange risk through transactions denominated in foreign currencies, arising from normal
trading activities, foreign currency borrowings and foreign currency capital commitments, purchases and sales. The documented
risk management approach (as approved by the Board of Directors) is to manage forecast foreign currency operating revenues
and expenditures and foreign currency denominated balance sheet items. Hedges of foreign currency capital transactions are only
undertaken if they are not funded in the currencies of transactions and there is a large volume of forecast capital transactions over
a short period of time.
Forecast operating transactions
Foreign currency operating cash inflows are primarily denominated in Australian Dollars, European Community Euro, Japanese Yen,
Chinese Renminbi, Great Britain Pounds, Canadian Dollars and United States Dollars. Foreign currency operating cash outflows are
primarily denominated in United States Dollars. The Group’s treasury risk management policy is to hedge between 35% and 90%
(30 June 2022: 35% to 90%) of forecast net operating cash flows for the first 6 months, with progressive reductions in percentages
hedged over the next 6 to 12 months.
Highly probable forecast Japanese Yen, Euro and United States Dollar revenue transactions are designated in cash flow hedge
relationships with Japanese Yen, Euro and United States Dollar denominated debts and lease liabilities, respectively (revenue hedges).
To the extent a foreign currency gain or loss is incurred, and the cash flow hedge is deemed effective, foreign currency gains or losses
on debts and lease liabilities are deferred in the cash flow hedge reserve until the revenue is realised.
50
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
25. Financial Risk Management (continued)
Balance sheet exposures
Foreign currency denominated liabilities:
The Group is exposed to foreign currency and foreign currency interest rate risk arising on Australian Dollar denominated medium term
notes. Cross currency interest rate swaps were used to hedge the foreign currency risk and foreign interest rate risk.
The Group enters into foreign exchange contracts to manage the economic exposure arising from foreign currency denominated
liabilities. Where changes in the fair value of a derivative provide an offset to the underlying hedged item as it impacts earnings, hedge
accounting is not applied. Foreign currency translation gains or losses on lease return provisions and certain non-hedge accounted
United States Dollar, Japanese Yen and Euro denominated interest-bearing liabilities are recognised in the Statement of Financial
Performance within ‘Foreign exchange gains/(losses)’. Fair value gains or losses on non-hedge accounted foreign currency derivatives
provide an offset to these foreign exchange movements, and are also recognised within ‘Foreign exchange gains/(losses)’.
In addition, a certain proportion of United States Dollar denominated interest-bearing liabilities remain unhedged to provide an offset to
foreign currency movements within depreciation expense, resulting from revisions made to aircraft residual values during the year.
To the extent the Group has financial assets in the same foreign currency as the borrowing, the Group has a reduced exposure to foreign
exchange risk. Foreign exchange gains and losses relating to these balances are offset in the Statement of Financial Performance.
Foreign operations
The Group has investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure
arising on the net assets of certain of the Group’s foreign operations is managed primarily through borrowings denominated in the
relevant foreign currencies.
Capital transactions
The Group enters into foreign exchange contracts to manage the exposure arising from forecast foreign currency purchases of
property, plant and equipment, primarily purchases of aircraft in United States Dollars. The Group’s treasury risk management policy
is to undertake capex hedging when certain conditions are met and hedge a maximum of 50%-100% (30 June 2022: 50%-100%) of
forecast purchases for the first 6-12 months, with a reduction in the percentage hedged over the next 13-18 months.
Foreign currency exposure:
With the exception of foreign currency denominated working capital balances, which together are immaterial to foreign currency
fluctuations, the Group’s exposure to foreign exchange risk arising on items recognised in the Statement of Financial Position at
reporting date, and the extent to which that exposure has been managed is summarised below. Derivative financial instruments are
excluded from this table as they are specifically used to manage risk and do not create an initial exposure.
Forecast foreign currency revenue and expenditure transactions, and forecast foreign currency capital expenditure occur in the future
and are not included below. The effect of foreign currency risk arising on forecast transactions and how this is managed is detailed over
the following pages.
Foreign currency exposure of items recognised at reporting date, before hedging
NZD
$M
USD
$M
AUD
$M
EUR
$M
JPY
$M
OTHER
$M
TOTAL
$M
As at 30 June 2023
Investments in other entities
Interest-bearing assets
Lease liabilities
Interest-bearing liabilities
Provisions
24
576
(304)
(102)
(15)
166
-
(873)
(630)
(183)
-
-
(9)
(578)
-
-
156
(186)
(96)
-
-
-
(282)
(272)
-
-
-
(3)
-
-
190
732
(1,657)
(1,678)
(198)
Hedged by:
Derivatives
Cash flow hedges of forecast revenue
179
-
-
(1,520)
678
793
(587)
587
-
(126)
42
84
(554)
216
336
(3)
-
-
(2,611)
1,523
1,213
Unhedged 179 (49) - -(2) (3) 125
As at 30 June 2022
Investments in other entities
Interest-bearing assets
Lease liabilities
Interest-bearing liabilities
Provisions
35
183
(265)
(50)
(29)
129
-
(781)
( 741)
(258)
-
36
(14)
(608)
-
-
141
(173)
(115)
-
-
-
(291)
(329)
-
-
-
(1)
-
-
164
360
(1,525)
(1,843)
(287)
Hedged by:
Derivatives
(126)
-
(1,651)
943
(586)
586
(147)
72
(620)
283
(1)
-
(3,131)
1,884
Unhedged* (126) (708) - (75) (337) (1) (1,247)
* Unhedged balances largely represent debt and lease liabilities previously designated as the hedging instrument in cash flow
hedges of forecast foreign currency revenues, which were de-designated as a result of the impact of Covid-19 and significant
reduction in forecast revenues. Revenue hedges were re-established in the 2023 financial year following the reopening of borders
and recovery in passenger demand.
51
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
25. Financial Risk Management (continued)
Hedging foreign currency risk
Derivative financial instruments
Derivative financial instruments are initially recognised at fair value. Subsequent to initial recognition, derivative
financial instruments are stated at fair value. The gain or loss on remeasurement is recognised immediately in the
Statement of Financial Performance, unless the derivative is designated into an effective hedge relationship as a
hedging instrument, in which case the timing of recognition of gain or loss in the Statement of Financial Performance
depends on the nature of the designated hedge relationship.
Hedge accounted financial instruments
Where financial instruments qualify for hedge accounting, recognition of any resultant gain or loss depends on the
nature of the hedging relationship, as follows:
Cash flow hedges
Changes in the fair value of hedging instruments designated as cash flow hedges are recognised within Other
Comprehensive Income and accumulated in equity within the cash flow hedge reserve to the extent that the hedges are
deemed effective. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the Statement
of Financial Performance. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the
hedging instrument and the cumulative changes in fair value of the hedged item.
If a hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued. The cumulative gain or loss recognised in the cash flow hedge reserve remains
there until the forecast transaction occurs. After discontinuation, once the hedged cash flows occur, the cumulative
gain or loss is accounted for depending on the nature of the underlying transaction as described below. If the underlying
hedged transaction is no longer expected to occur, the cumulative gain or loss recognised in the cash flow hedge
reserve is immediately transferred to the Statement of Financial Performance.
Where the hedge relationship continues throughout its designated term, the amount recognised in the cash flow hedge
reserve is transferred to the Statement of Financial Performance in the same period that the hedged item is recorded in
the Statement of Financial Performance, or, when the hedged item is a non-financial asset, the amount recognised in the
cash flow hedge reserve is transferred to the carrying amount of the asset when it is recognised.
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the hedge is recognised in Other Comprehensive Income and
accumulated in the foreign currency translation reserve within equity. The gain or loss relating to the ineffective portion
of the hedge is recognised immediately in the Statement of Financial Performance.
On disposal of the foreign operations, the cumulative gain or loss recognised in equity is transferred to the Statement of
Financial Performance.
Costs of hedging
The change in fair value of a hedging instrument relating to forward points of foreign exchange forward contracts and
the foreign currency basis component of cross-currency interest rate swaps is accounted for depending on the hedge
relationship as described below.
Impact of hedging foreign currency risk
The impact of the foreign currency hedging strategies (both hedge accounted and non-hedge accounted) on the financial statements
during the year is set out below, by type of hedge.
CASH FLOW HEDGES OF FOREIGN CURRENCY RISK
Forecast operating transactions
The Group uses foreign exchange forward contracts to manage the net foreign currency exposure arising on forecast operating
transactions. The amounts designated as the hedged item in cash flow hedges mirror the amounts designated as hedging
instruments. Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amount of the forward contracts.
The forecast revenue and expenditure transactions designated in cash flow hedges in place at reporting date, are expected to occur
over the next 12 months (30 June 2022: 12 months). Forward contracts mature within 12 months (30 June 2022: 12 months).
Forecast operating transaction hedges are of spot foreign exchange risk. Forward points are excluded from the hedge designation.
Changes in fair value gain or loss of the forward exchange contracts relating to forward points are recognised within ‘Finance costs’
in the Statement of Financial Performance. The hedge ineffectiveness is recognised in ‘Foreign exchange gains/(losses)’ in the
Statement of Financial Performance. The amount of gain or loss accumulated in the cash flow hedge reserve is transferred to ‘Foreign
exchange gains/(losses)’ in the Statement of Financial Performance when the forecast transactions occur.
52
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
25. Financial Risk Management (continued)
2023
NZ$M
2022
NZ$M
Hedging instruments used
Derivative financial instruments
NZD
USD
AUD
EUR
JPY
CNH
GBP
Other
(480)
828
(158)
(23)
(14)
(30)
(40)
(66)
(305)
544
(102)
(15)
(9)
(31)
(12)
(41)
Hedge accounted foreign currency derivatives1729
During the 2023 financial year, the Group established Japanese Yen, Euro and United States Dollar revenue hedges. The amount
and frequency of repayment of the debts and lease liabilities and the forecast revenue transactions is aligned to ensure the hedge
effectiveness. The hedge ineffectiveness arises if the amount of the forecast revenue transactions falls below the amount of the
designated hedging instruments.
The debts and lease liabilities designated in revenue hedges in place at reporting date have a maturity between one and twelve
years. ‘Interest-bearing liabilities’ and ‘Lease liabilities’ on the Statement of Financial Position as at reporting date include debts and
lease liabilities designated in revenue hedges totalling $343 million and $870 million, respectively (30 June 2022: Not applicable).
The amount of gain or loss accumulated in the cash flow hedge reserve is transferred to ‘Foreign exchange gains/(losses)’ in the
Statement of Financial Performance.
Balance sheet exposures
Cross currency interest rate swaps recognised within ‘Derivative financial assets/(liabilities)’ on the Statement of Financial Position
were designated in cash flow hedges and fair value hedges. The amount and maturity of the cross currency interest rate swaps and
Australian Dollar denominated medium term notes is aligned. Hedge ineffectiveness arises if the amount and maturity of the hedged
debt falls below the amount and maturity of the cross currency interest rate swaps.
The cash flow hedges were established to manage Australian dollar/New Zealand dollar foreign currency risk arising on future
principal and interest settlements on Australian Dollar denominated medium term notes. Currency basis risk is excluded from the
hedge designation. Changes in the fair value gain or loss of cross currency interest rate swaps relating to currency basis risk are
recognised in Other Comprehensive Income and accumulated in the costs of hedging reserve within ‘Hedge reserves’ until such
time as the related hedge accounted cash flows affect profit or loss. The amount of gain or loss accumulated in the cash flow hedge
reserve is transferred to ‘Foreign exchange gains/(losses)’ in the Statement of Financial Performance when the hedged future cash
flows affect profit or loss.
The volume hedged, together with contract rates and maturities are set out below:
2023
NZ$M
2022
NZ$M
Net fair value of derivative financial liabilities (NZ$M)
Volume (AUD M)
Weighted average contract rate, AUD/NZD (%)
Weighted average contract maturities (years)
(32)
550
6.1 / floating
5.3
(17)
550
6.1 / floating
5.3
Capital transactions
In the 2023 financial year, the Group used foreign exchange forward contracts to manage the foreign currency exposure arising
on forecast capital transactions. The amount designated as a hedged item in cash flow hedges mirrors the amount designated
as the hedging instrument. Hedge ineffectiveness arises if the amount of the forecast transactions falls below the amounts of the
forward contracts.
The forecast capital transactions designated in cash flow hedges in place at reporting date, are expected to occur over the next
12 months (30 June 2022: Not applicable). Forward contracts mature within 12 months (30 June 2022: Not applicable). As at
reporting date, the forward contracts designated in cash flow hedges totalling $1 million (30 June 2022: Nil) were included within
‘Derivative financial assets/(liabilities)’ on the Statement of Financial Position.
Forecast capital transaction hedges are of spot foreign exchange risk. Forward points are excluded from the hedge designation.
Changes in fair value gain or loss of the forward exchange contracts relating to forward points are recognised within the costs of
hedging reserve in the Hedging reserves. No hedge ineffectiveness arose in the current financial year. The amount of gain or loss
accumulated in the cash flow hedge reserve is transferred to the carrying amount of the asset when the capital transaction
is recognised as an asset on the Statement of Financial Position.
Impact of hedge accounting
The effective portion of changes in the fair value of foreign currency hedging instruments which were accumulated in the cash
flow hedge reserve (within ‘Hedge Reserves’) during the year are set out below, together with transfers to either earnings or the
asset carrying value (as appropriate) when the underlying hedged item occurs, or upon de-designation of the hedge where the
underlying forecast transaction is no longer expected to occur.
53
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
25. Financial Risk Management (continued)
2023
NZ$M
2022
NZ$M
Recognised in Statement of Changes in Equity
Hedge reserves
Balance at the beginning of the year
Change in fair value of hedging instruments*
Transfers to foreign exchange losses as hedged transactions occur
Transfers to foreign exchange gains on de-designation
Changes in costs of hedging reserve
Taxation on reserve movements
(67)
25
2
-
(3)
(7)
(84)
13
-
12
(1)
(7)
Balance at the end of the year
Represented by:
Forecast transactions
Future principal and interest settlements
Tax effect
(50)
(63)
(4)
17
(67)
(73)
(18)
24
Balance at the end of the year (50) (67)
* The change in fair value of the hedging instrument is used for the purpose of assessing hedge effectiveness. No ineffectiveness
arose on cash flow hedges of foreign currency transactions during the year (30 June 2022: Nil). Forward points and currency basis
excluded from the hedge designation were $2 million (30 June 2022: $2 million) and $3 million (30 June 2022: $1 million).
The weighted average contract rates of hedge accounted foreign currency derivatives outstanding as at reporting date are set out below:
20232022
USD
AUD
CAD
EUR
JPY
CNH
GBP
0.6107
0.9980
0.8324
0.5907
85.68
4.33
0.5188
0.6679
0.9555
0.8307
0.6020
84.89
4.41
0.5149
NET INVESTMENT HEDGE
Investments designated in a net investment hedge are included within ‘Investments in other entities’ on the Statement of Financial
Position. The hedging instrument is included within ‘Interest-bearing liabilities’. The hedging instruments designated in the net
investment hedge at reporting date mature in 19 months (30 June 2022: 31 months). Hedge ineffectiveness arises if the carrying
amount of the net investment falls below the amount of the designated borrowings.
2023
NZ$M
2022
NZ$M
Hedged amount of United States Dollar investment
Hedged by: United States Dollar interest-bearing liabilities
140
(140)
113
(113)
The effective portion of changes in fair value of both the hedged item and the hedging instrument are recognised in the foreign
currency translation reserve, as set out below.
Foreign currency translation reserve
Balance at the beginning of the year
Translation gains on hedged investment**
Translation losses on hedging interest-bearing liabilities**
Translation gains on unhedged investments
Taxation on reserve movements
(10)
3
(3)
1
-
(17)
12
(12)
3
4
Balance at the end of the year(9) (10)
** Translation gains/losses are those used for the purpose of assessing hedge effectiveness. No ineffectiveness arose on net
investment hedges during the year (30 June 2022: Nil).
54
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
25. Financial Risk Management (continued)
HEDGED, BUT NOT HEDGE ACCOUNTED
Where changes in the fair value of a derivative provide an offset to the underlying hedged item as it impacts earnings, hedge accounting
is not applied. The following foreign currency derivatives were recognised within ‘Derivative financial assets/(liabilities)’ on the Statement
of Financial Position as at reporting date and were not designated in a hedge relationship.
2023
$M
2022
$M
Hedging instruments
Derivative financial instruments
NZD
USD
AUD
EUR
JPY
(1,030)
747
9
54
219
(1,242)
930
(22)
72
284
Not hedge accounted foreign currency derivatives(1)22
The changes in fair value of hedged items and hedging instruments during the year offset within ‘Foreign exchange gains/(losses)’
within the Statement of Financial Performance, are set out below. In addition, foreign exchange losses of $24 million (30 June 2022:
$43 million losses) were recognised in respect of debt and lease liabilities which have remained unhedged since being de-designated
from cash flow hedges of forecast foreign currency revenues.
Foreign currency (losses)/gains on:
Lease liabilities
Interest-bearing liabilities
Provisions
Interest-bearing assets
Derivative financial instruments
1
(14)
(4)
-
15
(11)
(21)
(27)
(1)
64
(2)4
Sensitivity analysis
The sensitivity analyses that follow are hypothetical and should not be considered predictive of future performance. They only include
financial instruments (derivative and non-derivative) and do not include the future forecast hedged transactions. As the sensitivities are
only on financial instruments, the sensitivities ignore the offsetting impact on future forecast transactions that many of the derivatives
are hedging. Changes in fair value can generally not be extrapolated because the relationship of change in assumption to change in fair
value may not be linear. In addition, for the purposes of the below analyses, the effect of a variation in a particular assumption is calculated
independently of any change in another assumption. In reality, changes in one factor may contribute to changes in another, which may
magnify or counteract the sensitivities. Furthermore, sensitivities to specific events or circumstances will be counteracted as far as
possible through strategic management actions. The estimated fair values as disclosed should not be considered indicative of future
earnings on these contracts.
Foreign currency sensitivity on financial instruments
The following table demonstrates the sensitivity of financial instruments at reporting date to a reasonably possible appreciation/
depreciation in the United States Dollar against the New Zealand Dollar. Other currencies are evaluated by converting first to United States
Dollars and then applying the above change against the New Zealand Dollar. All other variables are held constant. This analysis does not
include future forecast hedged operating transactions.
Appreciation/depreciation (US cents):
2023
NZ$M
+5c
2023
NZ$M
-5c
2022
NZ$M
+5c
2022
NZ$M
-5c
Impact on earnings/loss before taxation:
USD
EUR
JPY
-
(1)
-
1
2
-
54
6
25
(64)
(7)
(29)
The above reflects the foreign exchange sensitivity on unhedged debt following de-designations of hedge relationships.
Impact on equity:
USD
AUD
EUR
JPY
CNH
GBP
Other
(7)
13
8
27
2
3
5
8
(14)
(9)
(31)
(3)
(4)
(6)
(46)
8
1
1
2
1
3
54
(9)
(1)
(1)
(3)
(1)
(3)
The above would be deferred within equity and then offset by the foreign currency impact of the hedged item when it occurs.
55
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
25. Financial Risk Management (continued)
20232022
Significant foreign exchange rates used at balance date for one New Zealand Dollar are:
USD
AUD
CAD
CNY
EUR
JPY
GBP
0.607
0.917
0.804
4.40
0.558
8 7. 9
0.481
0.622
0.904
0.802
4.17
0.596
84.9
0.513
FUEL PRICE RISK
Fuel price risk is the risk of loss to the Group arising from adverse fluctuations in fuel prices.
The Group enters into fuel option agreements (30 June 2022: fuel swap and option agreements) to reduce the impact of price changes
on fuel costs in accordance with the policy approved by the Board of Directors. Uplift in the first six months is hedged between 35% and
90% (30 June 2022: first six months is hedged between 35% to 90%) with progressive reductions in percentages hedged over the next
six to twelve months.
Crude oil hedging instruments such as fuel options and fuel swaps are designated as a hedge of the price risk in the crude
oil component of highly probable jet fuel purchases. There is a 1:1 hedging ratio of the hedging instrument to the crude oil
component identified as the hedged item. The Group considers the crude component to be a separately identifiable and
reliably measurable component of jet fuel even though it is not contractually specified. The relationship of the crude oil
component to jet fuel as a whole varies in line with the published crude oil and jet fuel price indices.
The amount and maturity of the fuel derivatives and forecast fuel purchases are aligned. Ineffectiveness is only expected to
arise where the index of the hedging instrument differs to that of the underlying hedged item.
Cash flow hedges in respect of fuel derivatives include only the intrinsic value of fuel options. Time value on fuel options
is excluded from the hedge designation. Changes in fair value gain or loss of the fuel options relating to time value are
recognised in Other Comprehensive Income and accumulated within the costs of hedging reserve within ‘Hedge Reserves’
until such time as the hedged transactions affect profit or loss. The amount of gain or loss accumulated in the cash flow
hedge reserve is transferred to ‘Fuel’ in the Statement of Financial Performance. The amount of gain or loss accumulated in
the costs of hedging reserve is recognised in ‘Foreign exchange gains/(losses) in the Statement of Financial Performance.
Impact of hedging fuel price risk
CASH FLOW HEDGES OF FUEL PRICE RISK
Forecast fuel purchase transactions are not recognised in the financial statements until the transactions occur. The number of barrels
hedged is set out in the table below. All fuel derivative contracts mature within 12 months of reporting date.
Fuel derivatives were recognised within ‘Derivative financial assets/(liabilities)’ on the Statement of Financial Position as at reporting date
and were designated as the hedging instrument in cash flow hedges.
Statement of Financial Position
2023
$M
2022
$M
Derivative financial assets 13 52
The effective portion of changes in the fair value of fuel hedging instruments that were accumulated in the cash flow hedge reserve
(within ‘Hedge Reserves’) during the year are set out below, together with transfers to earnings when the underlying hedged item
occurs, or upon de-designation of the hedge where the underlying forecast transaction is no longer expected to occur.
Hedge reserves
Balance at the beginning of the year
Change in fair value of hedging instruments*
Transfers to fuel
Changes in costs of hedging reserve
Taxation on reserve movements
26
(8)
(30)
(11)
14
36
98
(108)
(4)
4
Balance at the end of the year(9) 26
* The change in fair value recognised in the cash flow hedge reserve excludes ineffectiveness which is recognised through earnings. No
ineffectiveness arose on cash flow hedges of fuel price risk during the year (30 June 2022: Nil).
56
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
25. Financial Risk Management (continued)
Weighted average strike prices of fuel derivatives
2023
USD
2022
USD
Weighted average collar ceiling (Brent)
Weighted average collar floor (Brent)
Weighted average bought calls (Brent)
Weighted average Jet swap strike
Barrels hedged (millions of barrels)
80
60
87
-
3.8
76
63
111
61
2.1
Fuel price sensitivity on financial instruments
The sensitivity of the fair value of these derivatives as at reporting date to a reasonably possible change in the price per barrel of crude oil
is shown below. This analysis assumes that all other variables remain constant and the respective impacts on profit or loss before taxation
and equity are dictated by the proportion of effective/ineffective hedges. In practice, these elements would vary independently. This
analysis does not include the future forecast hedged fuel transactions.
Price movement per barrel:
2023
$M
+USD 30
2023
$M
-USD 30
2022
$M
+USD 30
2022
$M
-USD 30
Impact on cash flow hedge reserve (within equity)124(55) 58 (37)
Amounts affecting the cash flow hedge reserve would be accumulated within equity and then offset by the fuel price impact of the
hedged item when it occurs.
INTEREST RATE RISK
Interest rate risk is the risk of loss to the Group arising from adverse fluctuations in interest rates.
The Group’s exposure to interest rates relates primarily to its interest-bearing borrowings. The carrying amount of interest-bearing
liabilities is disclosed in Note 15. The exposure to movements in interest rates arising from cash and cash equivalent and interest-bearing
assets is disclosed in Note 6 and Note 9.
Borrowings issued at variable interest rates expose the Group to changes in interest rates (cash flow risk). Borrowings issued at fixed rates
expose the Group to changes in the fair value of the borrowings (fair value risk).
It is the Group’s policy to manage its interest rate exposure using a mix of floating and fixed rate debts. The Group’s policy is to fix between
70% to 90% (30 June 2022: 70% to 90%) of its exposure to interest rates in the next 12 months. Interest exposures outside of these
parameters have to be approved by the Board of Directors.
Hedging interest rate risk
Fair value hedges
Changes in the fair value of hedging instruments designated as fair value hedges are recognised in the Statement of
Financial Performance. The changes in fair value of hedged items attributable to the risk being hedged are recorded as
part of the carrying value of the hedged item and offset changes in the fair value of hedging instruments in the Statement of
Financial Performance.
For fair value hedges relating to items carried at amortised cost, an adjustment to carrying value is amortised through the
Statement of Financial Performance over the remaining term of the hedge using the effective interest rate method.
FAIR VALUE HEDGES OF INTEREST RATE RISK
Interest rate swaps and cross currency interest rate swaps were used to achieve an appropriate mix of fixed and floating rate exposure to
the interest rate risk.
During the 2023 financial year, the Group entered into an interest rate swap to receive fixed rate interest and pay variable rate interest.
The interest rate swap was recognised within ‘Derivative financial assets/(liabilities)’ on the Statement of Financial Position. The interest
rate swap was designated in a fair value hedge of the future interest rate cash flows on an unsecured bond recognised within ‘Interest-
bearing liabilities’. Hedge ineffectiveness is not expected to arise if the amount and maturity of the bond falls below the amount and
maturity of the interest rate swap.
The changes in fair value gain or loss on the interest rate swap are recognised in ‘Finance costs’ in the Statement of Financial Performance.
The changes in the fair value of the hedged risk are attributed to the carrying value of the unsecured bond and the revaluation is recognised
within ‘Finance costs’ in the Statement of Financial Performance to offset the mark to market revaluation of the interest rate swap.
57
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
25. Financial Risk Management (continued)
Impact of hedging interest rate risk
20232022
Net fair value of interest rate swap (NZ$M)
Volume (NZD M)
Weighted average contract rate (%)
Weighted average contract maturity (years)
1
100
6.61 / floating
5.5
-
-
-
-
Fair value gains/(losses) are used for the purpose of assessing hedge effectiveness. No ineffectiveness arose on fair value hedges of
interest risk during the year (30 June 2022: Nil).
Cross currency interest rate swaps were recognised within ‘Derivative financial assets/(liabilities)’ on the Statement of Financial Position.
The cross currency interest rate swaps were designated in the cash flow hedges and fair value hedges. Fair value hedges were established
to manage foreign currency interest risk arising on future interest settlements on the Australian dollar denominated medium term notes.
The cross currency interest rate swaps are considered to be highly effective as they are matched against underlying currency exposure.
Changes in fair value gain or loss on the fair value component of cross currency interest rate swaps are recognised in ‘Finance costs’ in the
Statement of Financial Performance. The change in the fair value of the hedged risk is recorded as part of the carrying value of the Australian
dollar medium term notes. This revaluation of Australian dollar medium term notes is recognised within ‘Finance costs’ in the Statement of
Financial Performance to offset the mark to market revaluation of the fair value component of the cross currency interest rate swaps.
The weighted average contract rate and weighted average contract maturity is disclosed above. Fair value gains/losses are those used
for the purpose of assessing hedge effectiveness. No ineffectiveness arose on fair value hedge of interest risk during the year (30 June
2022: Nil).
Interest rate sensitivity on financial instruments
Earnings are sensitive to changes in interest rates on the floating rate element of borrowings and lease obligations. Their sensitivity to a
reasonably possible change in interest rate with all other variables held constant, is set out as per table below. This analysis assumes that
the amount and mix of fixed and floating rate debt, including lease obligations, remains unchanged from that in place at reporting date,
and that the change in interest rates is effective from the beginning of the year. In reality, the fixed/floating rate mix will fluctuate over the
year and interest rates will change continually.
Cash and cash equivalents and interest bearing assets are excluded from the sensitivity analysis. The table below also does not take into
consideration of the impact of hedge accounting.
Interest rate change:
$M
+150 bp*
$M
-150 bp*
$M
+100 bp*
$M
-100 bp*
Impact on earnings/(loss) before taxation(22) 22 (18) 18
*bp = basis points
LIQUIDITY RISK
Liquidity risk is the risk that the Group will be unable to meet its obligations as they fall due. The Group manages the risk by targeting a
minimum liquidity level, ensuring long-term commitments are managed with respect to forecast available cash inflow and by managing
maturity profiles. The Group holds significant cash reserves and has available a government unsecured committed revolving standby
facility to enable it to meet its liabilities as they fall due and to sustain operations in the event of unanticipated external factors or events.
The following table sets out the contractual, undiscounted cash flows for non-derivative financial liabilities and derivative financial instruments:
S TAT E M E N T
OF FINANCIAL
POSITION
$M
CONTRACTUAL
CASH FLOWS
$M
< 1 YEAR
$M
1-2 YEARS
$M
2-5 YEARS
$M
5+ YEARS
$M
As at 30 June 2023
Trade and other payables
Secured borrowings
Medium term notes
Unsecured bonds
Lease liabilities*
Amounts owing to associates
780
998
578
102
1,657
1
780
1,137
741
135
1,863
1
780
234
36
7
375
1
-
226
36
7
313
-
-
496
389
121
496
-
-
181
280
-
679
-
Total non-derivative financial liabilities 4,116 4,657 1,433 582 1,502 1,140
Foreign exchange derivatives
– Inflow
– Outflow
1,970
(1,953)
1,970
(1,953)
-
-
-
-
-
-
Fuel derivatives
Interest rate derivatives
17
13
(31)
17
13
(45)
17
13
(18)
-
-
(11)
-
-
(10)
-
-
(6)
Total derivative financial instruments (1) (15) 12 (11) (10) (6)
* Lease liabilities recognised within 5+ years include $206 million related to three properties with lease terms ranging between 10-19 years.
58
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
25. Financial Risk Management (continued)
S TAT E M E N T
OF FINANCIAL
POSITION
$M
CONTRACTUAL
CASH FLOWS
$M
< 1 YEAR
$M
1-2 YEARS
$M
2-5 YEARS
$M
5+ YEARS
$M
As at 30 June 2022
Trade and other payables
Secured borrowings
Medium term notes
Unsecured bonds
Lease liabilities**
Redeemable shares
497
1,185
608
50
1,525
200
497
1,260
792
51
1,76 4
216
497
218
37
51
361
11
-
206
37
-
293
205
-
571
424
-
575
-
-
265
294
-
535
-
Total non-derivative financial liabilities 4,065 4,580 1,175 741 1,570 1,094
Foreign exchange derivatives
– Inflow
– Outflow
1,872
(1,822)
1,872
(1,822)
-
-
-
-
-
-
Fuel derivatives
Interest rate derivatives
51
52
(17)
50
43
(17)
50
43
(1)
-
-
(5)
-
-
(8)
-
-
(3)
Total derivative financial instruments 86 76 92 (5) (8) (3)
** Lease liabilities recognised within 5+ years include $129 million related to six properties with lease terms ranging between 10-19 years.
FAIR VALUE ESTIMATION
Financial instruments for which fair value is recognised or disclosed are categorised within the fair value hierarchy as
described below. Financial instruments are either carried at fair value or amounts approximating fair value, with the exception
of interest-bearing liabilities and Redeemable Shares, for which the fair values are disclosed in Note 15 - Interest-bearing
liabilities and Note 17 - Redeemable Shares. This equates to “Level 2” of the fair value hierarchy defined within NZ IFRS 13 -
Fair Value Measurement. The fair value of derivative financial instruments is based on published market prices for similar
assets or liabilities or market observable inputs to valuation at balance date (“Level 2” of the fair value hierarchy). The fair
value of foreign currency forward contracts is determined using forward exchange rates at reporting date. The fair value of
fuel swap and option agreements is determined using forward fuel prices at reporting date. The fair value of interest rate
swaps is determined using forward interest rates as at reporting date.
Capital risk management
Capital risk is managed for the Air New Zealand Group as a whole.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to continue to
generate shareholder value and benefits for other stakeholders, and to provide an acceptable return for shareholders by removing
complexity, reducing costs and pricing the Group’s services commensurately with the level of risk. The Group is not subject to any
externally imposed capital requirements.
The Group’s capital structure is managed in the light of economic conditions, future capital expenditure profiles and the risk
characteristics of the underlying assets. The Group’s capital structure may be modified by adjusting the amount of dividends paid to
shareholders, initiating dividend reinvestment opportunities, returning capital to shareholders, issuing new shares or selling assets to
reduce debt.
The Group monitors capital on the basis of gearing and leverage ratios. The gearing ratios are calculated as net debt over net debt plus
equity. Net debt is calculated as total borrowings, bonds, Medium Term Notes, lease obligations and Redeemable Shares (including
net open derivatives on these instruments) less cash and cash equivalents and interest-bearing assets. Capital comprises all
components of equity. The leverage ratio is calculated as gross debt over earnings/(losses) before interest, taxation, depreciation and
amortisation (“EBITDA”). Gross debt is calculated as total borrowings, bonds, medium term notes, lease obligations and Redeemable
Shares. The gearing ratio and the calculation is disclosed in the Five Year Statistical Review.
The capital management policies and guidelines are regularly reviewed by the Board of Directors, most recently in the 2023 financial
year. The new capital management framework will be in effect from the 2024 financial year. From the next financial year the Group will
monitor capital primarily using a net leverage ratio. The ratio is calculated as net debt over last over last 12-months EBITDA. Net debt is
calculated as total borrowings, bonds, medium term notes, lease liabilities and redeemable shares (including net open derivatives on
these instruments) less cash and cash equivalents and interest-bearing assets. Gross debt is calculated as total borrowings, bonds,
medium term notes, lease liabilities and redeemable shares.
59
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND GROUP
26. Offsetting Financial Assets and Financial Liabilities
Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position when
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or
realise the asset and settle the liability simultaneously.
Amounts subject to potential offset
For financial instruments subject to enforceable master netting arrangements, each agreement allows the parties to elect net settlement
of the relevant financial assets and liabilities. In the absence of such election, settlement occurs on a gross basis, however each party will
have the option to settle on a net basis in the event of default of the other party.
The following table shows the gross amounts of financial assets and financial liabilities which are subject to enforceable master netting
arrangements and similar agreements, as recognised in the Statement of Financial Position. It also shows the potential net amounts if
offset were to occur.
S TAT E M E N T
OF FINANCIAL
POSITION
2023
$M
AMOUNTS
NOT OFFSET
2023
$M
NET
AMOUNTS
IF OFFSET
2023
$M
S TAT E M E N T
OF FINANCIAL
POSITION
2022
$M
AMOUNTS
NOT OFFSET
2022
$M
NET
AMOUNTS
IF OFFSET
2022
$M
Financial assets
Bank and short-term deposits
Derivative financial assets
2,227
212
(31)
(182)
2,196
30
1,793
308
(18)
(204)
1,7 75
104
Financial liabilities
Derivative financial liabilities(213) 213 -(222) 222 -
Letters of credit and security deposits held within ‘Interest-bearing assets’ are also subject to master netting arrangements. The amounts
are disclosed in Note 9 - Other Assets and Note 24 - Contingent Liabilities.
27. Related Parties
Crown
The Crown, the majority shareholder of the Parent, owns 51% of the issued capital of the Company (30 June 2022: 51%).
On 9 May 2022, the Crown acquired $593 million of new Ordinary Shares issued by the Parent under a pro rata renounceable Rights Offer,
in order to maintain a majority shareholding in Air New Zealand. A pre-commitment participation fee of $3 million was paid to the Crown in
the 2022 financial year in relation to the equity raise.
Crown standby loan facility
On 27 May 2020, the Group entered into a debt funding agreement (CSF1 Loan Facility) with the New Zealand Government to support the
airline as it managed the unprecedented impact of the Covid-19 outbreak on its business. The CSF1 Loan Facility was amended as part of a
revised support package in December 2021, from a facility limit of $1.5 billion to a limit of $1 billion with an effective interest rate in the order
of 3.5% per annum. Also at this time the Group announced that the airline had the ability to issue up to $1 billion of non-voting Redeemable
Shares to the Crown.
The CSF1 Loan Facility was available for the period through to 30 January 2026 and was negotiated on an arms’ length basis, with each
party having been independently advised. Under the arrangement, the Group undertook various representations and operational,
informational and other undertakings. The arrangement was subject to typical events of default. The CSF1 Loan Facility was secured
against specific aircraft assets and a general security interest was provided against other assets of the Group (subject to certain
exemptions). During the 2022 financial year the Group undertook draw downs of $500 million under the CSF1 Loan Facility. Following
completion of a capital raise undertaken by the Group on 9 May 2022, the proceeds were used to repay in full the $850 million drawn down
at that date under the CSF1 Loan Facility. The CSF1 Loan Facility was then cancelled.
On 30 March 2022, an unsecured committed standby revolving facility (CSF2 Loan Facility) was entered into with the Crown for up to
$400 million for a period through to 30 January 2026. The purpose of the facility is to provide additional liquidity, if required, as the airline
recovers from the effects of the pandemic. Interest on any amounts drawn will be charged initially at a bank bill benchmark rate plus an
initial margin of 1.5% per annum together with a commitment fee of 1.0% per annum on the committed facility limit. No amounts were drawn
under the facility as at 30 June 2023 (30 June 2022: Nil).
The CSF2 Loan Facility was negotiated on an arms’ length basis, with each party having been independently advised. Under the terms of
the arrangement, the Group undertook various representations, warranties and undertakings, including regular reporting on operational
and financial performance, with additional reporting and information requirements if the loan has been drawn. The arrangement is subject
to typical events of default. The facility is unsecured subject to the Group being required to grant the Crown first ranking security over
aircraft assets which are financed using the facility.
For the year ended 30 June 2023, the Group recognised commitment fees of $4 million (30 June 2022: $11 million) and interest costs of Nil
(30 June 2022: $16 million) within the Statement of Financial Performance in relation to these facilities.
60
Notes to the Financial Statements (continued)
As at 30 June 2023
AIR NEW ZEALAND ANNUAL REPORT 2023
27. Related Parties (continued)
Redeemable Shares
In December 2021, Air New Zealand entered into a Redeemable Shares subscription agreement with the New Zealand Government in
which the Group had the ability to call for the Crown to subscribe for up to $1 billion of fully paid Redeemable Shares.
On 30 March 2022, the Group called for Redeemable Shares to be issued in two tranches, being $150 million on 7 April 2022 and $450
million on 6 May 2022. The availability period to issue new Redeemable Shares ceased on 9 May 2022. Some of the proceeds from the
issue of the medium term notes (refer Note 15) were subsequently used to redeem $400 million of the Redeemable Shares on 2 June 2022.
As at 30 June 2022, $200 million of Redeemable Shares remained on issue. These shares were redeemable at the option of the Group,
in part or in full, at any time with 20 days’ written notice with an unconditional right to defer redemption until the scheduled redemption
date of 14 December 2046. Dividends were payable quarterly in arrears and accrued on a cumulative compound basis if unpaid. On 27
November 2022 the Group redeemed the outstanding $200 million on issue. No further redeemable shares are available to be issued
under the agreement.
Dividends of $6 million were recognised within Finance costs in the Statement of Financial Performance during the year ended 30 June
2023 (30 June 2022: $4 million).
Transactions with Crown entities
Air New Zealand enters into numerous airline transactions with Government Departments, Crown Agencies and State Owned Enterprises
on an arm’s length basis. All transactions are entered into in the normal course of business.
During the prior financial year the Group entered into agreements with the Crown to undertake domestic charters to support quarantine
activity as part of border restriction requirements. The transactions were negotiated on an arm’s length basis.
Details of government grants and subsidies received in respect of international airfreight capacity and wage subsidies are outlined in
Notes 1 and 2.
The New Zealand Government introduced legislation to lessen the impact of Covid-19 on businesses by allowing for the deferral of the
payment of taxes without the imposition of penalties or interest. The Group was granted a deferral of FBT and PAYE for the period 1 July
2020 to 30 September 2021, which amounted to $298 million. The FBT and PAYE liabilities arising during this period were settled during
the period January 2022 to March 2022.
Key management personnel
Compensation of key management personnel (including directors) was as follows:
2023
$M
2022
$M
Short-term employee costs
Directors’ fees
Share-based payments
14
1
2
9
1
1
17 11
Certain key management personnel (including directors) have relevant interests in a number of companies (including non-executive
directorships) to which Air New Zealand provides aircraft related services in the normal course of business, on standard commercial terms.
Staff share purchase schemes and Executive share performance rights plans
Shares held by the Staff Share Purchase scheme and Executive performance rights plans are detailed in Note 21.
Bank set-off arrangements
The Group has a set-off arrangement on certain Bank of New Zealand balances, allowing the offset of overdraft amounts against in-fund
amounts. The following entities are included in the set-off arrangement:
Air Nelson Limited
Air New Zealand Limited
Air New Zealand Regional Maintenance Limited
Mount Cook Airline Limited
61
Notes to the Financial Statements (continued)
For the year to and as at 30 June 2023
AIR NEW ZEALAND GROUP
27. Related Parties (continued)
Associated companies
Transactions between the Group and its associates are conducted on normal terms and conditions.
The Christchurch Engine Centre (CEC) provides maintenance services to the Group on certain V2500 engines. The Group receives
revenue for contract and administration services performed for the CEC.
During the 2022 financial year the Group made capital contributions to Drylandcarbon One Limited Partnership of $12 million. No capital
contributions were made in the 2023 financial year. Non-cash distributions were received of $1 million for the year ended 30 June 2023
(30 June 2022: Nil).
2023
$M
2022
$M
During the year, there have been transactions between Air New Zealand and its associated companies
as follows:
Operating revenue
Operating expenditure
1
(1)
1
-
Balances outstanding at the end of the year are unsecured and on normal trading terms:
Amounts owing to associates 1 -
During the year CEC paid total distributions to the Group of $16 million (30 June 2022: $32 million).
Other related party disclosures
Other balances and transactions with related parties are not considered material to Air New Zealand and are entered into in the normal
course of business on standard commercial terms. There have been no related party debts forgiven during the year.
AIR NEW ZEALAND ANNUAL REPORT 2023
62
Independent Auditor’s Report
To the Shareholders of Air New Zealand Limited
Auditor-General
The Auditor-General is the auditor of Air New Zealand Limited 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 audit of the consolidated financial statements of the Group on his behalf.
Opinion
We have audited the consolidated financial statements of the Group on pages 19 to 61, that comprise
the Statement of Financial Position as at 30 June 2023, the Statement of Financial Performance,
Statement of Comprehensive Income/(Loss), Statement of Changes in Equity and Statement of
Cash Flows for the year ended on that date and the notes to the financial statements that include
accounting policies and other explanatory information.
In our opinion the consolidated financial statements present fairly, in all material respects the
financial position of the Group as at 30 June 2023, and its financial performance and its cash flows for
the year then ended in accordance with New Zealand Equivalents to International Financial Reporting
Standards and International Financial Reporting Standards.
Our audit was completed on 24 August 2023. This is the date at which our opinion is expressed.
The basis for our opinion is explained below. In addition, we outline the responsibilities of the Board of
Directors and our responsibilities relating to the consolidated financial statements, we comment on
other information, and we explain our independence.
Basis for opinion
We conducted our audit in accordance with the Auditor-General’s Auditing Standards, which
incorporate the Professional and Ethical Standards and the International Standards on Auditing (New
Zealand) issued by the New Zealand Auditing and Assurance Standards Board. Our responsibilities
under those standards are further described in the Responsibilities of the auditor for the audit of the
consolidated financial statements section of our report.
We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Audit materiality
We consider materiality primarily in terms of the magnitude of misstatement in the consolidated
financial statements of the Group that in our judgement would make it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced (the ‘quantitative’
materiality). In addition, we also assess whether other matters that come to our attention during the
audit would in our judgement change or influence the decisions of such a person (the ‘qualitative’
materiality). We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.
We determined materiality for the consolidated financial statements as a whole to be $27 million
which was determined with reference to a number of factors and taking into account the cyclical
nature of the airline industry. $27 million represents 4.7% of profit before tax, 1.3% of total equity and
0.4% of operating revenue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the consolidated financial statements for the current period. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
AIR NEW ZEALAND GROUP
63
Independent Auditor’s Report (continued)
Key audit matterHow our audit addressed the key audit matter and the results of our work
Aircraft – residual values and useful lives
Group aircraft and related assets, including right of use
assets, total $4,131 million at 30 June 2023 (2022: $4,095
million) as outlined in notes 10 and 11.
The useful lives and residual values of aircraft may be
influenced by changes to economic conditions, demand,
competition and new technology. The Group considers
these changes when reassessing the useful lives and
residual values of aircraft to determine the appropriate
depreciation rates.
This is a key audit matter due to the significance of
aircraft and related assets to the financial statements
coupled with the level of judgement required by the
Group in determining aircraft useful lives, residual values
and the resulting impact on the depreciation charge.
In assessing the appropriateness of the carrying values and residual values of
aircraft and related assets we performed the following procedures:
• Challenged the Group’s assumptions underpinning the calculation of residual
values by making a comparison to external information such as industry data
and period end exchange rates;
• Updated our assessment of the historical accuracy of assumptions around
residual values when aircraft are disposed of;
• Evaluated the controls in place over the calculation of depreciation, in particular
around the initial input of, or changes to, residual values and useful lives
information; and
• Undertook analytical procedures to test the depreciation calculation.
We consider the Group’s assessment of the residual values and useful lives of
aircraft to be reasonable.
Revenue recognition
The Group’s revenue consists of passenger revenue
which totalled $5,349 million (2022: $1,476 million).
Passenger revenue is complex due to the various fare
rules that may apply to a transaction, and as tickets
are typically sold prior to the day of flight. Complex IT
systems and processes are required to correctly record
these sales as transportation sales in advance and then
as revenue when the actual carriage is performed.
We have included revenue recognition as a key audit
matter due to the magnitude of revenue in relation
to the financial statements and the substantial
dependence on complex IT systems.
In performing our procedures we:
• Evaluated the systems, processes and controls in place over passenger
revenue in advance, which includes the key account reconciliation processes;
• Tested the IT environment in which passenger sales occur and interface with
other relevant systems;
• Assessed the quality of information produced by these systems and tested
the accuracy and completeness of reports generated by these systems which
are used to recognise or defer passenger revenue;
• Performed an analysis of passenger revenue and passenger revenue in
advance and created expectations of revenue based on our knowledge of the
Group, the industry and key performance measures, including airline capacity
and available seat kilometres. We have compared this to the Group’s revenue
and obtained appropriate evidence for significant differences; and
• Agreed a sample of passenger revenue and passenger revenue in advance
samples to supporting documentation.
We are satisfied revenue has been appropriately recognised.
AIR NEW ZEALAND ANNUAL REPORT 2023
64
Responsibilities of the Board of
Directors for the consolidated
financial statements
The Board of Directors is responsible on behalf of the Group for preparing consolidated financial
statements that are fairly presented in accordance with New Zealand Equivalents to International
Financial Reporting Standards and International Financial Reporting Standards.
The Board of Directors is responsible on behalf of the Group for such internal control as it
determines is necessary to enable the Group to prepare consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible on
behalf of the Group for assessing the Group’s ability to continue as a going concern. The Board of
Directors is also responsible for disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless there is an intention to liquidate the Group or
to cease operations, or there is no realistic alternative but to do so.
The Board of Director’s responsibilities arise from the Financial Markets Conduct Act 2013.
Responsibilities of the auditor
for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole, are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried
out in accordance with the Auditor-General’s Auditing Standards will always detect a material
misstatement when it exists. Misstatements are differences or omissions of amounts or
disclosures, and can arise from fraud or error. Misstatements are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the decisions of
shareholders taken on the basis of these consolidated financial statements.
We did not evaluate the security and controls over the electronic publication of the consolidated
financial statements.
As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise
professional judgement and maintain professional scepticism throughout the audit. Also:
• We identify and assess the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• We obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
• We evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Board of Directors.
• We conclude on the appropriateness of the use of the going concern basis of accounting by the
Board of Directors and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
• We evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.
• We obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
Independent Auditor’s Report (continued)
AIR NEW ZEALAND GROUP
65
Responsibilities of the auditor
for the audit of the consolidated
financial statements
(continued)
• We communicate with the Board of Directors regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
• We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Board of Directors, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
Our responsibility arises from section 15 of the Public Audit Act 2001.
Other information
The Board of Directors is responsible on behalf of the Group for all other information. The other
information comprises the information in the Annual Report that accompanies the consolidated
financial statements and the audit report. Our opinion on the consolidated financial statements
does not cover the other information and we do not express any form of audit opinion or assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to
read the other information. In doing so, we consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If, based on our work, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have
nothing to report in this regard.
Independence
We are independent of the Group in accordance with the independence requirements of the
Auditor-General’s Auditing Standards which incorporate the independence requirements of
Professional and Ethical Standard 1: International Code of Ethics for Assurance Practitioners
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 the audit we have carried out engagements in the areas of review of the interim
financial statements, assurance services relating to greenhouse gas emissions inventory,
passenger facility charges and compliance with student fee protection rules. In addition we
provide non-assurance services to the Corporate Taxpayers Group for which Air New Zealand is
a member, along with a number of other organisations. These services are compatible with those
independence requirements. In addition to these engagements, principals and employees of our
firm deal with the Group on normal terms within the ordinary course of trading activities of the
Group. These engagements and trading activities have not impaired our independence as auditor
of the Group. Other than the audit and these engagements and trading activities, we have no
relationship with, or interests in the Group.
Melissa Collier
for Deloitte Limited
On behalf of the Auditor-General
Auckland, New Zealand
Independent Auditor’s Report (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
66
2023
$M
2022
$M
2021
$M
2020
$M
2019
$M
Operating Revenue
Passenger revenue
Cargo
Contract services
Other revenue
5,349
628
133
220
1,476
1,016
117
125
1,470
769
161
117
3,942
449
216
229
4,960
390
197
238
Operating Expenditure
Labour
Fuel
Maintenance
Aircraft operations
Passenger services
Sales and marketing
Foreign exchange gains/(losses)
Other expenses
6,330
(1,4 41)
(1,499)
(395)
(694)
(334)
(291)
4
(394)
2,73 4
(976)
(560)
(259)
(412)
(116)
(131)
(3)
(281)
2,517
(830)
(311)
(254)
(350)
(84)
(73)
(29)
(252)
4,836
(1,197 )
(1,022)
(4 41)
(575)
(258)
(253)
18
(326)
5,785
(1,351)
(1,271)
(399)
(678)
(319)
(350)
53
(290)
(5,044) (2,738) (2,183) (4,054) (4,605)
Operating Earnings (excluding items below)
Depreciation and amortisation
Rental and lease expenses
1,286
(695)
-
(4)
(668)
-
334
(715)
-
782
(840)
-
1,180
(554)
(245)
Earnings/(Loss) Before Finance Costs, Associates,
Other Significant Items and Taxation
Finance income
Finance costs
Share of earnings of associates (net of taxation)
591
119
(164)
39
(672)
14
(94)
27
(381)
8
(90)
19
(58)
34
(103)
39
381
48
(79)
37
Earnings/(Loss) Before Other Significant Items and Taxation
Other significant items
585
(11)
(725)
(85)
(444)
29
(88)
(541)
387
(5)
Earnings/(Loss) Before Taxation
Taxation (expense)/credit
5 74
(162)
(810)
219
(415)
123
(629)
174
382
(106)
Net Profit/(Loss) Attributable to Shareholders of Parent Company 412 (591) (292) (455) 276
2023
$M
2022
$M
2021
$M
2020
$M
2019
$M
Cash flow from operating activities
Cash flow used in investing activities
Cash flow (used in)/from financing activities
1,853
(916)
(503)
5 74
(355)
1,308
323
(182)
(313)
222
(534)
(305)
997
(894)
(391)
Increase/(Decrease) in cash holding 434 1,527 (172) (617) (288)
Total cash and cash equivalents 2,227 1,793 266 438 1,055
Certain comparatives within the five year statistical review have been reclassified for comparative purposes, to ensure consistency
with the current year. Following the IFRS Interpretations Committee (“IFRIC”) issuing a final agenda decision in April 2021 on
Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38) certain costs in respect of configuring or
customising a supplier’s application software in a Software as a Service (“SaaS”) arrangement were no longer able to be capitalised
and were required to be recognised as an operating expense. The agenda decision was applied retrospectively and comparatives
restated accordingly. The Group adopted NZ IFRS 16 - Leases on 1 July 2019. In accordance with the transitional provisions of NZ IFRS 16,
comparatives were not restated.
Historical Summary of Cash Flows
Five Year Statistical Review
For the year to 30 June
Historical Summary of Financial Performance
Five Year Statistical Review
For the year to 30 June
AIR NEW ZEALAND GROUP
67
2023
$M
2022
$M
2021
$M
2020
$M
2019
$M
Current Assets
Bank and short-term deposits
Other current assets
2,227
1,042
1,793
704
266
560
438
571
1,055
74 9
Total Current Assets 3,269 2,497 826 1,009 1,804
Non-Current Assets
Property, plant and equipment
Other non-current assets
3,261
2,665
3,190
2,663
3,128
2,730
3,336
3,193
5,133
680
Total Non-Current Assets 5,926 5,853 5,858 6,529 5,813
Total Assets 9,195 8,350 6,684 7, 5 3 8 7,6 17
Current Liabilities
Debt
1
Other current liabilities
545
3,291
590
2,581
907
1,446
513
1,589
307
2,359
Total Current Liabilities 3,836 3,171 2,353 2,102 2,666
Non-Current Liabilities
Debt
1
Other non-current liabilities
2,790
490
2,978
524
2,401
832
3,188
934
2,290
672
Total Non-Current Liabilities 3,280 3,502 3,233 4,122 2,962
Total Liabilities 7,116 6,673 5,586 6,224 5,628
Net Assets 2,079 1,677 1,098 1,314 1,989
Total Equity2,079 1,677 1,098 1,314 1,989
1. Debt is comprised of secured borrowings, bonds, medium term notes, finance lease liabilities, lease liabilities and redeemable shares.
2023
$M
2022
$M
2021
$M
2020
$M
2019
$M
Debt
Secured borrowings
Unsecured bonds
Medium term notes
Finance lease liabilities
Lease liabilities
Redeemable shares
998
102
578
-
1,657
-
1,185
50
608
-
1,525
200
1,497
50
-
-
1,761
-
1,413
50
-
-
2,238
-
1,459
50
-
1,088
-
-
Bank and short-term deposits
Net open derivatives held in relation to interest-bearing liabilities and
lease liabilities
1
Interest-bearing assets (included within Other assets)
3,335
2,227
(31)
732
3,568
1,793
23
360
3,308
266
13
324
3,701
438
(37)
334
2,597
1,055
7
264
Net Debt407 1,392 2,705 2,966 1,271
Net aircraft operating lease commitments
2
- - - - 1,246
Net Debt (including off Balance Sheet)407 1,392 2,705 2,966 2,517
1. Unrealised gains/losses on open debt derivatives.
2. Net aircraft operating lease commitments for the next twelve months, multiplied by a factor of seven (excluding short-term leases in 2019, which provide cover for Boeing 787-9
engine issues).
The Group adopted NZ IFRS 16 - Leases on 1 July 2019. In accordance with the transitional provisions of NZ IFRS 16, comparatives have
not been restated.
Historical Summary of Debt
Five Year Statistical Review
As at 30 June
Historical Summary of Financial Position
Five Year Statistical Review
As at 30 June
AIR NEW ZEALAND ANNUAL REPORT 2023
68
20232022202120202019
Profitability and Capital Management
E B I TA S
1
/Operating Revenue
EBITDRASA
2
/Operating Revenue
Passenger Revenue per Revenue Passenger Kilometre (Yield)
Passenger Revenue per Available Seat Kilometre (RASK)
3
Cost per Available Seat Kilometre (CASK)
4
Return on Invested Capital Pre-tax (ROIC)
5
Liquidity ratio
6
Gearing (incl. net capitalised aircraft operating leases)
7
%
%
cents
cents
cents
%
%
%
9.3
20.3
18.4
15.6
14.0
22.3
35.2
16.4
(24.6)
(0.1)
20.7
13.9
13.7
(21.2)
65.6
45.4
(15.1)
13.3
24.9
14.3
12.5
(8.2)
10.6
71.1
(1.2)
16.2
13.3
10.8
10.5
(13.3)
9.1
69.3
6.6
20.4
12.9
10.8
10.0
10.6
18.2
55.9
Shareholder Value
Basic Earnings per Share
8
Operating Cash Flow per Share
8
Ordinary Dividends Declared per Share
8
Special Dividend Declared per Share⁸
Net Tangible Assets per Share
8
Closing Share Price 30 June
Weighted Average Number of Ordinary Shares
Total Number of Ordinary Shares
Total Market Capitalisation
Total Shareholder Returns
9
cps
cps
cps
cps
$
$
m
m
$m
%
12.2
55.0
-
6.0
0.55
0.78
3,368
3,368
2,627
(14.9)
(40.8)
17.0
-
-
0.39
0.57
1,449
3,368
1,920
(19.5)
(26.0)
28.8
-
-
0.86
1.55
1,123
1,123
1 ,74 0
0.7
(40.5)
19.8
-
-
1.10
1.32
1,123
1,123
1,482
(5.3)
24.6
88.8
22.0
-
1.82
2.65
1,123
1,123
2,976
14.0
1. Earnings/(Loss) before interest and taxation (EBIT) excluding share of earnings of associates (net of taxation) and other significant items (refer footnote under Historical
Summary of Cash Flows)
2. EBITDRA excluding share of earnings of associates (net of taxation) and other significant items (refer footnote under Historical Summary of Cash Flows)
3. Passenger revenue per passenger flights Available Seat Kilometre
4. Operating expenditure (excluding other significant items) per ASK (refer footnote under Historical Summary of Cash Flows)
5. (EBIT plus interest component of aircraft operating leases)/average capital employed (Net Debt plus Equity) over the period
6. (Bank and short-term deposits and interest-bearing assets (excluding restricted cash))/Operating Revenue
7. Net Debt (including capitalised aircraft operating leases)/(Net Debt plus Equity)
8.
Per-share measures based upon Ordinary Shares. Net tangible assets exclude ‘Intangible assets’ and ‘Deferred taxation’ reported on the face of the Statement of Financial Position
9. Return over five years including the change in share price and dividends received (assuming dividends are reinvested in shares on ex dividend date)
Key Financial Metrics
Five Year Statistical Review
AIR NEW ZEALAND GROUP
69
20232022202120202019
Passengers Carried (000)
Domestic
10,946
6,836
8,191
8,821
11,513
International
Australia and Pacific Islands
Asia
America and Europe
3,352
697
781
734
51
124
386
32
40
2,889
765
1,050
3,880
950
1,395
To t a l 4,830 909 458 4,704 6,225
Total Group 15,7 76 7,74 5 8,649 13,525 17,73 8
Available Seat Kilometres (M)
Domestic
6,685
4,929
5,480
5,619
7,10 4
International
Australia and Pacific Islands
Asia
America and Europe
10,237
7,423
9,936
2,665
1,229
1,828
2,214
1,572
1,038
9,419
8,336
12,961
12,215
9,983
16,72 7
To t a l 27,596 5,72 2 4,824 30,716 38,925
Total passenger flights 34,281 10,651 10,304 36,335 46,029
Cargo-only flights 1,680 9,368 7,106 2,151 -
Total Group 35,961 20,019 17,410 38,486 46,029
Revenue Passenger Kilometres (M)
Domestic
5,679
3,452
4,244
4,552
5,957
International
Australia and Pacific Islands
Asia
America and Europe
8,707
6,128
8,518
1,937
445
1,312
964
292
408
7,472
6,736
10,808
10,043
8,386
14,187
To t a l 23,353 3,694 1,664 25,016 32,616
Total Group 29,032 7,14 6 5,908 29,568 38,573
Passenger Load Factor (%)
Domestic
84.9
70.1
7 7.4
81.0
83.9
International
Australia and Pacific Islands
Asia
America and Europe
85.1
82.6
85.7
72.7
36.2
71.8
43.5
18.6
39.3
79.3
80.8
83.4
82.2
84.0
84.8
To t a l 8 4.7 65.5 36.5 81.4 83.8
Total Group 8 4.7 6 7.1 5 7. 3 81.4 83.8
GROUP EMPLOYEE NUMBERS (Full Time Equivalents) 11 ,474 8,863 7, 8 4 0 9,988 11,793
New Zealand, Australia and Pacific Islands represent short-haul operations. Asia, America and Europe represent long-haul operations.
Certain comparatives within the operating statistics have been reclassified, to ensure consistency with the current year.
Key Operating Statistics
Five Year Statistical Review
For the year to 30 June
AIR NEW ZEALAND ANNUAL REPORT 2023
70
Effective corporate governance is at the heart of the Air New Zealand Board’s agenda, and the Board considers its governance practices to
be consistent with the Principles of the NZX Corporate Governance Code dated 1 April 2023.
This Corporate Governance Statement was approved by the Board on 24 August 2023 and is current as at that date.
Our Governance Structure
The Board
The Board is responsible for guiding the corporate strategy and direction of Air New Zealand
and has overall responsibility for decision making.
Audit & Risk Committee
(ARC)
Advises and assists the Board in
discharging its responsibilities
with respect to financial
reporting, compliance and risk
management practices of Air
New Zealand, and oversight of
key risks including climate and
cybersecurity.
Chair: Alison Gerry
Claudia Batten
Laurissa Cooney
Jonathan Mason
Dame Therese Walsh
People, Remuneration &
Diversity Committee (PRDC)
Advises and assists the Board
in discharging its responsibilities
with respect to oversight
of the People Strategy of
Air New Zealand.
Chair: Jonathan Mason
Dean Bracewell
Laurissa Cooney
Paul Goulter
Dame Therese Walsh
Health, Safety & Security
Committee (HSSC)
Advises and assists the Board
in discharging its responsibilities
with respect to health, safety
and security matters arising
out of activities within and by
Air New Zealand including
oversight of health, safety and
security risks.
Chair: Dean Bracewell
Larry De Shon
Alison Gerry
Paul Goulter
Dame Therese Walsh
External Sustainability
Advisory Panel
External advisory panel
providing advice to the Board
and Management on
Sustainability matters.
Chair: Sir Jonathon Porritt
Dr Susanne Becken
Katherine Corich
Prof. Tim Jackson
Sam Mostyn AO
N a d i n e To e To e
Chief Executive Officer
Delegated responsibility for
implementing the Board’s
strategy and for managing the
operations of Air New Zealand.
External
Audit
Head of
Internal Audit
Reports
functionally to
the Audit & Risk
Committee and
administratively
to the Chief
Financial Officer.
Chief Financial Officer
Disclosure Committee
Facilitates the provision
of timely and appropriate
market disclosure.
General Counsel
and Company Secretary
Secretary to the Board and
accountable directly to the Board,
through the Chair, on all matters
to do with the proper functioning
of the Board.
Board / Committee meeting attendance – 1 July 2022 to 30 June 2023
BoardAudit & Risk Committee
People, Remuneration
& Diversity Committee
Health, Safety &
Security Committee
Attendance
1
Attendance
1
Attendance
1
Attendance
1
Dame Therese Walsh11/114/44/44/4
Claudia Batten11/114/4
Dean Bracewell10/114/44/4
Laurissa Cooney11/114/44/4
Larry De Shon11/114/4
Alison Gerry10/114/44/4
Paul Goulter10/114/44/4
Jonathan Mason11/114/44/4
1
The attendance is the number of meetings attended / number of meetings for which the director was a member.
Corporate Governance Statement
AIR NEW ZEALAND GROUP
71
Current Directors
Details of directors’ skills and experience can be found at:
airnewzealand.co.nz/air-new-zealand-board
Board skills and diversity
4
TourismCustomer
Experience
4
Sustainability
3
Government
/ Stakeholder
3
International
Business
5
Digital
/ Technology
2
Engineering
/ Safety
3
5
Financial
Age
40 – 49
2
60 – 69
4
Average
58
50 – 59
2
Residence
Offshore
1
Regional
3
Auckland
2
Other main centre
2
Gender
Female
4
Female
50%
Male
4
Corporate Governance Statement (continued)
Dame Therese Walsh
DNZM, BCA, FCA
Independent Non-Executive Director
(Appointed 1 May 2016)
Chair
Claudia Batten
LLB(Hons), BCA
Independent Non-Executive Director
(Appointed 28 October 2021)
Dean Bracewell
Independent Non-Executive Director
(Appointed 20 April 2020)
Health, Safety & Security Committee Chair
Laurissa Cooney
BMS(Hons), FCA, CMInstD
Independent Non-Executive Director
(Appointed 1 October 2019)
Larry De Shon
BA Communications, BA Sociology
Independent Non-Executive Director
(Appointed 20 April 2020)
Alison Gerry
BMS(Hons), MAppFin
Independent Non-Executive Director
(Appointed 28 October 2021)
Audit & Risk Committee Chair
Paul Goulter
LLB, MA(Hons), BA
Independent Non-Executive Director
(Appointed 28 October 2021)
Jonathan Mason
MBA, MA, BA
Independent Non-Executive Director
(Appointed 1 March 2014)
People, Remuneration & Diversity Committee Chair
AIR NEW ZEALAND ANNUAL REPORT 2023
72
Independence
The Board has identified criteria in its Charter, against which it evaluates the independence of directors in line with the
NZX Listing Rules. These are designed to ensure directors are not unduly influenced in their decisions and activities by
any personal, family or business interests.
All directors have been determined to be Independent Directors under these criteria, and for the purposes of the NZX
Listing Rules. Directors are required to inform the Board of all relevant information which may affect their independence
such that the Board continually considers the independence of its members.
The Board Charter makes explicit that the Chair and the Chief Executive Officer roles are separate.
Director Appointments
There have been no new directors appointed during the 2023 financial year.
The Board’s approach to appointing directors is depicted below. The Board as a whole considers the requirement for
additional or replacement directors.
Needs AnalysisIdentificationSuitabilityAppointmentEstablishment
• Assessment of existing
and desirable skills on
the Board to fulfil its
governance role and
contribute to the long-
term strategic direction
of the Company.
• Diversity considerations.
• Identification of suitable
candidates.
• External consultants
may be engaged.
• Ensure constitutional
requirements are met.
• Ensure relevant
independence criteria
(including NZX Code)
are satisfied.
• Interviewing and
reference checking.
• Formal letter of
appointment outlining
key terms and conditions
of appointment.
• Shareholder approval
at next Annual
Shareholder Meeting.
• Induction.
• Disclosure of Interests
and agree conflicts
management plans
where relevant.
•
Committee assignments.
• Ongoing evaluation and
development.
Directors are expected to acquire a shareholding in the Company equivalent to 50% of the annual base director fee
within 3 years of appointment.
Key Governance documents are available on the
Air New Zealand website. These include:
• the Company’s Code of Conduct and Ethics, stating the guiding principles
of ethical and legal conduct, applicable to everyone working at or for
Air New Zealand – directors, executives, employees, contractors and agents.
• Charters for the Board and each of its Committees, detailing authorities,
responsibilities, membership and operation.
• the Securities Trading Policy, identifying behaviours that could be illegal for
individuals, or otherwise unacceptable or risky in relation to dealings in
Air New Zealand’s securities by directors, employees or their associated persons.
• the Continuous Disclosure Policy, addressing compliance with continuous
disclosure obligations and the timely treatment of Material Information.
Air New Zealand’s key Governance documents can be found at:
airnewzealand.co.nz/corporate-governance
Corporate Governance Statement (continued)
Continuous Disclosure
Version 3.1
Continuous Disclosure
1.0 Intent
1.1 As a company listed on the New Zealand and Australian Stock Exchanges, Air New Zealand is
bound by continuous disclosure obligations under the Listing Rules and the Financial Markets
Conduct Act. Air New Zealand is committed to keeping the securities markets informed of
Material Information relating to the Company and its financial products and promoting investor
confidence by ensuring that trading in its financial products takes place in an efficient, well-
informed market at all times.
1.2 The purpose of this Policy is to:
a) Ensure that Air New Zealand complies with its continuous disclosure obligations;
b) Ensure timely, accurate and complete information is provided to all shareholders and
market participants; and
c) Outline mandatory requirements and responsibilities in relation to the identification,
reporting, review and disclosure of Material Information relevant to Air New Zealand.
1.3 For the purposes of this Policy, Material Information means any information that if it were
generally available to the market, a reasonable person would expect to have a material effect on
the price of Air New Zealand’s financial products.
1.4 This Policy should be considered in conjunction with Air New Zealand’s Securities Trading
Policy,
which deals with the trading of Air New Zealand’s financial products by Directors and employees
of the Company and any other person in possession of Material Information relevant to Air New
Zealand.
SSe
ec
cu
ur
ri it
ti
ie
es
s TTr ra
addi
inng
g
11.
.0
0
IIn
nt te
en
nt t
1.1
This
document details Air New Zealand’s policy on, and rules for dealing in the following Air New Zealand
securities (“Company Securities”):
•
Air New Zealand Ordinary Shares (“AIR”)
•
Air New Zealand
Bonds (“AIR020”)
•
Any other quoted financial products of Air New Zealand or its subsidiaries from time to time; and
•
Any derivatives in respect of such quoted financial products from time to time.
The requirements imposed by this Policy are separate
from, and in addition to, the legal prohibitions on
insider
trading in New Zealand, Australia and any other country where the Company Securities may be listed.
1.2
In addition to this Policy further more specific and stringent rules also apply to trading i
n Company Securities
by those people identified as “Restricted Persons”, being Directors and certain senior employees (see
Appendix 1: Additional Trading Restrictions for Restricted Persons). Appendix 1 only applies to “Restricted
Persons”.
22.
.0
0
SSc
co
oppee
2
.1
This is an Air New Zealand Group Policy which applies to all Directors, employees, contractors and other
representatives of the Air New Zealand Group, collectively referred to as “employees” who intend to trade in
Company Securities.
2.2
To the extent of a
ny inconsistency with any previous policy or rules relating to this subject matter, this Policy
prevails over them.
2.3
This Policy does not apply to:
•
Acquisitions and disposals of Company Securities by gift or inheritance;
•
Acquisitions of Company Securiti
es through an issue of new Company Securities, such as an issue of
new shares under a rights issue or a dividend reinvestment plan.
2.4
In this Policy ‘trade’ includes buying or selling Company Securities, or agreeing to do so, whether or not the
Company S
ecurities are held or received in the name of an employee, a family member, a trust of which an
employee is a trustee or any company which an employee controls.
Our Code of Conduct
and Ethics
ONE AIR NEW ZEALAND
—
DOING WHAT’S RIGHT
LAST UPDATED: NOVEMBER 2021
AIR NEW ZEALAND GROUP
73
Diversity, Equity and Inclusion
The Company’s Diversity, Equity & Inclusion Policy recognises the value of a
diverse workforce, proudly representative of Aotearoa New Zealand, and aims to
create an inclusive environment where Air New Zealanders can be themselves
and thrive. Overall, the Board considers the Company’s performance against this
policy has been consistent. The Board has also had input into and endorsed the
recently refreshed Diversity, Equity and Inclusion strategy and will continue to
regularly evaluate progress against the strategy and the relevant targets.
Diversity is considered across a number of measures, including gender, ethnicity,
disability, age, and sexual identity. There is a focus on recruitment practices that
promote the retention and attraction of diverse talent, as well as a broad range of
employee initiatives to reflect, support and develop the diversity we have across
the airline. Air New Zealand’s 10 Employee Networks play a key role in supporting
and advocating for employees and ensuring the success of the airline’s Diversity,
Equity & Inclusion strategy.
With a target of 50% women in the senior leadership team (which includes
the Executive), the Company achieved 41% as at 30 June 2023. The Board will
continue to monitor this and is comfortable that the recent decline is not reflective
of any systemic issues, with recruitment, retention and management of talent
pipelines all operating well. Our 50% target will be maintained and there will be a
continued focus on building a pipeline of women leaders at all levels of leadership
to help us achieve this.
202020192018201720162023
Female
employees
201520222021
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0
All employees
ALT / Exec
Air New Zealand also has a target of 20% of the Company’s people leadership roles being held by Māori and Pasifika
employees by 2025; as at 30 June 2023 the result was 16%. The target will be maintained for the 2024 financial year,
with ongoing support for our graduates of our Mangōpare leadership development programme, and continued focus
on initiatives that support the recruitment, retention and development of Māori and Pasifika talent.
*AS AT 30 JUNE20222023
Directors (female:male:gender diverse)4:4:04:4:0
Executive team (female:male:gender diverse)*3:6:04:6:0
* The Executive Team comprises the Chief Executive Officer and direct reports to the Chief Executive Officer,
and corresponds to “Officers” as defined in the Listing Rules.
Corporate Governance Statement (continued)
Jonathan Mason discusses the activities of the People, Remuneration & Diversity Committee:
youtube.com/watch?v=dNFWg0nypRw
AIR NEW ZEALAND ANNUAL REPORT 2023
74
Gender balance
– Executive
3 year average
Male
Female
202220212020
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0
202320222021
Gender balance
– Board
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0
3 year average
Male
Female
The Sustainability Report further identifies and quantifies activities, achievements and metrics related to Diversity,
Equity & Inclusion initiatives.
Shareholder Engagement
Air New Zealand utilises a number of channels to communicate with its shareholders. Disclosure of material information
is first made through announcements to the NZX and ASX. In accordance with legislation, the Constitution and
Listing Rules, Air New Zealand refers any significant matters to shareholders for approval at a shareholder meeting.
The Company’s investor centre on the Air New Zealand website is the focal point for many of these disclosures, and
shareholders are encouraged to utilise this site, which contains current and historical financial information, shareholder
meeting materials, and links to other information of relevance to investors and key stakeholders.
Air New Zealand’s Investor Centre can be found at:
airnewzealand.co.nz/investor-centre
Regular
Disclosures
on Company
Performance
Hybrid Annual
Shareholder
Meetings
Investor Day
Briefings
Webcast
Interim and
Annual Results
Presentations
Air New Zealand
Investor
Relations
Electronic
Communications
Investor Centre
Website
There is a comprehensive frequently asked questions section included in the investor centre website to assist
shareholders with common questions. In addition, all shareholders have the ability to make enquiries regarding their
investment via the Investor Relations e-mail (investor@airnz.co.nz) which is provided on the investor centre website.
The Company operates an investor relations programme with dedicated individuals who manage scheduled interactions
with investors, analysts and relevant market stakeholders throughout the year. Twice a year at the interim and annual
results announcement, the CEO and CFO host an investor-focused conference call and answer questions raised by
analysts and investors. A transcript of the investor call is made available on the Company’s website to enable full
transparency to all stakeholders. The Company also participates in bi-annual podcasts for existing and prospective
retail shareholders, which provides an opportunity for those stakeholders to ask questions related to the interim and
annual financial result, as well as strategic questions.
Air New Zealand posts any Notices of Shareholder Meetings on its website as soon as these are available. The general
practice is to make these available not less than four weeks prior to the shareholder meeting. The Company has been
holding a hybrid form (with attendance either physically or digitally) of its Annual Shareholders Meeting since 2016,
which enables wide participation by shareholders.
Corporate Governance Statement (continued)
AIR NEW ZEALAND GROUP
75
Differences in Practice to NZX Code
The Board has not established protocols setting out procedures to be followed in the event of a takeover offer. This is
because the Board considers receipt of a takeover offer to be an extremely unlikely event in light of the Crown’s majority
shareholding in the Company and the other shareholding restrictions that apply to Air New Zealand. In addition,
Air New Zealand would have adequate time to implement such protocols and procedures, and communicate those
to shareholders, should circumstances change. Accordingly, and having regard to the supporting commentary in the
NZX Corporate Governance Code, the Board considers that it is reasonable and appropriate for Air New Zealand not to
follow Recommendation 3.6 of the Code at this time. Notwithstanding this, the Board agrees with the principles behind
this recommendation, being good communication with shareholders and independent directors leading matters that
require appropriate independence.
Board Activities
As the financial and operational disruption of the Covid-19 pandemic receded, the Board has more deliberately
focused on the future position of the Company, and what that means for stakeholders including customers, employees
and investors.
The Board-approved strategy, Kia Mau, continues to provide a robust framework as the Company focuses on the future
and continuing to deliver service excellence to its customers as a key part of driving Air New Zealand’s success. During
the year Directors attended 11 Board meetings and 7 Strategy sessions. There were also 12 Committee meetings (4 ARC,
4 HSSC and 4 PRDC).
Key areas of activity during the year include:
Kia Mau
Guiding the Company’s strategy, ensuring it is refined in a dynamic operating context, and monitoring progress
towards achievement, is central to the Board’s activities.
The recovery path has presented challenges throughout the industry (and the wider economy) with ongoing
supply chain issues, staff resourcing and restricted capacity, particularly as demand has been continually strong
from customers. The Brilliant Basics driver of the Kia Mau strategy has been in sharp focus as it is key to improving
operational performance and reliability, and customer satisfaction. The Board acknowledges short-term challenges
and frustrations for customers as the overall aviation system has built back, but improvements are being implemented
that will give the airline a stronger platform to deliver into the future. Directors have been encouraged as they observe
the Full Potential framework enabling material and timely enhancements in areas such as the management of
mishandled bags where significant efficiency improvements have been achieved.
Capital Management
In 2022 the Board successfully completed a Capital
Raise to re-establish its funding base following
the Covid-19 pandemic. At the time of the raise the
Company’s recovery path remained uncertain, but the
demand for air travel, both domestic and international,
has proven to be stronger than anticipated on an
ongoing basis, both for the Company and the global
airline industry more broadly. This has facilitated the
Board looking at its capital management settings over
the course of five meetings during the 2023 financial
year, with a particular focus on appropriate liquidity
and leverage targets that enable the Company to
maintain an investment grade credit rating, as well
as shareholder distribution parameters. The revised
capital management framework is effective from the
2024 financial year.
As part of the capital management discussion, the Board assessed the strong financial performance in 2023 and
determined payment of a special dividend to shareholders was appropriate, in the context of the Company’s current
liquidity, debt levels and capital expenditure profile.
The Company issued $100 million retail bonds in October 2022, replacing the $50 million retail bonds that were
maturing. The Company also redeemed and cancelled the outstanding $200 million balance of Redeemable Shares
issued prior to the Capital Raise. The Board will consider removing the remaining and undrawn standby Crown loan of
$400 million at the appropriate juncture.
Corporate Governance Statement (continued)
1
1AIR NEW ZEALAND 2023 ANNUAL RESULTS
Invest in core operations
Maintain financial resilience and flexibility
DistributionsGrowth capex
Underpinned by our commitment to maintain investment grade credit rating metrics
• Target liquidity range of $1.2 billion to $1.5 billion
• Net Debt to EBITDA ratio of 1.5x to 2.5x
• Fleet and infrastructure investments above WACC through the cycle
• Investment to support the airline’s decarbonisation ambitions
• Ordinary dividend pay-out ratio of 40% to 70% of
underlying net profit after tax (NPAT)
• Return excess capital via special dividends or
share buybacks
• Disciplined investment in value accretive capex
• Target ROIC above pre-tax WACC
REVISED CAPITAL MANAGEMENT FRAMEWORK FROM FY24
ENABLING FINANCIAL RESILIENCE AND FLEXIBILITY TO DELIVER ON STRATEGY
AIR NEW ZEALAND ANNUAL REPORT 2023
76
Sustainability
A successful future requires the Company to remain committed to advancing its sustainability initiatives and the
Board is focused on ensuring progress in managing and reporting on climate change impacts. To achieve this, the
Board has collaborated with management to establish climate scenarios and models, both to meet climate disclosure
requirements and to inform and shape the Company’s responses. Directors have endorsed efforts to enhance the
availability and sourcing of Sustainable Aviation Fuel (SAF), as well as pursuing options for lower emission aircraft.
The Company’s sustainability roadmap to 2030 and beyond has been a key focus for the Board, given the challenges
the airline industry faces and how critical this roadmap is to inform an effective and authentic response by the airline.
The Company’s science-based carbon reduction target provides an objective benchmark for the Board, as well as
other stakeholders, to monitor the Company’s progress.
The Board’s focus on sustainability is not restricted to climate change, as demonstrated in the Sustainability Report.
Sustainability issues are also expected to be discussed in all relevant Board papers to drive improvement in their
identification, measurement and management.
Te Ao Māori
The Board and management continue on their journey to realise an authentic te ao Māori approach for the company,
recognising the partnership principle underpinning Te Tiriti o Waitangi | The Treaty of Waitangi, and the importance of
an effective Māori strategy to drive outcomes and value alongside the Kia Mau strategy.
The Board endorsed management’s Māori strategy in February 2023, which is a significant step towards a more
comprehensive approach to embedding te ao Māori into the business. This strategy is designed to ensure that the
airline moves beyond solely focusing on cultural practices to a more holistic approach, which incorporates measurable
outcomes related to workforce, stakeholders, policy and processes, and commercial performance. The strategy
identifies a range of opportunities for Air New Zealand, including engaging with mana whenua in recruitment initiatives,
ensuring that tikanga Māori is authentically incorporated into the business, and connections with the Māori economy
and Māori entities shows demonstrable growth through shared initiatives.
Further Afield
Following the launch of the Auckland-New York direct service in October 2022, the Board hosted a high level business
delegation to New York, building and rebuilding links with the US market to benefit the New Zealand business sector
and wider economy.
Given Air New Zealand operates globally, the Board undertake one to two overseas visits each year to meet
stakeholders and to undertake health and safety reviews. Directors visited several Pacific Islands in November 2022,
building relationships with stakeholders in those ports, and engaging with staff and touring the facilities.
Corporate Governance Statement (continued)
Air New Zealand Board members with Greg Foran (CEO) in New York
Left to right: Paul Goulter, Larry De Shon, Laurissa Cooney, Alison Gerry, Dame Therese Walsh (Chair),
Claudia Batten, Greg Foran (CEO), Dean Bracewell and Jonathan Mason.
AIR NEW ZEALAND GROUP
77
Regional Initiatives
Air New Zealand is committed to supporting the growth and prosperity of regional New Zealand, and the Board has been
active in this effort. Directors have visited several regions over the past year including the top of the South Island, meeting
local leaders, engaging with business communities and gaining a deeper understanding of local issues and initiatives.
As the Company refreshes its customer offerings, such as airport lounge facilities and on-board food options, the Board
is strongly supporting the use of local suppliers and specialities. By promoting local businesses, Air New Zealand is
helping to support the economies of regional communities and providing a memorable experience for customers.
The Board was also pleased that the airline was able to provide additional support to the Gisborne and Hawkes Bay
communities when Cyclone Gabrielle disrupted land transport options in February. This included operating a temporary
daily air service between Napier and Gisborne to overcome road closures, and carrying over 5,700 passengers including
a significant number of emergency workers and contractors. Going forward, the airline will continue to seek ways to
support local efforts and its staff in those regions as the communities rebuild.
As Directors have visited different ports, they have also taken the time to engage with local employees and recognise
their mahi in improving the customer experience.
Infrastructure
Getting the supporting infrastructure for the future is critical, both operationally and to ensure customers have a safe,
appropriate, and cost-effective experience.
Auckland International Airport is the airline’s main base and ~62% of domestic journeys and ~83% of international
journeys go through the Auckland domestic or international terminals. As a regulated supplier Auckland International
Airport undertakes a price setting event every five years, which is informed by the airport’s multi-decade airport
redevelopment programme. The Board has been closely involved with the airline’s response to the 2023 airport price
setting consultation and the overall redevelopment plans, given the airport’s plans are a generational shift in investment
and are likely to have an adverse impact on airline ticket prices and customer demand. The airline recognises the need
for some level of investment in site development and improved terminal facilities at Auckland airport but considers the
current proposals to be unaffordable. The Board continues to support a range of initiatives in response.
The Board approved a significant investment in new hangar facilities at Auckland airport incorporating sustainable
design and construction techniques. The new hangar will replace decades-old facilities which are inefficient and no
longer fit for purpose. Further investment in modern Ground Service Equipment has also been approved.
Employees
The Board considers Air New Zealand employees to be the most valuable asset of the airline. The airline has been
challenged by staff shortfalls during the rapid 2022-23 demand recovery. There has been a shortfall of staff throughout
the industry and the airline is focused on attracting, retaining and recruiting staff with the right competencies as this
is fundamental to operational excellence. Basic wage rates have increased to address market expectations. In the
financial year, the airline has taken on 3,000 new staff, particularly in airport roles (front and back of house), contact
centres and flight crew.
For the longer term the Board has considered other strategic issues such as pilot sourcing and career progressions,
senior executive succession, and supporting employees with meaningful incentives and initiatives. The parental leave
policy was enhanced this year as was the staff travel offering.
The Board is encouraged by the 2023 Ranstad award for Most Attractive Employer, the seventh time the airline has
received this award.
Risk Appetite
The Board enhanced its approach to risk management with the completion of work to define and approve its Risk
Appetite Statement. This enables decision-makers in the airline to understand how willing the Company is to take
risks. The Risk Appetite is aligned to the Strategic Risk areas described on pages 81 to 84. The Board expects the Risk
Appetite to be addressed in matters presented to it and will continue to refine the Statement to respond to changes,
particularly in the operating environment and the nature or extent of strategic risks including the effectiveness of
mitigants. Fundamental for an airline, it is obvious that the Board is ‘averse’ to taking risk on safety issues – operational
or staff related. At the other end of the spectrum, as part of our ambition to create the greatest flying experience the
Board has set an ‘open’ risk appetite to innovate the customer experience and to challenge the status quo in both the
international and domestic flying experience. The Board is open to other dimensions of innovation risk, but is explicit
that innovation is not at the expense of safety.
Corporate Governance Statement (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
78
Corporate Governance Statement (continued)
Safety
The safety of our customers, employees and our operations remains paramount for the airline and the Board. The direct
effects of the pandemic have abated, but related impacts continue, including recruitment and retention challenges,
a constrained supply chain, training and on-boarding of new personnel and increased levels of illness. Consequential
workload pressure has contributed to elevated risk concerning fatigue, mental health and wellbeing. Particular focus on and
initiatives in these areas and on safety overall has seen an improvement in the relevant risk control effectiveness scores.
The Board’s Health, Safety & Security Committee meets quarterly and engages with management and representatives
of our front-line workforce to review operational risk and safety performance. These meetings include the consideration
of detailed reporting against safety metrics as well as spending time in the operations of the airline. The Committee has
also met with key stakeholders with whom the airline works closely with to ensure safe operating practices. Directors
visited several domestic and offshore ports over the year meeting with our employees and acknowledging their mahi.
Dean Bracewell discusses the activities of the Health, Safety & Security Committee:
youtube.com/watch?v=dNFWg0nypRw
Layered safety and well-being support within the airline includes a Peer Support Network, Employee Assistance
Programme, a confidential Speak Up line and our other 10 Employee Networks. Maintaining and further developing
a safety and security culture through effective training, as many new staff join, is a priority.
The airlines’ safety processes and performance are audited by the Civil Aviation Authority which undertook four
audits in 2023 all resulting in positive outcomes. Air New Zealand is also a member of IATA and the Star Alliance.
A pre-requisite to these memberships is evaluation by the IATA Operational Safety Audit (IOSA) program, an
internationally recognised and accepted evaluation system designed to assess the operational management and
control systems of an airline. The airlines’ IOSA accreditation was renewed in March 2023.
The Board was particularly pleased to note the repeated success of the airline in the NZ Workplace Health & Safety
Awards, recognising industry leadership in health and safety.
Customer Initiatives
Initiatives which improve and innovate the customer journey have been of keen interest to the Board, including in-flight
food offerings, innovative aircraft layouts including the new Skynest™ (which will debut on the new Boeing 787 aircraft
due to enter the fleet in the 2025 financial year), and an enhanced Air New Zealand app.
Customer satisfaction has remained strong despite the recent challenges presented. Significant weather events in 2023,
as well as global supply chain pressure for aircraft components (resulting in more frequent grounding of aircraft), has
meant periods of heightened disruption to the network, schedule adjustments, and increased workload for our personnel,
especially in the contact centre. The continued care our people demonstrate to our customers has been a major factor in
the Company’s success in external awards and industry recognition. Over the year these have included:
• Airline of the Year – Airlineratings.com
• Number One Corporate Reputation in New Zealand – Kantar Corporate Reputation Index
• Best Economy Class – Airlineratings.com
• Top Cabin Concept – Crystal Cabin Awards
• Cabin Concept of the Year – Onboard Hospitality Awards
AIR NEW ZEALAND GROUP
79
Corporate Governance Statement (continued)
Risk Management/Strategic Risks
As we operate in a complex environment, we face inherent risks that cannot always be eliminated. It is important to the
Board that material risks are identified and appropriate risk mitigation strategies are implemented to avoid unintended
consequences and to position us more effectively to deliver our strategy.
The Board
The Board is responsible for guiding the corporate strategy and direction of Air New Zealand
and has overall responsibility for decision making.
Other management committees & functions
Audit & Risk Committee
Oversees risk processes
and internal and external
audit functions.
Oversight of key risks, including
climate and cybersecurity risks.
Enterprise Risk
Consolidates Risk Register
content and prepares Group
Risk Profile.
Supports implementation of
Enterprise Risk Management
Framework.
Digital Integrity
Ensures that architecture, data,
cybersecurity and engineering
best practices are integrated
across the airline, including
monitoring and treating digital
enterprise risks.
Sustainability
Identification and management
of climate-related risks and
opportunities, and climate-related
disclosures.
Group Safety Review
Board (GSRB)
Monitors effectiveness of
Safety Management Systems,
including people safety and air
worthiness risks, and associated
regulatory compliance.
Internal Audit
Provides assurance through independent challenge, verification and review of risk management and identifies opportunities for improvement.
Health, Safety
& Security Committee
Oversees health, safety
and security risks, and the
operation of Safety Management
Systems and the Group Safety
Review Board.
Note: Only principal management relationships are depicted.
Risks are identified through both top-down and bottom-up processes, and follow a regular cadence of reporting to relevant
management, Board Committees or the Board.
Strategic Risks presented on Air New Zealand’s Group Risk Profile are confirmed by the Audit & Risk Committee, and
prioritised based on an assessment of the risk rating. Risk ratings are a function of the likelihood and the impact of an event.
Alison Gerry discusses the activities of the Audit & Risk Committee:
youtube.com/watch?v=l6vvimc7opc
Given their significance, Strategic risks are assigned members of the Executive as Risk Owners, who ensure appropriate
management of the risk.
In September 2022 the Board of Directors approved Air New Zealand’s Risk Appetite Statement (“RAS”). The RAS
represents a clear and conscious decision about which risks, and how much of each, Air New Zealand is willing to take in
the context of its business model and strategy. It has been constructed to reflect the areas of highest risk to the Company
currently, and to reflect the Board’s risk appetite going forward to drive the successful delivery of Kia Mau strategy.
AIR NEW ZEALAND ANNUAL REPORT 2023
80
Following Air New Zealand’s transformation to a more agile way of working for many of our workforce, work
continues to ensure that the Enterprise Risk Management Framework is aligned to, and operates, effectively under
this new organisational model. This includes developing and communicating consultation and approval guardrails
(under an Empowerment Framework) to ensure risks are considered at the most appropriate level in decision
making. Focus is particularly on the cadence of risk review and reporting, tooling, and identifying ways to improve
risk capability in relevant functions.
The Board continues to give particular attention to climate risks and cybersecurity, drawing on a range of internal
and external advice. The climate risks are further addressed in the Sustainability Report. Risks associated with the
current economic and geopolitical environment, innovation, and the well-being of our workforce are also being
closely monitored.
The Company’s Strategic Risks are tabulated below. The identification of Strategic Risks enables both the Board and
its Committees to focus on key risk areas including through targeted deep dives every six months on specific risks.
Corporate Governance Statement (continued)
AIR NEW ZEALAND GROUP
81
Strategic Risk AreaStrategyDescriptionPrincipal Mitigants
Climate
change
Transition risks (change in technologies,
increasing carbon regulation globally
and societal/economic shifts towards
decarbonisation), combined with
physical climate change risks may
constrain travel demand, operational
and financial performance and network
growth, adversely impacting investor
expectations and Air New Zealand’s
social licence to operate.
“Ambitious Action” strategy and
science-based target. Workstreams
implementing decarbonisation
levers. Engagement with regulators
and legislators on carbon, climate,
and transport policy. Transparent
disclosure, and provision of options
for customer emissions reporting.
Response teams, emergency response
training and toolkits for responding
to crises, emergency and business
disruption. Business Continuity Plans
and testing.
Global
uncertainty
Heightened economic, geopolitical
and market uncertainties could
affect the ability to accurately plan
for future travel demand, adversely
impacting supply side planning
and the ability to meet revenue
optimisation and growth targets.
Predictive monitoring of economic
activity and indicators including
continuous review of revenue
projections. Disciplined capacity
management. Use of fuel price hedging.
Technology
and data
Failure to utilise and protect data
and/or manage technology debt may
compromise digital integrity and
impede transformation and innovation,
introduce cyber vulnerabilities,
operational overhead and lead to
digital/business disruption.
Technology Roadmap and business
plan for technical debt reduction;
Governance oversight, including of
the Disaster Recovery programme by
the Digital Risk Committee, Threat &
Vulnerability Management and System
Lifecycle management.
Cybersecurity
A cyber-attack may lead to a significant
data privacy breach, loss of integrity/
availability of information or of a control
system and widespread business
disruption resulting in financial loss,
reputational damage and regulatory
fines or sanctions.
Comprehensive Cybersecurity
programme delivered by a dedicated
Cybersecurity function, complemented
by appropriate cybersecurity measures
and insurance. Privacy programme
includes training and awareness and
Privacy Breach Response processes.
Agile transition
and change
management
Failure to transition to agile and low
employee buy-in may impact the ability
to embed new ways of working and
impede the Airline’s ability to achieve
Kia Mau strategic objectives.
Best practice approach including
initial consultant support, focused
training and education for key
roles and leader immersions.
Continuous learning through multiple
assessments, external benchmarking
and feedback processes.
Corporate Governance Statement (continued)
Grow Domestic
Optimise
International
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Digital Dexterity
Prioritising
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AIR NEW ZEALAND ANNUAL REPORT 2023
82
Corporate Governance Statement (continued)
Strategic Risk AreaStrategyDescriptionPrincipal Mitigants
Legal and
regulatory
compliance
Rapidly changing and varied
domestic and international
requirements, CAA regulations,
stock exchange requirements or
other legal or regulatory obligations
(e.g. privacy) create significant
operational and commercial
complexity potentially resulting in
non-compliance and resultant legal
and reputational impacts.
Active monitoring of regulatory
changes, alignment of internal
standards and procedures and
conformance monitoring. Regular
engagement with regulators and use
of external law firms for legal and
regulatory updates. Ongoing targeted
legal, regulatory and privacy training
of high-risk areas, including annual
company-wide Code of Conduct and
Ethics training to promote awareness.
Systematic safety management
including active safety promotion and
operational risk management.
Innovation
Air New Zealand’s failure to
innovate in response to customer
expectations may lead to
customer dissatisfaction and loss
of competitiveness, adversely
impacting the ability to deliver
strategy and reputational damage.
Full Potential model Quarterly Business
Review enables capability development
and alignment and prioritisation
of initiatives to strategy. Research
and analysis of customer behaviour.
Monitoring of delivery effectiveness.
Supply chain
Global supply chain challenges
(aircraft parts, raw material shortages
and labour availability), increase in
supplier ESG risks and aging Ground
Service Equipment may result in
sustained operational disruption and
adversely impact revenue and brand.
Robust integrated business planning
and dynamic review of supplier risk,
including supplier performance
monitoring and response and
recovery planning. Alternative
supply arrangements established
as appropriate.
Breakdown
in industrial
relations
Inability to reset legacy employment
agreements, pressure on pay rates
and introduction of mandatory
vaccines could lead to a deterioration
in union relationships, a heightened
risk of industrial unrest and the
potential for significant operational
disruption as flight demand returns in
the recovery phase.
Dedicated Human Resources team
with effective union relationship
management, supported by
communication and issue
resolution processes.
Grow Domestic
Optimise
International
Lift LoyaltyBrilliant Basics
Serious about
Sustainability
Digital Dexterity
Prioritising
People & Safety
Kia Mau strategies
AIR NEW ZEALAND GROUP
83
Corporate Governance Statement (continued)
Strategic Risk AreaStrategyDescriptionPrincipal Mitigants
Safety
Internal or external factors may affect
the ability to deliver on the Operational
and People Safety mission and result
in critical health and safety incidents
involving systems, employees, aircraft
and/or customers impacting Air New
Zealand’s Air Operating Certificate.
Implementation of airline safety
management systems including:
• Health, Safety, Environment and
Wellbeing Management framework
and Systems (HSEW MS)
• Airline Safety Management
System (SMS) and
• Airline Security Management
System (SeMS).
Governance and oversight of
significant issues provided by the
Board’s Health, Safety & Security
Committee. The Full Potential model,
including Empowerment Framework
Guardrails and the Quarterly Business
Review process ensures a focus on
safety risk management.
Competition
A significant increase in disruptive
or traditional competition, airline/
industry consolidation, or the
unravelling of a key alliance
relationship or formation of new
alliance partnerships may lead to
disintermediation of customers and
marginalisation of Air New Zealand.
Competitive analysis and monitoring
and pricing strategy. Customer
research and investment in technology.
Engagement with key stakeholders and
active management of alliance partner
relationships.
Aeronautical
infrastructure
and systems
constraints
Lack of prudent investment in
aeronautical infrastructure (including
airways, security, lounge, baggage
systems, traffic management, hangars,
renewable energy generation and
storage assets) could constrain the
future growth of the airline.
Strategic planning process to clearly
understand current and future
infrastructure demand. Engagement
with government, regulatory and
industry stakeholder groups to
influence and align infrastructure
planning and development.
Workforce
War for talent, industry disruption,
inability to attract talent or a
deterioration in union relationships
may lead to loss of institutional
knowledge, capability gaps and the
potential for significant operational
disruption, constraining the ability to
deliver strategy.
Sustainable job strategy combined
with talent review, career
development initiatives and
succession planning for critical roles.
Productive union relationships based
on collaboration principles. Quarterly
engagement surveys and rewards
and recognition programme.
Grow Domestic
Optimise
International
Lift LoyaltyBrilliant Basics
Serious about
Sustainability
Digital Dexterity
Prioritising
People & Safety
Kia Mau strategies
AIR NEW ZEALAND ANNUAL REPORT 2023
84
Corporate Governance Statement (continued)
Strategic Risk AreaStrategyDescriptionPrincipal Mitigants
Social licence
and corporate
reputation
Lack of responsiveness to changing
customer expectations, or lack of
support from stakeholders/interest
groups (politicians, government,
regional New Zealand, customers,
communities, media) may erode
Air New Zealand’s social licence,
brand strength and corporate
reputation resulting in diminished
competitiveness and growth.
Stakeholder management and
communication programme for
central and regional government and
other stakeholders including media.
Research into customer sentiment
and other key issues impacting Air
New Zealand, including opportunities
through international channels.
Business
disruption
A significant disruptive event or
crisis may threaten the safety of our
workforce and/or lead to sustained
operational disruption and the inability
to comply with regulations, resulting
in financial and reputational impacts.
Documented Crisis, Emergency
and Business Resilience framework,
including Emergency Response
teams, training and plans which are
tested through exercises.
A third line of defence, behind the business’s identification and management of risks, and the operation of the risk
management framework and engagement of the Board and Board Committees, is the internal audit function. This
group acts for the Audit & Risk Committee (and through them, the Board) to independently and objectively assess,
assure and enhance the business’s management of risk. Outputs from this activity can include specific action plans
whose achievement is monitored by the Audit & Risk Committee.
External Audit
As a Public Entity, Air New Zealand is subject to the Public Audit Act 2001. The Auditor-General is the auditor, but may
appoint an independent auditor to conduct the audit process. Melissa Collier of Deloitte has been appointed in this
respect, from the 2022 financial year.
The Audit & Risk Committee liaises with the Auditor-General on the appointment and re-appointment of the external
auditors, to ensure the independence of the external auditor is maintained, and to approve the performance of any
non-audit services in accordance with the Audit Independence Policy.
Air New Zealand requires the external auditor to rotate its lead audit partner at least every five years, with suitable
succession planning to ensure consistency.
On a regular basis the Audit & Risk Committee meets with the external auditor to discuss any matters that either
party believes should be discussed confidentially. The Chair of the Audit & Risk Committee will call a meeting of that
Committee if so requested by the external auditor.
The appointed external auditor has historically attended the Annual Shareholders’ Meeting, and is available to answer
relevant questions from shareholders at that meeting
Grow Domestic
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International
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Serious about
Sustainability
Digital Dexterity
Prioritising
People & Safety
Kia Mau strategies
AIR NEW ZEALAND GROUP
85
Remuneration
Director Remuneration
In accordance with the Constitution, shareholder approval must be sought for any increase in the pool available to pay
directors’ fees. Approval was last sought in 2015, when the pool limit was set at $1,100,000 per annum. This approval
was based on 7 directors; with a Board comprising 8 directors the pool limit is $1,232,333 per annum consistent with
NZX Listing Rule 2.11.3.
Where the pool permits, the Board may amend the actual fees paid to reflect market conditions or other relevant
factors. The Board has determined the following allocation of the pool.
PositionFees (Per Annum)
Board of DirectorsChair
1
$270,000
Member$100,000
Audit & Risk CommitteeChair$40,000
Member$20,000
Health, Safety & Security CommitteeChair$40,000
Member$20,000
People, Remuneration & Diversity CommitteeChair$20,000
Member$10,000
1. The Chair receives no additional committee fees.
Air New Zealand’s Independent Non-Executive Directors do not participate in any executive remuneration scheme
or employee share schemes; nor do they receive options, bonus payments or any incentive-based remuneration.
Directors are entitled to be reimbursed by Air New Zealand for reasonable travelling, accommodation and other
expenses they may incur whilst travelling to and from meetings of the directors or committees. Directors have an
entitlement to a limited number of free of charge flights for each year served as a director as set out in a director
travel policy.
Corporate Governance Statement (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
86
Remuneration and benefits of directors and former directors in the reporting period are tabulated below.
Board
Fees
ARCHSSCPRDCTo t a l
Fees
Value
o f Tr a v e l
Entitlement
Utilised
1, 2
Dame Therese Walsh (Chair)$270,000---$270,000$106,993
Claudia Batten $100,000$20,000--$120,000$32,052
Dean Bracewell$100,000-$40,000
(Chair)
$10,000$150,000$61,245
Laurissa Cooney$100,000$20,000-$10,000$130,000$73,861
Larry De Shon$100,000-$20,000-$120,000$26,323
Alison Gerry$100,000$40,000
(Chair)
$20,000-$160,000$118,697
Paul Goulter$100,000-$20,000$10,000$130,000$ 4 3,160
Jonathan Mason$100,000$20,000-$20,000
(Chair)
$140,000$94,860
Total$970,000$100,000$100,000$50,000$1,220,000$ 557,191
Amounts stated as FBT and GST exclusive where applicable.
1. Includes value of travel benefits for related parties and benefits accrued in prior years utilised in current year.
2. The value of the travel entitlements utilised by former directors during the 2023 financial year were as follows:
Jan Dawson ($44,927), Rob Jager ($92,524), Linda Jenkinson ($138,396), Tony Carter ($56,664), Paul Bingham ($213,352),
Roger France ($7,071), John Palmer ($29,675), Warren Larsen ($28,614), Jane Freeman ($1,349).
The Board disestablished the Covid-19 Committee in May 2023. This Committee did not meet during the 2023 financial
year, and no additional fees were payable to directors who were members of this Committee.
In addition to the director remuneration provisions above, Air New Zealand’s employee remuneration policy and the
remuneration of the Chief Executive Officer is discussed in the remuneration report.
Corporate Governance Statement (continued)
AIR NEW ZEALAND GROUP
87
Remuneration paid in FY23 including base for FY23, and incentive payments including performance
rights issued under the LTI scheme that relate to FY22 performance and paid in FY23
*
New Zealand ManagementAircrew, Engineering, Overseas and Other
100,000 - 110,000219399
110,000 - 120,000175309
120,000 - 130,000169250
130,000 - 140,000124215
140,000 - 150,000102195
150,000 - 160,000101178
160,000 - 170,00068175
170,000 - 180,0006498
180,000 - 190,00063125
190,000 - 200,00052132
200,000 - 210,00038114
210,000 - 220,0003193
220,000 - 230,0002166
230,000 - 240,0001665
240,000 - 250,0001080
250,000 - 260,0001362
260,000 - 270,000944
270,000 - 280,000523
280,000 - 290,0001118
290,000 - 300,000522
300,000 - 310,000626
310,000 - 320,000453
320,000 - 330,000338
330,000 - 340,000119
340,000 - 350,000329
350,000 - 360,000-18
360,000 - 370,000419
370,000 - 380,000312
380,000 - 390,000115
390,000 - 400,000228
400,000 - 410,000226
410,000 - 420,000116
420,000 - 430,000210
430,000 - 440,00016
440,000 - 450,000-6
450,000 - 460,000515
460,000 - 470,00039
470,000 - 480,000-7
480,000 - 490,00048
490,000 - 500,00014
500,000 - 510,00019
510,000 - 520,00013
520,000 - 530,00013
530,000 - 540,00012
540,000 - 550,00036
550,000 - 560,000-6
560,000 - 570,000-3
570,000 - 580,000-1
580,000 - 590,000-1
590,000 - 600,000-2
600,000 - 610,0001-
610,000 - 620,00011
620,000 - 630,000-1
660,000 - 670,000-1
670,000 - 680,0001-
680,000 - 690,0001-
710,000 - 720,00011
840,000 - 850,000-1
870,000 - 880,0001-
890,000 - 900,0001-
1,010,000 - 1,020,0001-
1,250,000 - 1,260,0001-
1,300,000 - 1,310,0001-
1,310,000 - 1,320,0001-
1,330,000 - 1,340,0001-
1,340,000 - 1,350,0001-
1,350,000 - 1,360,0001-
3,610,000 - 3,620,0001-
Grand Total1,3643,068
Employee Remuneration
* Performance rights issued under the LTI scheme remain at risk.
AIR NEW ZEALAND ANNUAL REPORT 2023
88
Remuneration Philosophy
Air New Zealand’s remuneration philosophy is aligned with its recruitment, leadership development philosophies and performance
management approaches to ensure the attraction, development, and retention of key talent.
Air New Zealand’s remuneration strategy is underpinned by a pay-for-performance philosophy and uses annual performance incentives
to create opportunities to achieve market competitive remuneration levels and in the case of superior company performance, total
remuneration in excess of market.
Executive remuneration
The CEO and Executive remuneration packages are made up of three components:
• Fixed remuneration;
• Short-term performance incentives; and
• Long-term performance incentives
Air New Zealand’s People, Remuneration & Diversity Committee is kept appraised of relevant market information and best practice,
obtaining advice from external advisors when necessary. Remuneration levels are reviewed annually for market competitiveness and
alignment with strategic priorities and company performance outcomes.
Fixed remuneration
Air New Zealand’s philosophy is to set fixed remuneration at market competitive levels for Executives. Fixed remuneration consists
of base salary and superannuation contributions which are matched by employer superannuation contribution of 4% of gross taxable
earnings. The fixed remuneration is reviewed periodically based on market data from independent remuneration specialists.
Short-term performance incentives
The annual performance incentive component is delivered through Air New Zealand Short-Term Incentive Scheme (STI). For the CEO, the
STI is set at 55% of the annual fixed salary at target performance.
For the 2023 financial year, the structure of the short-term incentive scheme was:
• The 2023 financial year targets were based on a broad range of business measures to promote collaboration through shared
objectives and support the business recovery. The Group financial results contribute 50% of the incentive and the other 50% is based
on Group customer, operational and safety measures.
• The maximum payment is capped at 175% of the target if all performance measures are exceeded.
Long-term performance incentives
Air New Zealand’s long-term incentive plan arrangements are designed to align the interests of the CEO and Executives with those of
our shareholders and to incentivise participants in the plan to enhance long-term shareholder value. In the 2023 financial year, the plan
available to Executives was the Air New Zealand Long-Term Incentive Performance Rights Plan (LTIP). Participation in any year is by
annual invitation at the discretion of the Board.
Long-Term Incentive Performance Rights Plan (LTIP)
Performance Rights
LTIP participants are eligible to receive a grant of performance rights. Any grant of performance rights is at the discretion of the People
Remuneration & Diversity Committee of the Board of Directors but, in the normal course of events, is expected to equate to a value
of 55% of fixed remuneration for the CEO, and 40% of fixed remuneration for Executives. The number of performance rights to be
allocated will be determined by an independent valuation of the performance rights carried out each year at the time of issue.
Three years after the date of issue of any performance rights, if the Air New Zealand share price has outperformed the performance
hurdle, a proportion of the performance rights will convert to shares. The performance hurdle comprises of an index made up of the
NZSX All Gross Index and the Bloomberg World Airline Total Return Index in equal proportions.
The proportion of performance rights that convert to shares will depend on the extent to which the Air New Zealand share price has
outperformed the index. In particular:
Performance against indexPercent of Rights Vesting
<100%Nil
100%50%
101% - 119%Additional 2.5% vesting per 1% increment
120%100% (maximum)
Remuneration Report
AIR NEW ZEALAND GROUP
89
If vesting is not achieved on the third anniversary of the issue date, 50% of the performance rights will lapse. For the remaining 50% there
will be a further 6-month opportunity for the performance rights to vest. If performance rights do not vest at that time, they also lapse.
Unless Air New Zealand’s share price outperforms the index as outlined above, no value will accrue to the participating Executive.
Mandatory Shareholding
Participants are required to commit to investing a specified amount to purchase shares in the Company. The amount is set at a value of
55% of the fixed remuneration for the CEO, and 40% of fixed remuneration for Executives.
Until participants have attained this target, any shares issued to them from vested performance rights must be retained as part of the
mandatory shareholding. This holding must be maintained while continuing to participate in the LTIP. Executives are not required to
purchase shares outside of the LTIP to satisfy this mandatory shareholding requirement.
Chief Executive Officer Remuneration
CEO Target Remuneration
Based on remuneration components outlined earlier, CEO target remuneration is as follows:
Financial Year CEOSalary
1
$
Benefits
2
$
STI
3
$
LT I P
4
$
Summary
$
2023Greg Foran1,800,000182,939990,000990,0003,962,939
2022Greg Foran1,664,479113,643915,464915,4643,609,050
2021Greg Foran1,650,000111,652907,500907,5003,576,652
Comments to the table:
1. These are full-year salary equivalents. As part of the response to Covid-19, Greg Foran’s annual contracted salary decreased from
$1,650,000 to $1,400,000 for the 2021 financial year.
2. Benefits include superannuation and travel taken in the relevant financial year. As a member of the scheme, the CEO is eligible to
contribute and receive matching Company contribution up to 4% of gross taxable earnings (including STI). The CEO and eligible
beneficiaries are entitled to a number of trips for personal purposes at no cost to the individual. The dollar value represents the
actual benefit received in each financial year, as no target is available for benefits. For Greg Foran’s benefit calculation, 4% KiwiSaver
on his target STI has been included.
3. STI target entitlement is 55% of salary.
4. The Long-Term Incentive Plan payout is expected to equate to 55% of salary if performance conditions stated under LTIP section
are met.
CEO Remuneration Structure
The CEO remuneration structure is consistent with the executive management remuneration structure described previously. The CEO
remuneration target and maximum total remuneration mix for the 2023 financial year is set out below. For LTIP the same target award
value has been used for both on plan and maximum. The plan is subject to performance hurdles and any vested award is linked to
the share price at the time of vesting. For STI the maximum payment is capped at 175% of the target if all performance measures are
exceeded, which reduces the proportion of the LTIP target award at maximum.
LT I P
STI
Fixed
On PlanMaximum
CEO
Remuneration
26%
26%
48%
38%
22%
40%
Remuneration Report (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
90
CEO Realised Remuneration
Financial Year CEOSalary
1
$
Benefits
2
$
STI
3
$
LT I P
4
$
Summary
$
202301/07/22 – 30/06/23Greg Foran1,839,029171,2391,123,650-3,133,918
202201/07/21 – 30/06/22Greg Foran1 ,6 5 7,16 976,73 3613,361-2, 3 47, 26 3
202101/07/20 – 30/06/21Greg Foran1,400,00065,352--1,465,352
Comments to the table:
1. Salary includes cash paid to, or received by, the CEO in respect of the financial period.
2. Benefits include:
(a) Superannuation: as a member of the Air New Zealand’s group superannuation scheme, the CEO is eligible to contribute and receive
a matching Company contribution up to 4% of gross taxable earnings (including STI).
(b) Travel: the CEO and eligible beneficiaries are entitled to a number of trips for personal purposes at no cost to the individual.
3. STI in the reporting period reflects the cash value of amounts received where entitlement is determined by the achievement of
performance measures that relate to the current period and is not the result of an award made in a previous period.
4. LTIP Share Rights issued in 2019 were not converted to shares in the 2023 financial year as the performance conditions were not met.
CEO Share Rights Granted 2023 Financial Year
CEOLT I P
1
#
Greg Foran2,4 08,759
Comments to the table:
1. LTIP includes the number of Performance Share Rights granted in September 2022 (2023 financial year).
CEO Pay for Performance Calculation
SchemeDescriptionPerformance MeasuresScorecard
Weighting
Scorecard
Outcome
Percentage/Rating
Achieved
STISTI is set at 55% of fixed
remuneration and is
based on Company
performance measures.
Return on Invested Capital (ROIC)¹25%50%Above target contribution
to the STI scorecard
Controllable Cost over Revenue²25%45%Above target contribution
to the STI scorecard
Customer Satisfaction³25%2.5%Partial achievement
against STI scorecard
Safe On Time Performance⁴25%16%Partial achievement
against STI scorecard
100%113.5%
LT I PAward of share rights
under the Long-Term
Incentive Performance
Rights Plan is set at 55%
of fixed remuneration.
Performance rights vest based
on an index made of the NZSX All
Gross Index and the Bloomberg
World Airline Total Return Index in
equal proportions.
100%100%100%
ROIC and Controllable Cost over Revenue was ahead of the target set by PRDC, overall, there was an above target contribution to the
STI scorecard. Customer Satisfaction achieved a partial outcome against the target. For Safe On Time Performance, the Risk Control
Effectiveness target was achieved and the performance on critical people safety risks remains strong, on time performance result was
below the threshold to contribute to the STI scorecard.
1. ROIC is the return the company earns on the capital invested.
2. Controllable Cost over Revenue are costs that Air New Zealand can control, excluding fuel and foreign exchange.
3. Customer Satisfaction is measured via the MyVoice Customer Survey, an optional post-flight survey among passengers via an email link.
4. Pushing for On Time Performance could potentially have a negative impact on operational integrity, which is unacceptable to the
airline. Safe On Time Performance is comprised of Risk Control Effectiveness which focuses on our critical safety risks, and On Time
Performance. To ensure Air New Zealand continues to focus on operational safety, it must achieve both a minimum Risk Control
Effectiveness and a minimum risk review completion target before On Time Performance can trigger a payment.
Remuneration Report (continued)
AIR NEW ZEALAND GROUP
91
No disclosures were made of interests in transactions under s140(1) of the Companies Act 1993.
Directors have made general disclosures of interests in accordance with s140(2) of the Companies Act. Current interests, and those
which ceased during the year, are tabulated below. New disclosures advised since 1 July 2022 are italicised.
Dame Therese WalshAntarctica New Zealand
ASB Bank Limited
Climate Change Commission – nomination panel
On Being Bold Limited
Therese Walsh Consulting Limited
Wellington Homeless Women’s Trust
Director
Director (Chair)
Member
Director
Director
Ambassador
Claudia BattenPyper Vision Limited
Serko Limited
Vista Group International Limited
Wonderful Investments Limited
Shareholder
Chair
Director
Director
Dean BracewellAra Street Investments Limited
Dean Bracewell Limited
Freightways Limited
Halberg Trust
Port of Tauranga Limited
Property for Industry Limited
Tainui Group Holdings Limited
Director and Shareholder
Director and Shareholder
Shareholder
Director
Director
Director
Director
Laurissa CooneyAccordant Group Limited
GMT Bond Issuer Limited
GMT Wholesale Bond Issuer Limited
Goodman (NZ) Limited
Goodman Property Aggregated Limited
Ngāi Tai ki Tāmaki Charitable Investment Trust
The Aotearoa Circle Trust
Western Bay of Plenty Tourism and Visitors Trust (“Tourism Bay of Plenty”)
– ceased 1 May 2023
Director
Director
Director
Director
Director
Trustee to 1 June 2023;
Audit Committee Member
(Chair)
Guardian
Trustee (Chair)
Larry De ShonThe Hartford Financial Services Group, Inc
United Rentals, Inc
Director
Director
Alison GerryANZ Bank New Zealand Limited
Glendora Avocados Limited
Glendora Holdings Limited
Infratil Limited
On Being Bold Limited
Sharesies AU Group Limited
Sharesies Group Limited
Sharesies Investment Management Limited
Sharesies Limited
Sharesies Nominee Limited
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Paul GoulterNew Zealand Nurses Organisation IncorporatedOfficer
Jonathan MasonDilworth School for Boys
University of Auckland Council
University of Auckland Endowment Fund
Vector Limited
Westpac New Zealand Limited
World Wide Fund for Nature New Zealand
Zespri Group Limited
Tr u s t e e
Member
Tr u s t e e
Director
Director
Tr u s t e e
Director
There have been no interest register entries in respect of use of company information by directors.
Interests Register
AIR NEW ZEALAND ANNUAL REPORT 2023
92
Directors had relevant interests in shares as at 30 June 2023 as below:
InterestShares
Dean Bracewell
1
Beneficial125,000
Laurissa Cooney²Beneficial146,570
Larry De ShonBeneficial1,002,514
Alison Gerry
3
Beneficial84,393
Paul Goulter
3
Beneficial76,401
Jonathan MasonBeneficial164,000
Dame Therese WalshBeneficial650,000
During the year, directors advised the following dealings that they (or associated persons) had in shares of the Company.
TransactionDateNumberConsideration
Paul Goulter
3
Purchase15 March 202376,401$59,975
Dame Therese WalshPurchase1 March 2023150,000$ 117,75 0
1. Dean Bracewell holds his interest through an associated entity, Ara Street Investments Limited.
2. Laurissa Cooney has an interest in 107,570 shares through a Craigs’ KiwiSaver Scheme, and 39,000 shares personally held.
3. Alison Gerry and Paul Goulter hold their respective interests via Sharesies Nominees Limited.
Directors’ Interests in Air New Zealand Securities
Indemnities and Insurance
Pursuant to section 162 of the Companies Act 1993 and the Constitution, Air New Zealand has entered into deeds of access, insurance
and indemnity with the directors of the Group to indemnify them to the maximum extent permitted by law, against all liabilities which
they may incur in the performance of their duties as directors of any company within the Group. Insurance cover extends to directors
and officers for the expenses of defending legal proceedings and the cost of damages incurred. Specifically excluded are proven
criminal liability and fines and penalties other than those pecuniary penalties which are legally insurable. In accordance with commercial
practice, the insurance contract prohibits further disclosure of the terms of the policy. All directors who voted in favour of authorising
the insurance certified that in their opinion, the cost of the insurance is fair to the Company.
AIR NEW ZEALAND GROUP
93
* This table includes employees who have exited the business during the year.
The following people were directors of Air New Zealand’s subsidiary and joint venture companies in the financial year to 30 June 2023.
Those who resigned during the year are signified by (R). These companies are New Zealand incorporated companies except where
otherwise indicated.
No director of any subsidiary received beneficially any director’s fees or other benefits except as an employee.
Air Nelson Limited Jennifer Page
Michael Williams
Kelvin Duff (R)
Air New Zealand Aircraft Holdings Limited Jennifer Page
Baden Smith
Richard Thomson
Air New Zealand Associated Companies LimitedJennifer Page
Leila Peters
Richard Thomson
Air New Zealand Express LimitedJennifer Page
Richard Thomson
Air New Zealand Regional Maintenance Limited Hamish Curson
Brendon McWilliam
ANNZES Engines Christchurch Limited Jennifer Page
Richard Thomson
Mount Cook Airline Limited Jennifer Page
Michael Williams
Kelvin Duff (R)
TEAL Insurance Limited Katrina Meredith
Jennifer Page
Hannah Ringland
Craig Tolley (R)
Air New Zealand (Australia) Pty Limited
(incorporated in Australia)
Kathryn O’Brien
Jennifer Page
Paul McLean (R)
Michael Zorbas (R)
Subsidiary and Joint Venture Companies
AIR NEW ZEALAND ANNUAL REPORT 2023
94
Donations
The Air New Zealand Group has made donations totalling $100,000 in the financial year to 30 June 2023. No donations were made
to any political party. It is Air New Zealand’s policy not to make donations, in cash or in kind, or to provide free of charge travel to
political parties.
Substantial product holders
The following information is provided in compliance with Section 293 of the Financial Markets Conduct Act 2013 and is stated as at 30
June 2023. The total number of listed Ordinary shares of Air New Zealand Limited at that date was 3,368,464,315.
Substantial Product Holder Quoted voting products in the Company in which a relevant interest is held
The Sovereign in Right of New Zealand1,717,916,801 ordinary shares*
In 1989, the Crown issued a Notice that arises through its holding of special rights Convertible Share, the “Kiwi Share” and the power
of the Kiwi Shareholder under the Constitution. Full details of the rights pertaining to these shares are set out in the Company’s
Constitution. The Kiwi Share does not confer any right on its holder to vote at a shareholders’ meeting unless the Kiwi Share has been
converted into an Ordinary Share by its holder. The Kiwi Share is not listed on any stock exchange.
* As reported in its most recent Substantial Security Holder notice dated 11 May 2022, held by The Sovereign in Right of New Zealand
acting by and through his Minister of Finance. By virtue of the Constitution Act 1986, the nominal holder of these shares changed from
“Her Majesty the Queen in Right of New Zealand” to “The Sovereign in Right of New Zealand” on the demise of the late Queen, such
change not being a transfer of shares.
Other Disclosures
Boeing 777-300ER
Number: 7
Average Age: 11.2 years
Maximum Passengers: 342
Cruising Speed: 910 km/hr
Average Daily Utilisation: 12:58 hrs
Boeing 787-9 Dreamliner
Number: 14
Average Age: 6.8 years
Maximum Passengers: 302 or 275
Cruising Speed: 910 km/hr
Average Daily Utilisation: 13:47 hrs
Airbus A321neo
Number: 10
Average Age: Short-haul: 4.3 years
Domestic: 0.6 years
Maximum Passengers: Short-haul: 214
Domestic: 217
Cruising Speed: 850 km/hr
Average Daily Utilisation: Short-haul: 9:23 hrs
Domestic: 5:28 hrs
Airbus A320neo
Number: 6
Average Age: 3.3 years
Maximum Passengers: 165
Cruising Speed: 850 km/hr
Average Daily Utilisation: 11:12 hrs
Airbus A320ceo
Number: 17
Average Age: 9.4 years
Maximum Passengers: 171
Cruising Speed: 850 km/hr
Average Daily Utilisation: 7:00 hrs
AT R 7 2 - 6 0 0
Number: 29
Average Age: 6.3 years
Maximum Passengers: 68
Cruising Speed: 518 km/hr
Average Daily Utilisation: 6:12 hrs
Bombardier Q300
Number: 23
Average Age: 16.4 years
Maximum Passengers: 50
Cruising Speed: 520 km/hr
Average Daily Utilisation: 5:53 hrs
Operating Fleet Statistics
As at 30 June 2023
AIR NEW ZEALAND GROUP
95
AIR NEW ZEALAND ANNUAL REPORT 2023
96
Top Twenty Shareholders – as at 1 August 2023
Investor NameNumber of Ordinary Shares% of Ordinary Shares
The Sovereign in Right of New Zealand acting by and through their
Minister of Finance
1,717,916,801 51.00
New Zealand Depository Nominee 206,400,129 6.13
Citibank Nominees (NZ) Ltd 122,002,282 3.62
HSBC Nominees (New Zealand) Limited 112,872,662 3.35
HSBC Nominees (New Zealand) Limited 100,196,703 2.97
BNP Paribas Nominees NZ Limited Bpss40 6 7,05 7, 95 9 1.99
JPMORGAN Chase Bank 45,485,040 1.35
BNP Paribas Nominees NZ Limited 25,570,7 78 0.76
Accident Compensation Corporation 17,375,375 0.52
Tea Custodians Limited 15,642,560 0.46
Public Trust 15,309,437 0.45
Private Nominees Limited 13,193,325 0.39
Xinwei Investment (NZ) Limited 13,164,081 0.39
Citicorp Nominees Pty Limited 12,434,506 0.37
Custodial Services Limited 8,250,517 0.24
Ping Luo 8,228,921 0.24
BNP Paribas Nominees (NZ) Limited 7,753,793 0.23
FNZ Custodians Limited 7,640,671 0.23
BNP Paribas Noms Pty Ltd 6,586,064 0.20
HSBC Custody Nominees (Australia) Limited 6,354,173 0.19
Total 2,529,435,777 75.08
Shareholder Statistics – as at 1 August 2023
Size of HoldingInvestors% InvestorsShares% Issued
1-1,00018,11634.698,286,082 0.25
1,001-5,00016,11430.8640,954,377 1.22
5,001-10,0006,26712.0046,664,334 1.39
10,001-100,00010,43819.99306,993,937 9.11
100,001 and Over1,2832.462,965,565,585 88.03
Total 52,218 100.003,368,464,315 100.00
Securities Statistics
AIR NEW ZEALAND GROUP
97
Top Twenty Bondholders – as at 1 August 2023
Investor NameNumber of Bonds% of Bonds
Forsyth Barr Custodians Limited 46,548,000 46.55
FNZ Custodians Limited 6,189,000 6.19
HSBC Nominees (New Zealand) Limited 4,830,000 4.83
Investment Custodial Services Limited 4,234,000 4.23
Private Nominees Limited 2,895,000 2.90
Forsyth Barr Custodians Limited 2,395,000 2.40
Mt Nominees Limited 2,070,000 2.07
JBWERE (NZ) Nominees Limited 1,906,000 1.91
BNP Paribas Nominees NZ Limited Bpss40 1,804,000 1.80
Custodial Services Limited 1,172,000 1.17
Hobson Wealth Custodian Limited 972,000 0.97
Forsyth Barr Custodians Limited 641,000 0.64
HSBC Nominees (New Zealand) Limited 550,000 0.55
Forsyth Barr Custodians Limited 420,000 0.42
I J Investments Limited 400,000 0.40
Malaghan Institute of Medical Research Trust Board 400,000 0.40
Cogent Nominees Limited 400,000 0.40
Pin Twenty Limited 390,000 0.39
JBWERE (NZ) Nominees Limited 300,000 0.30
Karl Leopold Zuba & Hedwig Zuba 250,000 0.25
Total78,766,000 78.77
Bondholder Statistics – as at 1 August 2023
Size of HoldingHolders% HoldersBonds% Issued
1-1,000 - - - -
1,001-5,000 65 9.63325,000 0.33
5,001-10,000 130 19.26 1,212,000 1.21
10,001-100,000 434 64.30 14,332,000 14.33
100,001 and Over 46 6.81 84,131,000 84.13
Total 675 100.00100,000,000 100.00
Current on-market share buybacks
There is no current share buyback in the market.
Securities Statistics (continued)
AIR NEW ZEALAND ANNUAL REPORT 2023
98
Stock exchange listings
Air New Zealand’s Ordinary Shares have been listed on the NZX Main Board (ticker code AIR) since 24 October 1989. It also has bonds
listed on the NZX Debt Market (ticker code AIR020).
Air New Zealand’s Ordinary Shares are listed on ASX (ticker code AIZ) as a Foreign Exempt Listing. The Foreign Exempt Listing means
that Air New Zealand is expected to comply primarily with the Listing Rules of the NZX Main Board (being the rules of its home
exchange) and is exempt from complying with most of ASX’s Listing Rules.
Neither NZX nor ASX has taken any other disciplinary action against the Company during the financial year ended 30 June 2023.
In particular there was no other exercise of powers by NZX under NZX Listing Rule 9.9.3 (relating to powers to cancel, suspend or
censure an issuer) with respect to Air New Zealand during the reporting period.
On 20 July 2017, Air New Zealand launched a sponsored Level 1 American Depositary Receipt (ADR) programme. Air New Zealand’s
American Depositary Shares, each representing five Ordinary Air New Zealand shares and evidenced by ADRs, are traded over-the-
counter in the United States (ticker code ANZLY).
Place of incorporation
New Zealand
In New Zealand, the Company’s Ordinary Shares are listed with a “non-standard” (NS) designation. This is due to particular provisions
of the Company’s Constitution, including the rights attaching to the Kiwi Share¹ held by the Crown and requirements regulating
ownership and transfer of Ordinary Shares.
New Zealand Exchange
Waivers:
Waivers from the NZX Listing Rules granted to the Company or relied upon by the Company during the financial year ended 30 June
2023 may be found at www.airnz.co.nz/nzx-waivers.
Compliance with Listing Rules:
For the purposes of ASX Listing Rule 1.15.3, Air New Zealand Limited confirms the Company continues to comply with the NZX
Listing Rules.
1. In 1989, the Crown issued a Notice that arises through its holding of special rights Convertible Share, the “Kiwi Share” and the power of the Kiwi Shareholder under the
Constitution. Full details of the rights pertaining to these shares are set out in the Company’s Constitution. The Kiwi Share does not confer any right on its holder to vote at
a shareholder’s meeting unless the Kiwi Share has been converted into an Ordinary Share by its holder. The Kiwi Share is not listed on any stock exchange.
General Information
New Zealand
Link Market Services Limited
Level 30, PwC Tower
15 Customs Street West, Auckland 1010
PO Box 91976, Auckland 1142
New Zealand
Investor Enquiries:
Phone: (64 9) 375 5998
Fax: (64 9) 375 5990
Email: enquiries@linkmarketservices.co.nz
Australia
Link Market Services Limited
Level 12, 680 George Street
Sydney 2000, Australia
Locked Bag A14, Sydney South
NSW 1235
Australia
Investor Enquiries:
Phone: (61) 1300 554 474
Fax: (61 2) 9287 0303
Investor Relations
Investor Relations Office
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: airnzinvestor.com
Annual Meeting
Date: 26 September 2023
Time: 2:00pm
Venue: Members Lounge
Sky Stadium
105 Waterloo Quay
Pipitea
Wellington
Current Credit Rating
Moody’s rate Air New Zealand Baa2
Auditor
Deloitte Limited (on behalf of the
Auditor-General)
Deloitte Centre
80 Queen Street, Auckland Central
PO Box 115033, Shortland Street
Auckland 1140
New Zealand
Registered Office
New Zealand
Air New Zealand Limited
Air New Zealand House
185 Fanshawe Street
Auckland 1010
Postal: Private Bag 92007
Auckland 1142, New Zealand
Phone: (64 9) 336 2400
Fax: (64 9) 336 2401
NZBN: 9429040402543
Registered Office (continued)
Australia
Level 12
7 Macquarie Place
Sydney
Postal: GPO 3923, Sydney
NSW 2000, Australia
Phone: (61 2) 8235 9999
Fax: (61 2) 8235 9946
ABN: 70 000 312 685
Board of Directors
Dame Therese Walsh – Chair
Claudia Batten
Dean Bracewell
Laurissa Cooney
Larry De Shon
Alison Gerry
Paul Goulter
Jonathan Mason
Chief Executive Officer
Greg Foran
Chief Financial Officer
Richard Thomson
General Counsel and Company Secretary
Jennifer Page
AIR NEW ZEALAND GROUP
Shareholder Directory
---
2023
Sustainability
Report
Contents
Sections
01020304
Letter from the Air New
Zealand Chair and Chief
Executive Officer
Governance of
sustainability at Air
New Zealand and our
reporting approach
Q and A with the Chair
of the Sustainability
Advisory Panel
About Air New Zealand
and our Sustainability
Framework
03040607
123847526064
Climate action
He mahinga
taiao tūturu
Caring for
New Zealanders
Te manaaki i
ngā tāngata
o Aotearoa
Driving towards
a circular
economy
Te whai i te
ōhanga whai hua
Sustainable
tourism
He Tāpoi
Mau Roa
Fundamental
metrics tableAppendices
This Sustainability Report (Report) has been prepared for the purpose of providing investors with information regarding our approach to sustainability issues related to our business. It has not been prepared as financial or investment advice or to provide any guidance in relation to the
future performance of Air New Zealand.
This Report contains forward-looking statements and statements of opinion. These may include statements regarding sustainability plans and strategies, the impact of climate change and other sustainability issues, energy transition scenarios, actions of third-parties, and external
enablers such as technology development and commercialisation (including with respect to sustainable aviation fuels), policy support, market support, and energy and carbon credit availability. Any such statements are made only as at the date of this Report. Readers are cautioned
not to place undue reliance on such statements, particularly in light of the long-time horizon that this Report discusses and the inherent uncertainty in possible policy, market and technological developments.
No representation or warranty is made regarding the accuracy, completeness or reliability of the forward-looking statements or opinions contained in this Report, or the assumptions on which either is based. All such information is, by its nature, subject to significant uncertainties
outside of the control of Air New Zealand, and actual results, circumstances and developments may differ materially from those expressed or implied in this Report. Except as required by applicable laws or regulations, Air New Zealand does not undertake to publicly update or review
any forward-looking statements, whether as a result of new information or future events. To the maximum extent permitted by law, Air New Zealand and its officers do not accept any liability for any loss arising from the use of the information contained in this Report.
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
02
CONTENTS
The profound impact of the changing climate has been felt here in our own
country too with the Auckland floods in January and Cyclone Gabrielle a
few weeks later.
The future of our entire planet depends on the global transition to net zero
by 2050. Air New Zealand has its part to play, both here in Aotearoa and as
part of the global aviation sector. To carry on connecting New Zealanders
with each other and the world, we must decarbonise our operations. As we
witness this threat to the planet unfold, we have never felt more resolute
about the work we have ahead of us.
We know the challenges are significant. Aviation is one of the hardest
sectors to abate, there are very few levers available to us, and we don't
control them all.
For example, while we can deliver greater operational efficiency, other
pathways to decarbonisation, such as sustainable aviation fuel and next
generation aircraft, will require global collaboration, enabling policy
landscapes, and often significant advances in technology.
Our approach is not to wait for a solution to come to us. Over the past
year, Air New Zealand has worked with both local and global stakeholders
to advance the scaling up of high integrity and affordable sustainable
aviation fuel production, and we have continued to partner with aircraft
developers and innovators to give them confidence that we will be an early
adopter of new lower emissions aircraft. We want – and need – a seat at
the global table as all airlines grapple with the need to decarbonise and
dramatically reduce emissions.
Last year we set an interim 2030 science-based carbon reduction target,
validated by the Science Based Targets initiative. This year we have
developed the roadmap to guide our progress to the end of the decade.
We know achieving the target will be difficult. Some of what we need to
happen is beyond our control, and we’ll need a village to help us meet it, but
it's important for Air New Zealand to be ambitious. There is a lot at stake.
We also have much to achieve in the circular economy space, with a need
to refocus our efforts to increase our diversion from landfill rates. The
detailed waste audits we carried out this year, and passionate circular
economy champions across the airline, will be instrumental in setting and
delivering on our new waste targets and strategy going forward.
This year we farewell Sir Jonathon Porritt from our Sustainability
Advisory Panel. His nearly decade-long service to the airline has been
phenomenal. He has never shied away from challenging our sustainability
agenda, and we are richer for it. Sam Mostyn AO takes over the reins
as Chair. She has been on the panel for over two years and brings vast
sustainability, commercial and governance experience to the role.
Our sincere thanks to the Air New Zealand team for their unwavering
dedication to making a positive difference across Aotearoa. Thank you
also to our valued customers and stakeholders for pushing us to excel and
holding us responsible, and to the Sustainability Advisory Panel for their
guidance, rigour and support for us to always do better. The year ahead is
no doubt going to be just as challenging as the last, but we go into it with a
good plan to help navigate such critical change.
Letter from the
Chair and Chief
Executive Officer
As we pen this opening letter for our 2023 Sustainability
Report, the world has just experienced its hottest month on
record. The devastating impact of the climate crisis is being
felt right across the globe, with droughts, floods, forest fires
and intense heat impacting peoples’ lives and livelihoods.
Greg Foran
Air New Zealand Chief Executive Officer
August 2023
Dame Therese Walsh
Air New Zealand Chair
August 2023
Greg Foran
Air New Zealand Chief
Executive Officer
Dame Therese Walsh
Air New Zealand
Chair
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
03
Governance of
sustainability at
Air New Zealand
At Air New Zealand, governance of
sustainability covers environmental and
social matters. It is a broader concept
than climate-related matters alone.
Board of Directors
The Air New Zealand Board
of Directors has overarching
responsibility for sustainability at the
airline and has signed-off on significant
sustainability initiatives, including the
airline’s Sustainability Framework.
In addition to regular reporting from
Management to the Board, more
detailed oversight of elements
within the Sustainability Framework
is exercised through the Board’s
People, Remuneration and Diversity
Professor of Sustainable
Development, University
of Surrey, Director of
the Centre for the Understanding of
Sustainable Prosperity
Professor Tim
Jackson
Professor of Sustainable
Tourism, Griffith
University, Australia
Dr Susanne Becken
Director of Kohutapu
Lodge & Tribal Tours
N a d i n e To e To e
Non-Executive Director
and Sustainability Adviser.
Incoming Chair of
Advisory Panel
Sam Mostyn AO
Chairman and Founder of
Sysdoc and Non-Executive
Director of the Civil
Aviation Authority (UK)
Katherine Corich
Founder of Forum for the
Future, Advisory Panel
Chair and sustainability
thought leader
Sir Jonathon Porritt
Sustainability Advisory Panel Members
Committee, Health, Safety and
Security Committee, and Audit and
Risk Committee. The governance
of Air New Zealand’s climate-
related risks and opportunities is
detailed on page 13 of the Climate
action section of this report.
The Executive
The Sustainability team reports
to the Executive on how we are
tracking against our Kia Mau
strategic priorities each month,
and our progress against our
objectives, key results, and
performance indicators that are set
as part of the Quarterly Business
Review (QBR) process.
The QBR is a recurring process
that results in Air New Zealand-
wide alignment and transparency
on work plans to meet the airline’s
strategic priorities. As part of the
airline’s QBR process, business
priorities, including those relating
to sustainability, are identified
and reviewed every quarter, to
ensure the airline is aligned to
progress expected deliverables
within that quarter.
In November 2022, Kiri Hannifin
joined the Executive as the airline's
first dedicated Chief Sustainability
Officer. This appointment builds
on the foundation Air New Zealand
has already laid and signals a step
change for sustainability at Air
New Zealand.
Sustainability Advisory Panel
Our Sustainability Advisory
Panel meets twice a year to
independently advise us and
challenge all aspects of our
sustainability work programme.
Panel members, with their wide
range of expertise, also provide
guidance to Air New Zealand
in between these meetings.
Members of Air New Zealand's
Board and Executive also join
the Sustainability Advisory Panel
meetings. To find out more about
the panel, click here.
This year we farewell our Panel
Chair, Sir Jonathon Porritt. Sir
Jonathon’s contribution to the
airline as the Panel’s Chair since
its inception in 2014 has been
immense. Air New Zealand has
greatly valued his incredible
leadership and challenge to
our sustainability agenda. A
globally recognised advocate
for environmental protection, Sir
Jonathon has been influential in
driving the airline’s sustainability
initiatives and setting the airline
up to continue to take ambitious
action. Current Panel member, Sam
Mostyn AO has been appointed as
the new Panel Chair. Sam’s extensive
experience in executive and
governance roles across business,
sustainability, and climate change will
ensure the Panel’s role as a critical
advisor to the airline continues.
Greg Foran, Air New Zealand Chief Executive Officer; Kiri Hannifin, Air New Zealand Chief Sustainability Officer;
Laurissa Cooney, Air New Zealand Independent Non-Executive Director.
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
04
Our reporting
approach
Air New Zealand’s organisational boundary for sustainability reporting
encompasses the companies listed on page 4 of Air New Zealand’s 2023
Greenhouse Gas Inventory Report
1
.
This year Air New Zealand is releasing its Sustainability Report alongside
its Annual Report to ensure stakeholders can obtain a cohesive picture of
the airline’s impact in 2023.
In addition, the Sustainability Report incorporates the following:
• Climate-related Disclosures
• Workforce Profile
• Gender Pay Report
Deloitte Limited was engaged to provide reasonable assurance over
the scope 1 and scope 2 components of the 2023 Greenhouse Gas
Inventory detailed in this Sustainability Report, and limited assurance
over the relevant categories of scope 3 emissions
2
. Refer to Air New
Zealand’s 2023 Greenhouse Gas Inventory Report for Deloitte Limited's
Independent Assurance Report on the 2023 Greenhouse Gas Inventory.
Air New Zealand is committed to ongoing climate-related disclosures.
This year, the Climate action section of the Sustainability Report has
been structured with reference to the Aotearoa New Zealand Climate
Standards (NZ CS). The year commencing 1 July 2023 will be the airline’s
first year of mandatory reporting under the new standards. New Zealand’s
External Reporting Board aimed to align the NZ CS with the International
Sustainability Standards Board's (ISSB) draft global climate-related
disclosures prototype, which is closely aligned with the framework
developed by the Taskforce on Climate-related Financial Disclosures
(TCFD).
The contents of this report have been informed by the Global Reporting
Initiative (GRI) sustainability reporting standards and the Sustainability
Accounting Standards Board Standards for the Airline Industry (SASB).
The GRI and SASB content indices in the Appendices of this report,
provide an overview of the relevant GRI and SASB standards for our
material topics and where to find related information.
This Sustainability Report provides a comprehensive update
on the progress the airline has made to deliver on our
Sustainability Framework and how we are tracking against
key targets. Data and commentary in the Report is for the
financial year starting 1 July 2022 and ending 30 June 2023,
unless otherwise stated.
We welcome feedback and comments – please contact us at
sustainability@airnz.co.nz
1 Air New Zealand’s 2023 Greenhouse Gas Inventory Report is available on the Sustainability reporting and communications page on Air New Zealand’s website. 2 Scope 3 assurance excludes employee commuting (category 7). Further work to quantify employee
commute emissions will be undertaken in 2024.
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
05
Q and A with
the Chair of the
Sustainability
Advisory Panel
This will be my last contribution to an Air New Zealand Sustainability
Report. After a wonderfully rewarding decade, first as an advisor and
then as Chair of Air New Zealand’s Sustainability Advisory Panel, I
stepped down in August this year, handing over to my good colleague
Sam Mostyn.
And what a decade it’s been for Air New Zealand - and for aviation as
a global industry! Up until the Covid pandemic hit in 2020, there were
two contrasting data sets that dominated the industry: year-on-year
growth in terms of passengers carried, and year-on-year growth in
terms of the resulting carbon emissions.
Most “leaders” in the industry were focused almost exclusively on
the former, and were largely dismissive of the latter – as in: “aviation’s
contribution is a mere 2% of total global emissions, there are no
immediately available technological solutions to sort out those
emissions, and people want to keep on flying, come what may”.
I’ve always been keen to celebrate the fact that Air New Zealand took
a very different stance throughout that time. Uncomfortable though
it might have been to acknowledge its full carbon footprint, there was
no denial, no sweeping things under the carpet for an easy time –
with the result that Air New Zealand is now as well-placed as any
airline in the world to push forward with a genuinely coherent
decarbonisation strategy.
This is an easy one: read the Report!
It’s true that the decarbonisation challenge is by far the most
important for all airlines, but they have a host of other responsibilities
– to their own people, to the communities in which they operate, on
waste issues, biodiversity, tourism, and so on.
Right from the start, our Panel was keen to see all this reflected in an
integrated Sustainability Framework (see page 11). It’s fair to say that
performance against a number of the key targets in the Framework has
clearly been affected by the Covid pandemic. Which means there’s still a
lot to be done to achieve the kind of excellence which we know both the
Executive Team and the Board aspire to.
Above all, I want Air New Zealand to take its “special relationship” with
New Zealanders much more seriously than it does today.
As the nation’s much-loved carrier, 51% owned by the Government on
behalf of all New Zealanders, with very high levels of trust, it would be
all too easy to interpret that relationship as a “license” to go on giving
New Zealanders what they want, to keep Ministers sweet by way of
providing steady dividends, to stay just below the radar on the massive
controversies in which the global aviation industry is already up to its
neck – and to steer clear of the hard stuff in the way it engages with New
Zealanders as its customers. And what a wasted opportunity that would be!
This airline has a uniquely privileged opportunity to help New Zealanders
(both those who fly with it and those who don’t) understand just what’s
coming down the track at them in terms of climate change and the wider
sustainability story. That would mean using its “special relationship” to
open up a different kind of discourse with its customers, to help strip
away some of the entitled delusions that New Zealand is somehow better
placed than most countries to “cope” with worsening climate chaos, and
to co-create over the next decade a truly sustainable airline for the future
– however different that might look from the kind of airline that does such
a good job today.
Sir Jonathon Porritt
Chair of Air New Zealand’s
Sustainability Advisory Panel
Sir Jonathon Porritt
Chair of Air New Zealand’s Sustainability Advisory Panel
August 2023
Q What are your key reflections on progress made with Air
New Zealand’s sustainability agenda in your nearly decade-
long time as Chair?
A
A
A
Q What are the greatest challenges and opportunities that lie
ahead for Air New Zealand?
Q Looking ahead, what do you want to see next for
Air New Zealand?
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
06
Air New Zealand plays a fundamental
role in enabling the connections
Aotearoa New Zealand needs to prosper.
This was especially apparent in 2023, where the airline flew almost 16
million customers, operated 169,251 flights, and carried 114,000 tonnes
of cargo around the globe and close to 37,000 tonnes of Aotearoa New
Zealand exports.
At the heart of achieving these outcomes are incredibly dedicated Air
New Zealanders who deliver on our promise of Manaaki – taking care
further than any other airline, every day.
The past year has proven that an increasingly dynamic operating
environment is here to stay. Airlines across the globe have dealt with the
challenges of restarting in a post-Covid world and Air New Zealand has
not been exempt from these challenges. Over the past 12 months, the
airline has faced supply chain issues, staff shortages, the rising costs of
inflation, and significant weather events, all of which have had an impact
on our customers. We would like to thank customers for their patience
while the airline gets back on track.
With all borders being opened for the first time since the pandemic, the
extensive ramp up of operations in 2023 has led to a substantial increase
in carbon emissions compared to 2022.
Taking real action and demonstrable steps towards delivering the
ambitions outlined in our Sustainability Framework, especially those
around climate action, will be a key component of enhancing our
operational resilience and maintaining our social licence to operate.
About
Air New Zealand
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
07
About
Air New Zealand
2 Scope 3 emissions excludes category 7 (employee commute emissions). 3 The FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong Environmental, Social and Governance (ESG) practices.
tonnes of cargo carried
around the globe
Enrich Aotearoa New Zealand
by connecting New Zealanders
to each other and Aotearoa
New Zealand to the world
Air New Zealand is a constituent of
the FTSE4Good Index Series
3
FTSE4Good
1.2m
litres of SAF imported to Aotearoa
New Zealand, representing 0.11
percent of total fuel use
15.8m
customers flown
30
international ports Air New Zealand flies to across Australia,
the Pacific Islands, North America, and Asia
3.8m
tonnes of scope 1, 2 and 3 CO
2
-e
emissions
2
20
domestic network regions serviced
across Aotearoa New Zealand
4.2m
Airpoints™ members, up 9.7
percent from the prior year
2023
2023
Airline of the Year awarded by AirlineRatings.com
Most Attractive Employer awarded by Ranstad
Mission Next
Gen Aircraft
launched to make next generation
aircraft a reality in Aotearoa New Zealand
#1
Corporate Reputation in New
Zealand based on 2023 Kantar
Corporate Reputation index
114,000
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
08
CONTENTS
Our
sustainability
framework
Air New Zealand’s Sustainability
Framework details the four
priorities of our sustainability
agenda, which this Sustainability
Report is framed around:
• Caring for New Zealanders
• Climate action
• Driving towards a circular
economy
• Sustainable tourism
Key focus areas and targets
are outlined under each of these
priorities to drive the delivery
of ambitious action and hold us
to account.
The focus areas and targets that
sit underneath the priorities of the
airline’s Sustainability Framework
are reported on annually. In
addition, initiatives to progress our
sustainability agenda are identified
as part of the QBR process.
A number of targets detailed in the
Sustainability Framework expired
in 2023. As part of a refresh of our
Sustainability Framework, new
targets will be introduced in 2024.
These new targets will also take
into account the Māori Strategy
which was presented to the Board
in 2023.
Framework development
To develop Air New Zealand’s
Sustainability Framework, we
considered feedback from Air
New Zealand’s Board of Directors,
Executive, Senior Leaders
Forum, and our independent
Sustainability Advisory Panel. We
also considered feedback from our
stakeholders, including customers,
investors, communities, partners,
key industry and sustainability
organisations.
This consultation provided the
foundation for our materiality
assessment and enabled us to
consider the feedback alongside
the airline’s strategic priorities,
key risks and opportunities, and
competitive environment.
We then interviewed key
internal subject matter experts
from across the business, and
asked stakeholders to identify
environmental, social and
governance opportunities and
risks related to Air New Zealand’s
operations over the short, medium
and long-term, as well as rate the
extent to which these impacted the
following factors:
• Significance of the issue to
stakeholders
• Importance of the issue to
Air New Zealand
• Air New Zealand’s ability
to control and/or influence
the issue
The material issues identified
through this consultation process
were then shared with our
Sustainability Advisory Panel,
the Executive and the Board of
Directors for further consultation
as part of the development of Kia
Mau, our company-wide strategy.
The insights gained from this
materiality assessment and
continued engagement with our
key stakeholders enabled us to
identify the four priorities of our
Sustainability Framework.
Empowering care of our people, communities, country and planet
Te whakakaha i te manaakitanga o te tangata, o te hapori,
o te motu whānui me te ao hoki
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
09
Sustainable
Development
Goals
At the centre of the United Nations 2030 Agenda
for Sustainable Development are the 17 Sustainable
Development Goals (SDGs).
The SDGs are an urgent call for action by all countries to end poverty,
protect the planet, and ensure that all people enjoy peace and prosperity.
Air New Zealand has the ability to positively impact ten of the SDGs
through the four priorities of our Sustainability Framework. The applicable
SDGs are referenced within the four priorities of our Framework.
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
10
CONTENTS
Sustainability Framework
Empowering care of our people, communities, country and planet
Te whakakaha i te manaakitanga o te tangata, o te hapori, o te motu whānui me te ao hoki
Our
priorities
Caring for New Zealanders
Te manaaki i ngā tāngata
o Aotearoa
Climate action
He mahinga taiao tūturu
Driving towards a circular
economy
Te whai i te ōhanga whai hua
Sustainable tourism
He Tāpoi Mau Roa
Our focus
areas
• Care for Air New Zealanders
and nurture a diverse, equitable
and inclusive workplace
• Care for our customers
and communities
• Support Aotearoa’s social
and economic revival
• Decarbonisation target
and roadmap
• Customer education and
engagement on climate action
• Strong governance and
climate-related disclosures
• Support biodiversity and native
forestry offsetting
• Design and procure with
a circular mindset
• Reduce single-use plastics
• Support new infrastructure
and innovation
• Drive waste minimisation
culture and awareness
• Diversion from landfill
• Sustainable tourism thought
leadership for Aotearoa
• Endorse Qualmark
• Embrace Tiaki Promise
and conservation in regions
• Support regional
and Māori tourism
Our
targets
Air New Zealand’s employee engagement
score being in Glint’s Global Top
Engagement Index
1
.
Grow access to and use of employee
assistance support tools (including
Employee Assistance Programme,
Peer Support Network and Bullying and
Harassment Contacts).
Double our spend with Māori and Pasifika-
owned businesses and social enterprises to
$24 million, and double our diverse sourcing
relationships to at least 50 suppliers by the
end of 2024.
Better connecting Aotearoa New Zealand
exporters to the world by increasing cargo
load factors on our widebody international
network to 85%
2
by 2025 (from 67% in 2019).
Set a science-based carbon
reduction target.
Net zero emissions by 2050.
10% of Air New Zealand’s total fuel uplift
is SAF by 2030.
Removal of 50% of single-use plastic
items on our international flights
by 2023 from a 2021 baseline.
This amounts to the removal of over
28 million forecasted single-use
plastic items.
65% of total solid waste diverted from
landfill by 2023
3
.
Increase annual growth in bookings
for Qualmark-awarded operators on
Air New Zealand’s website by 100% by
2023 from a 2021 baseline.
60% of New Zealanders aware of Tiaki
Promise by calendar year 2023
4
.
1. Glint’s Global Top Engagement Index is based on employee survey
results across more than 750 companies surveyed around the globe
and 175 million data points.
2. Based on the volumetric utilisation of available belly capacity
(including passenger bags) unless a 100% gross weight load factor
is achieved sooner.
3. This target covers Air New Zealand’s domestic ground sites and
airports serviced by our main waste provider. It excludes hazardous
waste.
4. As measured by Air New Zealand’s Market Monitor that surveys
400-500 Aotearoa travellers each month.
United Nations Sustainable
Development Goals
CONTENTS
In January, our hub at Auckland
International Airport experienced
flooding in the terminal and
Auckland city experienced
widespread damage and
destruction. Less than a month
later Cyclone Gabrielle devastated
the East Coast of Aotearoa
New Zealand, causing loss of
life, displacement, and severe
infrastructure damage. Flooding
wreaked havoc in Nelson in
August 2022. The need to address
activities that are continuing to
worsen the climate emergency
and simultaneously prepare for
a warmer future becomes more
urgent every day.
As part of an industry reliant on
fossil fuel, climate change and
the transition to a low emissions
economy presents a significant
challenge for Air New Zealand and
the aviation industry as a whole.
The airline is committed to playing
its part in addressing this challenge
by taking steps to implement its
decarbonisation strategy.
This Climate action section of the
Sustainability Report details the
airline’s progress and challenges
it has faced in the year. It is
structured with reference to the
Aotearoa New Zealand Climate
Standards (NZ CS) and the
Taskforce for Climate-Related
Financial Disclosures (TCFD).
The disclosures do not fully
comply with NZ CS. From 1 July
2023, the airline will be required
to disclose in accordance with
NZ CS. Work is ongoing to enable
the airline to comply with the new
reporting regime.
01
Climate action
12
Our climate is rapidly changing. This year, Aotearoa
New Zealand experienced the impact of distressing and
destructive weather events first hand.
He mahinga
taiao tūturu
Kiri Hannifin
Chief Sustainability Officer at Air New Zealand
"It’s easy to fall in love with aviation, especially in a country like
New Zealand where flying is often the only option we have to visit
friends and whānau. And, as an island nation in the South Pacific,
it is also how we see the world. Our purpose is to connect our
people with each other and to bring the world closer – we get deep
joy out of living this purpose every day. But we are very mindful
that flying causes greenhouse gases that are contributing to the
climate emergency. For a business driven by strong values, and a
deep love, respect and connection to our land, this is immensely
challenging. I am proud to work for a business that recognises
becoming sustainable is its greatest challenge, and I am grateful
to have a team of more than 11,000 Air New Zealanders committed
to undertaking the mahi we need to overcome this. The task is
immense – aviation is one of the most difficult sectors to abate –
but Air New Zealand’s ambition to this transition is unwavering."
Source:
Mark Coote
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
12
CONTENTS
In addition to their
contributions at the Air
New Zealand Board table,
Dame Therese Walsh,
Laurissa Cooney and
Jonathan Mason have
been recognised by their
peers as advocates for
boards addressing climate
change and appointed to
the Steering Committee of
Chapter Zero New Zealand,
with Dame Therese being
named as Chair.
Chapter Zero New Zealand
is part of a global network of
board directors committed
to taking action on climate
change. It is the local chapter
of the Climate Governance
Initiative, and hosted by the
New Zealand Institute of
Directors, with a mission to
mobilise, connect, educate
and equip directors and
boards to make climate-
smart governance decisions,
thereby creating long-term
value for both shareholders
and stakeholders.
In December 2022, Air
New Zealand Sustainability
Advisory Panel Chair,
Sir Jonathon Porritt and
members Sam Mostyn AO
and Professor Tim Jackson
presented at a Chapter Zero
New Zealand event sharing
international governance
insights, on behalf of Air
New Zealand.
Governance
body oversight
GOVERNANCE
The Board is ultimately responsible
for the airline’s response to the
risks and opportunities presented
by issues related to climate change
mitigation and adaptation.
Board oversight is primarily
through its Audit and Risk
Committee (ARC), which oversees
key strategic risks including
climate change.
The full Board has oversight
responsibility and is closely
engaged as the airline continues
to develop its strategic
position, monitor technological
developments, and establish its
reporting frameworks under NZ
CS. The Board receives updates
from the Chief Sustainability
Officer on areas of responsibility
and performance against targets
on a quarterly basis. In addition, the
Board engages with Management
on sustainability matters, including
the airline's roadmap to its 2030
science-based target, and
considered and approved the
climate scenarios being employed
by the airline to test the resilience
of its strategy.
Biannually, the Board receives
an update on carbon compliance
obligations, addressing the airline’s
compliance with domestic and
international obligations, including
the New Zealand Emissions
Trading Scheme (NZ ETS) and
the International Civil Aviation
Organization's Carbon Offsetting
and Reduction Scheme for
International Aviation (CORSIA).
Additional sustainability-related
matters that the ARC deals with in
its quarterly schedule, including
as part of the identification and
management of strategic risks,
are advised to the Board following
each Committee meeting through
the Committee’s verbal report to
the Board or as standalone Board
agenda items where appropriate.
Strategic climate-related risks
are also considered by the Board
as part of the airline’s Group
Risk Profile which is an output
of the airline’s Enterprise Risk
Management Framework (ERMF).
Climate change risk, currently
rated ‘Very High’ is the highest
rated risk on Air New Zealand’s
Group Risk Profile.
The Board is comprised of directors
who bring diverse perspectives,
and demonstrate a variety of skills,
experience and competencies. On
climate-related issues, the Board
continue to actively increase their
knowledge of climate change, its
impacts and the mitigation and
adaptation options available to the
airline and the aviation industry.
The Board is committed to
developing its climate capability
to continue to provide effective
oversight of climate-related risks
and opportunities.
The airline’s external Sustainability
Advisory Panel (refer to page 4)
provides independent advice to
the Board and Management on
the climate-related aspects of the
airline’s sustainability strategy.
This assists the airline to improve
and develop its strategic response
to the impacts of climate change.
The Sustainability Advisory Panel
meets with the Board biannually.
The Board of Directors considers and provides direction on
the airline’s consideration of the impacts of climate change.
CLIMATE ACTION
Sir Jonathon Porritt, Chair of Air New Zealand’s Sustainability Advisory Panel
01
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
13
Governance
body oversight
The airline’s Risk Appetite
Statement guides the Board
when developing and overseeing
implementation of the airline’s
strategy. In December 2022 the
Board implemented a new Risk
Appetite Statement, including
a section dedicated to climate
change, to provide clarity about
the nature and degree of risks that
can be taken and the rationale for
those positions.
There is a requirement for
Board papers to include explicit
discussion of the sustainability
impacts of the topic or
proposal being presented. This
includes (but is not limited to)
consideration of alternatives
where possible, climate-related
risks and opportunities and where
applicable will quantify any change
in greenhouse gas emissions.
Board papers also consider
relevant risk appetite factors, and
provide visibility of compliance of
material climate risk impacts with
the Board’s risk appetite.
The metrics and targets for
managing climate-related risks
and opportunities are primarily
guided by the airline’s roadmap
to meet its 2030 science-based
target. This roadmap defines the
annual waypoints and milestones
on the path to achieving the
science-based carbon reduction
target. Commencing in the 2024
financial year, the Board will
receive six-monthly updates on
progress against the target.
Additional metrics and targets
may be identified by the Board,
ARC or Management that are
focused on specific climate-
related risks or opportunities
and appropriate to the
management of those risks
within the broader framework.
GOVERNANCE
Progress against our 2030 science-based carbon
reduction target has been incorporated into the
airline’s Short-Term Incentive Scheme with effect
from the 2024 financial year. The Scheme includes
a broad range of business measures to promote
collaboration through shared objectives
1
. 15 percent
of the incentive will be based on meeting the annual
carbon intensity target.
1 Refer to the Corporate Governance Statement in the 2023 Annual Report for more detail on the full Short-Term Incentive Scheme.
CLIMATE ACTION01
14
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
CONTENTS
In November 2022, Kiri Hannifin joined the airline as the airline's first Chief
Sustainability Officer. The Chief Sustainability Officer is a member of the
Executive and reports to the Chief Executive Officer.
Climate-related workstreams are the responsibility of the full Executive,
the Chief Sustainability Officer, operational management, and the
Sustainability team.
Management focus is given to risk identification and ensuring that
climate-related activities are adequately resourced and implemented,
for example, programmes of work relating to Sustainable Aviation Fuel
(SAF), next generation aircraft, operational optimisation, and regulatory
compliance. Key issues are reported up to the Board and the ARC
as appropriate.
Management prepare Quarterly Business Review memos outlining
priorities for the next quarter. As a pillar of the company wide strategy, Kia
Mau, climate matters are capable of being elevated to ensure sufficient
resource is dedicated to climate-related projects.
Given the airline’s 2030 science-based carbon reduction target,
Management has agreed a quarterly governance cadence to monitor
the airline’s performance against its target to ensure focus is maintained
across all identified mitigation levers, throughout the organisation.
Progress reports will be provided to the Board on a six-monthly basis.
These meetings will commence in the 2024 financial year.
Embedding climate risk in business decisions remains a focus area for
the airline and Management. In 2023, Air New Zealand piloted an internal
carbon tax on its flagship ultra long-haul route, Auckland to New York
return - NZ1 and NZ2. An internal carbon tax applies an internal carbon
price to an activity, and creates a dedicated revenue or investment
stream which Air New Zealand ringfenced for investment in
sustainability initiatives.
The internal carbon tax pilot has been extended for the next financial
year. It has been expanded to include operations to and from Chicago
and Houston. The expanded pilot will provide learnings to inform
consideration of a permanent internal carbon tax on select routes, as well
as a broader shadow carbon price to help inform internal decision making.
The Corporate Governance Statement in the 2023 Annual Report includes
details of Air New Zealand’s organisational structure, showing where
Board and Management-level positions and committees lie.
Governance focus for next financial year:
• Commence 2030 science-based carbon reduction
target governance forum to monitor and drive
progress against target
• Establish the system and process for better
incorporating climate risk in investment decisions,
capital deployment and financial planning
• Continue to build climate capability, awareness
and competence
Management’s
role in assessing
and managing
climate-related
risks and
opportunities
Management has day-to-day responsibility for identifying
and managing climate-related risks and opportunities.
GOVERNANCE
CLIMATE ACTION
01
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
15
Current impacts
STRATEGY
Scope of international aviation regulation
At the 41st ICAO Assembly in October 2022, ICAO Member States
adopted a collective long-term global aspirational goal of net zero
carbon emissions by 2050. Member States also agreed on a new
lower CORSIA baseline from 2024, defined as 85 percent of CO
2
emissions in calendar year 2019. These changes did not result in
any financial impact in the year.
Climate change is already directly and indirectly impacting the airline and its operations. In the reporting
period, the following impacts have been realised.
Access to SAF
Premium paid on import of SAF
In September 2022, the airline imported 1.2 million litres of SAF
to Aotearoa New Zealand. The purpose of the import was to test
the supply chain and understand the true cost of importing SAF to
Aotearoa New Zealand. As Aotearoa New Zealand does not offer
any subsidies or incentives for SAF, the airline faced the full cost of
the product, paying a premium of around 4 times the price of jet fuel.
The emissions reductions were not recognised under the NZ ETS.
Investment in Feasibility Study
In June 2023, following a detailed evaluation process, the airline
in partnership with the New Zealand Government, announced
it would proceed to the second phase of a detailed feasibility
study considering the viability of domestically produced SAF.
The second phase of the study will involve LanzaJet and Fulcrum
BioEnergy considering the viability of SAF production in Aotearoa
New Zealand using woody biomass and municipal solid waste as
feedstocks respectively. Air New Zealand will commit research and
development funding in excess of $1.5 million to the studies (with
the funding being provided in the 2024 financial year).
Carbon pricing
In 2023, the airline faced compliance obligations relating to
greenhouse gas emissions.
New Zealand Emissions Trading Scheme
Air New Zealand is a participant in the NZ ETS and has an
obligation to report greenhouse gas emissions generated from
fuel use on all domestic flights and then purchase and surrender to
the Government an equal number of New Zealand Units to match
those emissions. In the 2022 calendar year, the airline’s NZ ETS
obligation was 557,841 tonnes CO
2
-e. The airline’s compliance cost
for the same period under the ETS was $27.1 million, up from $14.4
million in the 2021 calendar year, $14.5 million in the 2020 calendar
year and $14.6 million in the 2019 calendar year.
The airline continues to advocate for NZ ETS auction proceeds to be
used to accelerate the development and deployment of technologies
to enable aviation decarbonisation and to ensure voluntary purchases
of SAF can be fully recognised by the party investing in the emissions
reductions (as allowed in other emissions trading schemes
internationally). As such, the airline’s import of SAF in September
2022 was not recognised in the NZ ETS in the 2022 calendar year.
International Civil Aviation Organization’s Carbon Offsetting and
Reduction Scheme for International Aviation (CORSIA)
For emissions generated in international airspace, Aotearoa
New Zealand participates in the International Civil Aviation
Organization’s (ICAO) CORSIA scheme. This requires the airline to
monitor, report and verify its annual international emissions and
purchase and cancel eligible units for any sectoral growth over a
2019 baseline. In the 2022 calendar year, the airline did not face an
obligation under the CORSIA scheme.
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Current
impacts
2 The National Institute of Water and Atmospheric Research. 2023, Auckland suffers wettest month in history, accessed 2 August 2023, <https://niwa.co.nz/news/auckland-suffers-wettest-month-in-history> 3 Ibid. NIWA Climate Scientist Dr Sam Dean stated "The Earth has warmed by about 1.1 °C already because
of human activity and this extra heat gives more power to extreme rainfall. All other things being equal, we would expect climate change to contribute between 10-20% more rain in the most intense part of this storm.” 4 The World Weather Attribution is an initiative led by climate scientists from Imperial College
London that works to quantify the role of climate change in extreme weather events. 5 The National Institute of Water and Atmospheric Research. 2023, In the wake of Gabrielle, accessed 2 August 2023, <https://niwa.co.nz/publications/water-and-atmosphere/water-atmosphere-29-june-2023/in-the-wake-of-
gabrielle#:~:text=The%20rapid%20nature%20of%20the,far%20the%20most%20likely%20explanation>
STRATEGY
Auckland flooding event
In January 2023 a significant rainfall event occurred in the Auckland area, resulting in widespread surface
flooding and damage across many suburbs and parts of Auckland. A State of Regional Emergency was
declared in Auckland on the evening of 27 January.
While consistent rainfall commenced on 26 January, the serious deluge commenced in the early evening
of 27 January. Rainfall continued through to 3 February. The rainfall stressed the stormwater systems
of the city and those of individual buildings and sites, to the point that widespread flooding and water
ingress damage resulted.
The National Institute of Water and Atmospheric Research (NIWA) reported that the expected rain for
the entire summer (258mm) fell within one day (27 January)
2
. NIWA noted that the event was made more
intense due to the influence of climate change
3
.
Air New Zealand is headquartered in Auckland and its main hub is located in Auckland. The domestic
and international terminal buildings are owned and operated by Auckland International Airport Limited.
Certain areas of each terminal are leased to the airline.
The entire ground floor of the international terminal was inundated with flood water to a depth of up to
300mm. Parts of the domestic terminal also experienced water ingress. Automatic bag drop machines,
baggage belts and fittings in the dedicated Air New Zealand check-in area of the international terminal
experienced damage.
Employees and customers were displaced until the working environment was temporarily restored.
Both loss of equipment and facilities caused mass disruption to the airline’s operations. All domestic and
international travel was suspended due to damage sustained by the airline and to airport facilities. 821
flights were cancelled, impacting 49,000 customers, including 6,500 international customers. Domestic
flights resumed on 28 January, and international flights resumed on 29 January.
The event impacted the airline’s operations, employees and customers, and the Group Emergency
Management Team was activated.
Refer to the Responding to crisis section on page 44 for more information.
Cyclone Gabrielle
Within a fortnight of the Auckland flooding event, from 11 to 14 February,
Aotearoa New Zealand faced Cyclone Gabrielle. Northland, Auckland,
Waikato, Tairāwhiti Gisborne and Hawke's Bay experienced heavy
rain, strong winds, river flooding and landslides.
Analysis conducted by NIWA and World Weather Attribution
4
found
evidence in rainfall measurements that very heavy rainfall is now
more common in the areas affected by the cyclone, with climate
change by far the most likely explanation
5
.
The Group Emergency Management Team was activated in
advance of Cyclone Gabrielle reaching Aotearoa New Zealand.
Preventative measures were taken prior to the arrival of the cyclone,
including the relocation of aircraft to other parts of the country and
pre-emptive cancellation of flights.
The airline experienced no damage to assets caused by the
cyclone. However the airline did experience significant business
interruption due to flight cancellations.
The airline, in coordination with Government agencies deployed
a special assistance flight, carrying communication support,
emergency supplies and airport operational staff into
Tairāwhiti Gisborne.
The cost of Cyclone Gabrielle on the business will not be
recoverable under insurance policies held.
Refer to the Responding to crisis section on page 44 for more
information.
Air New Zealand acknowledges that climate change will increase the frequency and / or the severity of
adverse weather events. Disclosures are provided on the basis that the following weather events were
made more intense, more likely, or both due to climate change.
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• C0
2
emissions reach net
zero by 2050 as green
energy dominates
• Aotearoa New Zealand invests
heavily in green energy and
experiences sharply increasing
carbon prices
• Aviation decarbonises rapidly,
bolstered by rapid technology
advancement, favourable
policy settings, and customers
prioritising climate-conscious
businesses
• CO
2
emissions remain at
current levels until 2050 as
green energy becomes the
majority source
• Aotearoa New Zealand
experiences a sharp rise in
carbon prices and increased
investments in green energy
• Aviation technology advances
steadily, with policy settings
supporting the industry's
transition. Customers prioritise
climate-focused businesses if
price is comparable
• CO
2
emissions double by 2100,
with incremental gains in
green energy
• Aotearoa New Zealand
experiences a carbon price
increase and moderate green
energy investment
• Aviation technology advances
slower than anticipated,
with limited policy support
and limited SAF incentives.
Customers prioritise price over
climate concerns
• CO
2
emissions double by 2050,
with no gains in green energy
• Aotearoa New Zealand's
carbon price remains stable;
there is minimal investment in
green energy
• Aviation technology advances
significantly slower than
anticipated, with no policy
support or SAF incentives.
Customers prioritise price over
climate concerns
1.5°C
SSP1; RCP1.9
2 .7 °C
SSP2; RCP4.5
3.6°C
S S P 3; RCP 7.0
4.4°C
SSP5; RCP8.5
Scenario
analysis
Transition risks were analysed over three different time horizons: short-term (0 – 3 years), mid-term (3 – 10
years) and long-term (10 – 30 years). Physical risks
6
were analysed out to 2100. The airline’s four climate change
scenarios each represent different climate warming and transition trajectories.
These four trajectories were chosen to align with the NZ CS requirement to develop at least three scenarios,
including at least one 1.5 ̊C scenario and at least one 3 ̊C or greater scenario.
The four scenarios use Intergovernmental Panel on Climate Change (IPCC) Shared Socioeconomic Pathways
(SSP) and Representative Concentration Pathways (RCP) as a foundation to ensure plausibility and were
developed with reference to the External Reporting Board (XRB) guidance to form internally consistent scenarios.
In 2023, the airline conducted scenario analysis to identify climate-related risks and opportunities,
to test the resilience of the airline’s current decarbonisation strategy and to prepare the airline to meet
its regulatory obligations under NZ CS.
6 The physical analysis considered Aotearoa and the Pacific Islands. The rest of the Air New Zealand network will be considered in the 2024 financial year.
STRATEGY
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Ambitious
Steady
DelayedInsufficient
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1. Global climate
and socioeconomic
pathway
• Temperature outcomes
• Socioeconomic outcomes
• Each scenario starts with a global climate and socioeconomic base
• Pathways were adopted from IPCC AR6 scenarios – they are derived
from Shared Socioeconomic Pathways (SSP) and Representative
Concentration Pathway (RCP) combinations
2. Global energy
pathway
• Electricity (renewables)
• Hydrogen (green)
• Liquid fuel (SAF)
• Global energy pathways generally flow from IPCC scenarios
• Some assumptions made on basis of 'what needs to be true' for the
global climate pathways to hold
3. Aotearoa New
Zealand-specific
impacts
• Aotearoa New Zealand physical and
climate impacts
• Aotearoa New Zealand energy impacts
• Aotearoa New Zealand market and
financial impacts (incl. cost of carbon)
• Aotearoa New Zealand-specific assumptions made on basis of
'what needs to be true' for global climate and global energy
pathways to hold
• Informed by best estimates from Aotearoa New Zealand research
papers and expert and internal input, adjusted for scenarios
4. Aviation-specific
developments
• Technology development
• Operations
• Policy environment
• Customer demand for aviation
• Aviation-specific assumptions made on basis of 'what needs to be true'
for global climate, global energy pathways, Aotearoa-specific impacts
to hold
• Informed by best estimates from aviation research papers and expert
and internal input, adjusted for scenarios
Scenario
analysis
The scenarios were developed by
making selections across four sets
of parameters:
Further physical risk analysis will continue in the 2024 financial year. The first phase of modelling considered activities and assets in Aotearoa New
Zealand and the Pacific Islands. The next phase of physical climate risk analysis will extend to activities and assets in the rest of the global network,
including Australia, Asia and North America.
The transition risk modelling demonstrated the interconnected nature of the risks faced by the airline and revealed areas of the airline’s climate strategy
requiring further analysis. The airline will continue to build on this scenario analysis to deepen its understanding of the impacts of climate change under
different warming scenarios, the resilience of the airline's strategy in the face of these, and the potential resulting material financial implications.
ParametersKey parameter categories
Approach
STRATEGY
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Transition risks
The transition risks defined below have been informed by the climate-related scenario modelling outlined above.
Time frame:
S
Short-term = 0-3 years
M
Mid-term = 3-10 years
L
Long-term = 10-30 years
TCFD risk
category
Climate-related riskPotential financial impactTe r mStrategic response and mitigations
General
Policy and legalThe risk of new or increased regulation to monitor and / or address
activities, organisations or sectors that contribute to climate
change. This could include:
• Expansion of the NZ ETS to include international aviation
emissions
• Establishment of domestic aviation carbon reduction targets
for Aotearoa New Zealand
• Inclusion of non-CO
2
emissions in CORSIA
7
and / or NZ ETS
• CORSIA fails to implement sufficient offsetting requirements
resulting in unilateral regulation and as a consequence
competitive distortions
Increasing the coverage of the NZ ETS to include international
aviation emissions would increase the price of fossil jet fuel,
increasing operating expenditure and contributing to higher
airfares. However, increasing the price of fossil jet fuel would close
the commercial gap between fossil jet fuel and SAF.
Domestic aviation carbon reduction targets could result in policies
that limit domestic aviation growth. However, policies could also
be established that support the use and affordability of SAF in
Aotearoa New Zealand.
Including non-CO
2
emissions in CORSIA and / or NZ ETS would
increase the coverage of the schemes and would thereby increase
the price of fossil jet fuel and contribute to higher airfares.
If CORSIA is perceived to be inadequate, unilateral country-
specific compliance obligations could arise, leading to competitive
distortions and presenting a risk to revenue.
S
M
L
Implementation of the airline’s decarbonisation strategy to achieve reductions in gross
carbon emissions, including improvements to operational efficiency, ongoing fleet
renewal, investment in and advocacy for accelerating the availability and commercial
viability of SAF, and advocacy and planning for next generation aircraft.
Future carbon pricing assumptions considered in operational and strategic planning.
Advocacy:
• to ensure emissions reductions enabled by voluntary purchases of SAF are properly
reflected and allocated in the NZ ETS (as they are in other emissions trading
schemes internationally).
• for domestic policies that support and accelerate gross emissions reductions within
the aviation sector.
• providing ongoing support for a robust CORSIA scheme to reduce the risk of
unilateral regulation arising.
Engagement with:
• the New Zealand Climate Change Commission regarding its consideration of
international aviation emissions.
• Sustainable Aviation Aotearoa regarding domestic aviation targets, international
aviation emissions, non-CO
2
emissions and policy measures that will drive gross
emissions reduction from the sector.
Monitoring international regulatory developments to understand risk and opportunities.
MarketThe risk associated with the way markets could be affected by
climate change, including through shifts in supply and demand.
This could include:
• Changing consumer behaviour
• Uncertainty in market signals
• Increased cost of raw materials
Increasingly climate conscious customers – leisure and business
travellers seeking to reduce their own emissions footprint may
reduce air travel consumption, resulting in reduced demand and
reduced revenue.
By the airline moving early to reduce its emissions, fares may need
to increase before competitor fares do causing price sensitive
customers to switch airlines, resulting in reduced demand and
reduced revenue.
Access to capital and insurance could reduce and the cost of
capital and insurance could increase if demonstrable progress
is insufficient.
S
M
L
Implementation of the airline’s decarbonisation strategy to achieve reductions in gross
carbon emissions, including improvements to operational efficiency, ongoing fleet
renewal, investment in and advocacy to accelerate the availability and commercial
viability of SAF, and advocacy and planning for next generation aircraft.
Raise industry decarbonisation expectations and support mechanisms like
international and domestic mandates that result in all airlines facing similar SAF costs.
Building on current carbon reporting provided to corporate customers, providing Air
New Zealand-specific carbon data to better inform customers as to their emissions
footprint from travel.
Developing a corporate and cargo SAF purchasing programme, to enable emissions
reductions in-line with the Science Based Targets initiative guidelines.
ReputationThe risk to reputation and brand associated with changing
customer or community perceptions of the aviation sectors
contribution to climate change. This could include:
• Shifts in consumer preferences
• Stigmatisation of the aviation sector
• Increased stakeholder concern
Increasingly climate conscious customers – leisure and business
travellers seeking to reduce their own emissions footprint may
reduce air travel consumption, resulting in reduced demand and
reduced revenue.
Stakeholders, including customers, employees, investors, lenders,
suppliers and insurers may push for more ambitious action from
the airline.
S
M
L
Position the airline as progressive on climate matters, by implementing the airline’s
decarbonisation strategy to achieve reductions in gross carbon emissions, including
improvements to operational efficiency, ongoing fleet renewal, investment in and
advocacy to accelerate the availability and commercial viability of SAF, and advocacy
and planning for next generation aircraft.
Provide transparent public disclosures to inform and educate stakeholders.
Transition Risks
STRATEGY
7 The International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation.
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TCFD risk
category
Climate-related riskPotential financial impactTe r mStrategic response and mitigations
SAF related transition risks
Policy and legalThe risk of limited, delayed or non-existent government support
for SAF adoption. This could include:
• Lack of government support for SAF adoption in North
America and / or current policy support is removed
• Lack of government support for SAF adoption in Aotearoa
New Zealand, Australia and Asia
• Globally approved Book and Claim mechanisms do not
develop as expected resulting in Air New Zealand having to
procure physical SAF in Aotearoa New Zealand
• The risk of exposure to litigation or greenwashing claims
based on SAF related statements
Lack of government support and / or removal of existing
subsidies could result in increased SAF costs, increasing
operating expenditure.
Lack of government support for SAF in the Asia Pacific region
could result in less SAF supply in the region and more expensive
product, increasing operating expenditure and creating
competitive distortions. Lack of policy support in Aotearoa
New Zealand could result in limited access to physical SAF
domestically.
The introduction of SAF mandates in the Asia Pacific region
without associated incentives to address the cost of the product
could increase operating expenditure.
Access to a globally endorsed Book and Claim mechanism would
enable access to SAF without having to physically procure SAF in
Aotearoa New Zealand resulting in access to lower cost SAF.
Greenwashing claims, litigation or fines could increase costs and /
or reduce demand for services.
M
L
Advocacy in Aotearoa New Zealand
• Advocacy to support the supply and commercial viability of SAF in Aotearoa New
Zealand. This includes advocating for a SAF specific mandate, access to feedstocks,
SAF incentives, and SAF-specific policies to support the establishment of import
supply chains and domestic production (including for Power-to-Liquid SAF).
• Engagement in Sustainable Aviation Aotearoa, the public private body designed to
support aviation decarbonisation in Aotearoa New Zealand, including the working
group dedicated to increasing access to and supply of SAF in Aotearoa New Zealand.
• Partnership with the New Zealand government to explore domestic SAF production in
Aotearoa New Zealand, to secure local supply and improve fuel security.
• Engagement with New Zealand government on the use of SAF in the NZ ETS.
• Engagement with New Zealand government, Trade and Tourism industries regarding
the role of SAF.
Advocacy in Asia-Pacific region
• Advocacy and engagement with Australian government, policy makers and the
Australian Jet Zero Council to support the supply and commercial viability of SAF
in Australia.
• Advocacy for SAF via Bioenergy Australia and the Sustainable Aviation Fuel Alliance
Australia and New Zealand (SAFAANZ).
• Advocacy and engagement with governments and policy makers to support the
supply and commercial viability of SAF in Asia.
• Advocacy to prioritise feedstocks for hard to-abate sectors.
• Participation in World Economic Forum’s Clean Skies for Tomorrow Coalition.
• Advocate for robust sustainability criteria for SAF within regulatory frameworks
(including mandates) and within the sector for voluntary SAF purchases.
• Advocate for and support the development of Power-to-Liquid SAF to reduce reliance
on biogenic SAF.
Transition Risks
Transition risks,
continued
STRATEGY
Time frame:
S
Short-term = 0-3 years
M
Mid-term = 3-10 years
L
Long-term = 10-30 years
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TCFD risk
category
Climate-related riskPotential financial impactTe r mStrategic response and mitigations
SAF related transition risks (continued)
TechnologyThe risk associated with substitution of fossil jet fuel with SAF
to support the transition to a low emissions economy. This
could include:
• SAF feedstock limitations
• Operating and capital costs for SAF pathways do not decline
as expected
• Power-to-Liquid SAF and already approved SAF technology
pathways do not deliver expected emissions reductions as
they scale
• Unsuccessful investment in new technologies
Cost of SAF is around 2 to 5 times the cost of fossil jet fuel. Uplift
of SAF will increase operating expenditure.
SAF supply limitations could result in increased compliance costs
and associated reputational damage.
Research and development expenditure in feasibility studies
considering domestic production of SAF.
S
M
L
Support for Book and Claim
• Advocacy and engagement in support of robust Book and Claim mechanisms
with the Roundtable of Sustainable Biomass and the World Economic Forum (WEF)
SAFc programme.
• Participation in the WEF SAFc trial in June 2023.
• Advocacy and engagement with New Zealand government and stakeholders
regarding the role and recognition of Book-and-Claim in Aotearoa New Zealand.
• Education for customers regarding Book-and-Claim.
SAF Procurement and supply
• Geographically diversify SAF supply.
• Diversify across feedstocks with varying emissions reduction factors.
• Negotiate contractual mechanisms with potential SAF suppliers including
provisions to exit or reduce volume if subsidies are not available or are rescinded.
• Collaboration with partner airlines on developing global SAF supply, including via
Star Alliance membership.
• Adhere to strict sustainability criteria for SAF procurement.
Disclosures
• Provide transparent public disclosures regarding SAF, including the proportions of
SAF and fossil jet fuel purchased.
MarketThe market risk associated with SAF. This could include:
• Inability to access sufficient SAF supply to meet public targets
• SAF prices fall but contractually locked into higher offtake
prices, particularly in the Asia Pacific region
• SAF prices increase, but not fast enough to contract at lower
prices, particularly in North America region
• Air New Zealand enters into contracts with unfavourable
terms relative to competitors
Not accessing sufficient volumes of SAF to meet public targets
could result in reputational damage.
Inability to secure competitive SAF prices could result in increased
operating expenditure and competitive distortions.
S
M
L
ReputationThe risk to brand and reputation associated with the use of SAF.
This could include:
• Use of SAF feedstocks that offer limited environmental
benefits or cause perverse environmental outcomes
• Customers may not accept SAF as an abatement lever
• The risk of exposure to litigation or greenwashing claims
based on SAF related statements
Adhering to robust sustainability criteria in the procurement
of SAF may result in lower SAF supply and / or higher prices,
resulting in increased operating expenditure.
Greenwashing claims, litigation or fines could increase costs and /
or reduce demand for services. Greenwashing claims or litigation
could erode trust in the brand.
S
M
L
Transition Risks
Transition risks,
continued
STRATEGY
Time frame:
S
Short-term = 0-3 years
M
Mid-term = 3-10 years
L
Long-term = 10-30 years
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TCFD risk
category
Climate-related riskPotential financial impactTe r mStrategic response and mitigations
Next generation aircraft related transition risks
Policy and legalThe risk of limited, delayed or non-existent government support for
next generation aircraft development and use. This could include:
• Aviation regulator in Aotearoa New Zealand limiting or delaying
the use of next generation aircraft in Aotearoa New Zealand
• Protracted development of regulatory, compliance and safety
standards for next generation aircraft
• Lack of government support for green hydrogen development and
adoption in Aotearoa New Zealand
• Lack of government support for scaling of renewable electricity
generation in Aotearoa New Zealand
• The risk of exposure to litigation or greenwashing claims based on
limited progress against stated next generation aircraft aspiration
Delayed regulations could slow or constrain the use of new
technologies (and the pace of development of new technologies),
limiting the ability to generate revenue from these new aircraft. Lack
of government support could result in increased cost of renewable
energy and green hydrogen, increasing operating expenditure.
Greenwashing claims, litigation or fines could increase costs and / or
reduce demand for services.
S
M
L
Advocacy In Aotearoa New Zealand
• For new policy measures to support the development and deployment of next
generation aircraft, including more government resourcing to expedite regulatory and
standard setting processes.
• To inform future renewable electricity demand scenarios and infrastructure
requirements.
• For green hydrogen policy support, including de-risking first of a kind innovations and
ongoing affordability interventions.
• Engagement in Sustainable Aviation Aotearoa, including the working group dedicated to
deployment of next generation aircraft in Aotearoa New Zealand.
• Member of the Hydrogen Consortium, alongside Airbus, Christchurch Airport, Fortescue
Future Industries, Hiringa Energy and Fabrum, launched to support next generation
aviation in Aotearoa. The consortium is examining the regulations, policies and
incentives required to support green hydrogen use in aviation.
• Participation in the World Economic Forum’s Target True Zero coalition.
Technology and infrastructure
• Ongoing engagement with commercial demonstrator partners and long-term next
generation aircraft partners to support the development of these aircraft, including
providing the airline’s own specifications and network requirements.
• Potential investment in commercial demonstrator project to understand true cost of
aircraft, operating realities, and readiness of Aotearoa New Zealand for next
generation aircraft.
• Engagement with airports in Aotearoa New Zealand regarding infrastructure and
energy requirements for next generation aircraft.
• Partnership with Airbus to explore the deployment of hydrogen-powered aircraft in
Aotearoa New Zealand.
• Hydrogen Consortium analysing green hydrogen supply chain in Aotearoa
New Zealand.
Early adoption
• Negotiate contractual mechanisms to exit contracts if prices fall significantly.
• Seek third-party support to de-risk first of a kind investment in next generation aircraft.
TechnologyThe risk associated with adoption and deployment of novel propulsion
next generation aircraft to support the transition to a low emissions
economy. This could include:
• Late availability of next generation aircraft
• Higher than expected incremental capital expenditure and / or
maintenance costs
• Production costs for green hydrogen do not decline as expected,
increasing energy costs
• Network limitations due to lack of required airport infrastructure
• Limited talent availability for maintenance and operation of next
generation aircraft
Late availability of next generation aircraft will increase volumes of SAF
required, potentially increasing operating costs and compliance costs.
Capital investment(s) in new aircraft technologies could be higher than
anticipated.
Procurement of green hydrogen could increase operating expenditure
if production costs do not decline.
Lack of airport infrastructure could limit the network flown by next
generation aircraft, reducing revenue due to limits on aircraft use.
Limited availability of qualified employees could increase workforce
expenditure and lead to increased expenditure on employee attraction
and retention.
New practices and processes associated with next generation aircraft
could increase the costs associated with deployment.
M
L
MarketThe market risk associated with next generation aircraft. This could include:
• Inability to access enough energy due to limited green
hydrogen availability
• Green hydrogen prices fall but contractually locked into higher
offtake prices
• Curse of early adoption for next generation aircraft - costs could
come down for later models
Inability to secure competitive energy prices could result in increased
operating expenditure.
S
M
L
ReputationThe risk to brand and reputation associated with the use of next
generation aircraft. This could include:
• Limited social licence to consume renewable energy (renewable
electricity, green hydrogen) if not demonstrably additional
• The risk of exposure to litigation or greenwashing claims based on
limited progress against stated next generation aircraft aspirations
The renewable electricity consumed by a next generation aircraft fleet
(directly or as an input to creating green hydrogen) could introduce
reputational or brand damage if it diverts renewable resources from
other parts of the economy.
Greenwashing claims, litigation or fines could increase costs and / or
reduce demand for services. Greenwashing claims or litigation could
erode trust in the brand.
M
L
Transition Risks
Transition risks, continued
STRATEGY
Time frame:
S
Short-term = 0-3 years
M
Mid-term = 3-10 years
L
Long-term = 10-30 years
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TCFD risk
category
Climate-related riskPotential financial impactTe r mStrategic response and mitigations
AcuteRisk of increasing frequency and / or severity of extreme weather
events resulting in disruption to flights and the wider network.
Decreased or disrupted flying could reduce revenue and increase
operational expenditure.
Damage to infrastructure presents risk of increasing capital costs.
Increased insurance premiums and potential for reduced
availability of insurance on assets in “high risk” locations.
Increased operating expenditure caused by airports passing on
adaptation costs.
S
M
L
Implementation of flight planning software using advanced data analytics to optimise flight
paths both in planning and dynamically once aircraft are airborne.
Thunderstorm detection technologies and reporting systems are established across the
aircraft fleet. Pilot training and qualifications extensively cover meteorological phenomena
including Aotearoa New Zealand specific conditions. Operating policies specifically
provide additional holding fuel when thunderstorms are forecast to provide assurance of
flexibility to avoid thunderstorms enroute and at airports.
At Nelson Airport, a bunding system has been implemented to mitigate against future
flooding events. This system was effective in mitigating flood damage during the Nelson
flooding event in August 2022.
Investment in contact centre resource and training to better serve customers in periods
of disruption.
Customers provided pre-emptive ability to manage flights where disruption predicted.
ChronicRisk of longer-term shifts in climate patterns (including sustained
higher temperatures, sea level rise, changing precipitation
patterns) that may cause network disruption and loss of access to
airports, other aviation support facilities, critical infrastructure and
supply chains.
Decreased or disrupted flying could reduce revenue and increase
operational expenditure.
Damage to infrastructure presents risk of increasing capital costs.
Increased insurance premiums and potential for reduced
availability of insurance on assets in “high risk” locations.
Increased operating expenditure caused by airports passing on
adaptation costs.
S
M
L
Spatial master planning process identifies infrastructure risks and these are reflected in
master planning.
Ensuring maintenance is fit for purpose and current to legislation and regulation for
building resilience.
Physical Risks
Physical risks are risks arising from changes in the regional and global climate and the consequential impacts and events. These may include acute physical damage from variations in weather patterns (for example severe
storms, coastal/tidal flooding, drought) or chronic impacts (for example sea level rise and temperature increase).
Physical risks
STRATEGY
Time frame:
S
Short-term = 0-3 years
M
Mid-term = 3-10 years
L
Long-term = 10-30 years
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Air New
Zealand's
transition plan
In 2020 Air New Zealand announced its ambition to reach net zero carbon
emissions by 2050, ahead of the International Air Transport Association’s
(IATA) industry commitment. In 2023, an ambitious science-based
carbon reduction target was set to guide progress in the period to 2030.
The 2030 target is both ambitious and aspirational and will be challenging
to deliver. Notwithstanding the significant challenges, it is embedded in
the company strategy, Kia Mau, to ensure the airline consistently aims
high, regularly monitors and maintains the necessary momentum to drive
the transition to a lower emissions operating model.
Progressing these targets will require a range of levers – some of which
Air New Zealand can control and others that will require collaboration
across the aviation industry and with policy makers to progress.
Levers we control:
Operational
efficiency
Continued
fleet renewal
Optimising carbon efficiency from
flight and ground operations
Rollover of current fleet to new aircraft
that achieve greater fuel efficiency
Air New Zealand’s transition plan is guided by its long-term
and interim carbon reduction targets.
STRATEGY
2030
Reduce carbon intensity by 28.9 percent by 2030,
compared to a 2019 baseline.
Developed with reference to the Science Based Target initiative’s
aviation methodology. Validated by the Science Based Target initiative.
Levers that rely on collaboration with
industry and policy makers:
SAF
Non-fossil derived jet fuel, lifecycle
carbon reduction savings,
compatible with existing aircraft
without modification
Next generation
aircraft
Future green hydrogen, battery or
hybrid aircraft technologies
Carbon removal
solutions
Credible carbon removal solutions
aligned to international best practice
Our success to deliver on
the targets will require
governments, customers,
innovators and others to all
play their part, alongside
the airline.
Air New Zealand is focused
on using its platform to
influence and drive positive
change in areas beyond its
control. Advocacy forms
a key component of the
airline’s decarbonisation
strategy.
2050
Achieve net zero carbon emissions by 2050.
Developed with reference to the IATA resolution to achieve net zero
carbon emissions by 2050.
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Transition plan
SAF
It was a year of firsts, with the airline receiving its first SAF import to
Aotearoa New Zealand, trialling its first book and claim SAF transaction,
closing the first stage of its SAF domestic production feasibility study and
moving to the second stage of feasibility consideration.
At the beginning of the year, the airline announced it would aim for 1
percent of its jet fuel use in the year to be SAF. The airline encountered
a number of challenges in pursuit of this target, falling short with only
0.11 percent of all fuel being SAF in the year. The airline had two separate
opportunities to import SAF to Aotearoa that would have enabled the
target to have been met. However, due diligence revealed these SAF
sources did not meet the airline’s sustainable procurement criteria so
were not transacted. Supply limitations at overseas ports also impacted
the airline’s ability to meet the target. The learnings gained from pursuing
this target have been invaluable for the airline as it looks to build its SAF
purchasing programme. In particular, the actions taken in attempting to
meet this goal provided vital learnings on the complexity of SAF supply
chain sustainability and the reality of global SAF supply limitations. It also
confirmed the true cost of SAF in the Asia Pacific region (being four to five
times the cost of fossil jet fuel), where there is an absence of supportive
SAF policies.
Air New Zealand received its first import of SAF into Aotearoa New Zealand
in September 2022. The 1.2 million litre delivery, in its neat (unblended)
form reduced lifecycle carbon emissions by at least 80 percent compared
to fossil jet fuel. The SAF was produced from tallow by the world's
largest SAF supplier, Neste, and imported in partnership with Z Energy.
The shipment was critical to furthering the airline’s understanding of
SAF import supply chain logistics, customs processes, SAF emissions
accounting, SAF sustainability certification and documentation, and the
true cost of importing SAF to Aotearoa New Zealand.
In June 2023, Air New Zealand trialled its first book and claim SAF
transaction as part of the World Economic Forum’s (WEF’s) SAF
Certificate (SAFc) pilot. The airline participated in the pilot in partnership
with SAF supplier SkyNRG, and its corporate customer PwC New Zealand.
Like a renewable electricity certificate, a SAFc represents the
environmental attributes of a metric tonne of neat SAF and can be sold
unbundled from the physical fuel. Each SAFc has at least two connected
carbon reduction claims – one that can be made by the airline to reduce
its scope 1 emissions, and another that can be claimed by a user of
aviation services (in this case, PwC New Zealand) to reduce its scope
3 emissions.
Via the pilot, Air New Zealand purchased SAF Claims related to a volume
of 5,000 metric tonne (mt) of SAF. The SAF volume delivered had a carbon
intensity of 14,883 g CO₂e/MJ or 0,655 mt CO₂e/mt SAF, and reduced
emissions by 3,261 mt CO₂e/mt SAF compared to fossil jet fuel. The airline
therefore reduced its scope 1 footprint by 16,306 mt CO₂e. The purchased
SAF Claims related to the total volume of SAF and emissions reductions
are verified and accredited by an independent third party: SCS Global
Services. These emissions reductions were not included in the airline’s
greenhouse gas inventory given the trial nature of the project.
By enabling the investment in SAF regardless of geographic location,
book and claim SAF transactions have the potential to play a vital
role for airlines and their customers with decarbonisation targets in
regions where there is no SAF produced and/or where the cost of SAF is
high - such as in Aotearoa New Zealand. Air New Zealand will continue
to support the development of SAF book and claim mechanisms
internationally to advance aviation decarbonisation and enable more
Aotearoa businesses to start decarbonising their supply chains in
tangible ways.
In 2023 Air New Zealand continued to build the foundations
of its SAF programme.
STRATEGY
0.11%
of all fuel use in 2023 was SAF
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SAF is a drop-in fuel
made from a variety of
sustainable resources,
such as used cooking
oils, landfill waste,
forestry waste, carbon
captured from the air,
and green hydrogen.
SAF typically reduces
lifecycle carbon emissions
by 70 percent or more
compared with traditional
fossil jet fuel. At the current
time, SAF is the most
significant decarbonisation
technology the airline can
use to reduce its carbon
emissions. Globally SAF
supply remains limited, and
the cost is very high.
Find out more here.
The process invited leaders in
innovation to demonstrate the
feasibility of operating a SAF
plant at a commercial scale in
Aotearoa New Zealand. From this
process, two SAF technology
providers, LanzaJet and Fulcrum
BioEnergy, and their respective
project partners have been
selected to progress to stage two
of the study, which is designed to
determine commercial viability
and sustainability of domestic SAF
production with greater accuracy.
The respondents will be exploring
the use of Aotearoa New Zealand
waste products to produce SAF,
including forestry waste and
landfill waste. It is anticipated
that stage two of the study will be
completed during calendar year
2024. Air New Zealand will commit
research and development
funding in excess of $1.5 million to
the studies
8
.
Transition plan
SAF
In 2023, Air New Zealand and the Ministry of Business,
Innovation and Employment (MBIE) completed stage one of
a joint study into the viability of domestic SAF production.
Flyn van Ewijk
Director - Project Development at Fulcrum BioEnergy
"Fulcrum BioEnergy applauds Air New Zealand and the New
Zealand government for pursuing domestic SAF production
in Aotearoa New Zealand. We look forward to investigating the
commercial viability and sustainability of a Fulcrum plant that
would convert domestic landfill waste into low-carbon SAF, and
help address duel environmental challenges of landfills and
greenhouse gas emissions from aviation."
Jimmy Samartzis
Chief Executive Officer at LanzaJet, Inc.
"SAF is the single greatest opportunity the aviation industry has
to decarbonize over the coming decades. LanzaJet is thrilled to be
partnering with Air New Zealand to help the country lead the way
towards a sustainable future. It’s going to take collaborative work
between airlines, governments, producers and others across the
world to build this industry and ensure air travel is able to grow
sustainably and continue to connect the cultures, families, and
economies across the world for generations to come – and SAF will
be a critical component in getting us there."
STRATEGY
8 The funding will be paid in the 2024 financial year.
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This has culminated in the launch of Mission Next Gen Aircraft created
to accelerate the development of next generation aircraft technologies
and the infrastructure and ecosystem required to make these a reality for
commercial aviation in Aotearoa New Zealand.
Mission Next Gen Aircraft has two ambitious goals:
1. Fly the first commercial demonstrator flight from 2026
2. Begin replacing the Q300 domestic fleet with a more sustainable
aircraft – likely green hydrogen or battery hybrid systems from 2030
The next three years will be focused on working with partners to support
the building, testing and certification of next generation aircraft and
associated infrastructure.
To enable the breakthrough goal of flying a commercial demonstrator
flight from 2026, Air New Zealand has partnered with four leading aircraft
developers and innovators: Beta Technologies, Cranfield Aerospace,
Eviation, and VoltAero to build and potentially launch next generation
aircraft in Aotearoa New Zealand. These companies represent a
combination of electric, green hydrogen and hybrid aircraft technologies.
Air New Zealand’s aspiration is to confirm its commitment with one
or more of these partners in the next 12 months with the ambition of
purchasing an aircraft for delivery from 2026.
The learnings taken from flying an aircraft with next generation
propulsion technology from 2026 will establish a foundation for long-term
green hydrogen and battery hybrid partners to deliver aircraft that could
potentially replace the Q300 domestic fleet.
To progress towards the 2030 target to begin replacing the Q300
fleet with more sustainable options, Air New Zealand announced three
additional long-term partners: Universal Hydrogen, Embraer and
Heart Aerospace who join Airbus and ATR. These long-term partners
are developing green hydrogen and battery-hybrid aircraft with seat
capacities of 30 seats and upwards.
Transition plan
Next Generation
Aircraft
Following the release of the Product Requirements Document
(PRD) in December 2021 that shared Air New Zealand's vision
and specifications for next generation aircraft technologies,
the airline has refined its list of partners to work towards
making next generation aircraft a reality.
Mission Next
Gen Aircraft
STRATEGY
Next generation aircraft technology encompasses
aircraft designs including battery electric, hydrogen
fuel cell, hydrogen combustion and hybrid concepts.
Hydrogen, battery and hybrid technologies are still under
development by aircraft manufacturers and innovators. However,
we expect to see this technology mature and be a possibility for Air
New Zealand from 2030 on shorter domestic and regional flights.
While we believe SAF is currently the best solution to decarbonise
long-haul flights, Aotearoa New Zealand's domestic network is
made up of mostly short range routes, that make the country well
placed to deploy next generation aircraft technology.
Find out more here.
Paul Eremenko
Chief Executive Officer at Universal Hydrogen
"We're pleased with the progress made in our partnership with Air
New Zealand over the past year. It's an honour to be part of their
'Mission Next Gen Aircraft' program, alongside industry leaders
such as Airbus, Embraer, and others. The debut flight of our
hydrogen Dash 8-Q300 flying testbed this year, the world's largest
hydrogen fuel cell aircraft, marked a defining moment in our
partnership. Our joint focus remains unwavering—to have
low-emissions hydrogen regional airplanes operating as part of
Air New Zealand’s fleet by the end of the decade."
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The Hydrogen Consortium’s vision is to support Aotearoa New Zealand to
pioneer the commercial deployment of green hydrogen-powered aircraft.
The Hydrogen Consortium will work together to design a hydrogen
ecosystem for aviation in Aotearoa New Zealand. The first phase will focus
on research, which will be completed and publicly released by the end of
calendar year 2023. The consortium will develop a vision for hydrogen
aviation in Aotearoa New Zealand, examine the hydrogen supply chain
and its challenges, assess the local aviation market’s projected hydrogen
needs to 2050, and develop a pathway of policies, regulations and
incentives to promote the development of hydrogen aviation.
Air New Zealand continues to support the World Economic Forum’s
Target True Zero Coalition, designed to accelerate the deployment and
scaling of next generation aviation. Air New Zealand contributed to the
Coalition’s White Paper: Target True Zero: Delivering the Infrastructure for
Battery and Hydrogen-Powered Flight. The White Paper identified actions
required to support the introduction and growth of alternative propulsion
within the aviation system.
Transition plan
Next Generation
Aircraft
In February 2023, Air New Zealand alongside a group of
businesses from across the aviation hydrogen value chain,
including Christchurch International Airport, Airbus, Hiringa
Energy, Fortescue Future Industries, and Fabrum launched
the Hydrogen Consortium.
STRATEGY
Air New Zealand has also teamed up with Victoria University of
Wellington's Robinson Research Institute to help the airline evaluate
and validate aircraft propulsion technology as concepts develop
and mature. In addition, Air New Zealand will work with Paihau –
Robinson Research Institute to ensure new aircraft technology can
be integrated into Aotearoa's future air transport system.
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Transition plan
Continued
fleet renewal
& operational
efficiency
Fleet modernisation continues with two Airbus A321neo aircraft being
welcomed to the domestic fleet by 2024, two Airbus A321neo aircraft
being welcomed to the international fleet by 2025, and a further two Airbus
A321neo aircraft being delivered to the domestic fleet by 2027. More fuel-
efficient Boeing 787 Dreamliners powered by new GE GEnx engines are on
order and will replace the Boeing 777-300ER fleet as they are phased out of
operation towards the end of the decade.
Operational efficiency
In December 2022, a cross functional Turboprop Carbon Reduction
Governance Group was established with senior leaders from across the
business. The purpose of the group is to realise the carbon reduction
opportunities in the turboprop fleet, provide the necessary support to address
barriers and implement new practices and to empower pilots to safely engage
in climate action. A Turboprop Carbon Reduction Delivery Group has also been
formed to introduce carbon reduction policies, procedures, standards and
training strategies to optimise turboprop flight operations.
To embed sustainability thinking in the Turboprop pilot cohort, education
sessions have been included in the turboprop pilot technical refresher
courses. These presentations introduce sustainability, specifically
decarbonisation, to the turboprop pilot group.
Air New Zealand has an average operating fleet age of 7.9 years
9
, making it a young
and fuel-efficient fleet.
7. 9
years average operating
fleet age
STRATEGY
9 Seat weighted average of the operating fleet as at 30 June 2023.
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Transition plan
Advocacy
Aviation decarbonisation will require
coordinated decision-making
across the transport, energy,
trade and tourism sectors. It will
be a journey that Air New Zealand
shares with the New Zealand
government, policy makers in
its global network, and other
stakeholders across the economy.
In November 2022, Sustainable
Aviation Aotearoa was launched.
Sustainable Aviation Aotearoa is
a public-private body led by the
Ministry of Transport focused
on aviation decarbonisation.
The body is sponsored by the
Associate Minister of Transport,
the Minister of Energy and
Resources and the Minister for
Research, Science and Innovation.
The body will have three working
groups with different focuses.
One will focus on SAF, one will
focus on next generation aircraft,
and one will focus on strategic
aviation policy. Air New Zealand
is represented on the leadership
group and in all of the working
groups. The launch of Sustainable
Aviation Aotearoa marked a
positive step towards greater
cohesion, coordination and focus
on the policy support required to
accelerate the decarbonisation of
aviation in Aotearoa New Zealand.
Air New Zealand has supported
the establishment of the
Australian Jet Zero Council and
will encourage engagement, and
ideally harmonisation, between
the Australian Jet Zero Council and
Sustainable Aviation Aotearoa.
Air New Zealand supports
domestic and international efforts
to mitigate climate change. Air
New Zealand continues to actively
engage with policy makers
and participate in government
consultations on climate change
policy, advocating for research,
policies, and investment to
support the airline’s SAF strategy,
the timely deployment of next
generation aircraft technologies,
and a renewable energy system
in Aotearoa New Zealand that
properly plans for additional
electricity demand from aviation
and supports the scaling of green
hydrogen. Submissions prepared
by the airline in the year are
available here.
Air New Zealand is a member of a
number of organisations dedicated
specifically to climate issues.
These include the New Zealand
Climate Leaders Coalition, the
Sustainable Business Council, the
Aotearoa Circle, the Sustainable
Aviation Fuel Alliance of Australia
and New Zealand and the New
Zealand Hydrogen Council.
Air New Zealand is committed to doing what it can to
decarbonise its operation. However, the airline cannot solve
the decarbonisation challenge or reach its targets alone.
STRATEGY
Scaling and accessing
SAF requires an enabling
policy environment. This
can include measures such
as SAF specific mandates,
access to feedstocks,
SAF incentives (like
those available in North
America) and research and
development support. Air
New Zealand also supports
robust sustainability criteria
being attached to SAF-
related policy interventions.
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Transition plan
Supporting
our customers
For corporate and cargo
customers, the airline has been
developing an Air New Zealand
specific tool to more accurately
measure emissions generated
on Air New Zealand services.
This tool is expected to launch in
September 2024.
In July 2023, enhancements were
made to the Voluntary Emissions
Contribution Programme available
to retail customers through the
Air New Zealand website. The
calculation of emissions from
travel on Air New Zealand services
was updated in accordance with
the International Air Transport
Association Recommended
Practice RP 1726 methodology.
This includes a bespoke Air New
Zealand specific emissions factor
and a factor for radiative forcing.
The bespoke emissions factors
take into account the particular
aircraft type, the route being flown
and historical fuel data collected
from the route over time.
The airline continues to support its
customers to better measure and
understand the emissions generated
from air travel.
STRATEGY
Customer contributions
Air New Zealand operates a Voluntary Emissions
Contribution Programme that calculates a
passenger’s share of their flight's carbon emissions
and matches those emissions with carbon credits
purchased from certified international projects.
The programme also provides funding to projects
that support biodiversity outcomes in Aotearoa
New Zealand.
In the year, retail customers booking through the
Air New Zealand website contributed $1.2 million
to Trees That Count and purchased 70,810
carbon credits
10
.
Number of native trees/projects
supported by region
6,890
2
Gisborne
10,000
1
Canterbury
7,690
1
Nelson
10,000
2
Manawatu-Whanganui
35,775
2
Southland
16,920
3
Otago
15,000
2
Ta s m a n
10,000
1
Taranaki
10,000
1
Northland
5,940
2
Bay of Plenty
17,082
2
Auckland
6,002
2
Hawke's Bay
19,000
4
Waikato
25
Total number of projects, detailed
by region with
170,299
Total number of trees planted,
detailed by region with
10 70,810 carbon credits have been pre-purchased by Air New Zealand on behalf of its customers. 29,574 of these credits have been
retired by Climate Impact Partners on behalf of Air New Zealand. 41,236 of these credits need to be retired by Climate Impact Partners
on behalf of Air New Zealand.
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Risk
Management
Climate change risks (both physical and transition) are considered as
part of this review process and the risk dimensions are defined to
describe the sources of the risk, the specific nature of the risks and the
potential consequences.
Air New Zealand’s Risk Universe is used as a reference tool to aid the
risk identification process. The risk management process is designed to
be applied dynamically across business areas, with risks identified and
assessed via continuous monitoring.
Controls in place to manage the identified risks are captured and
assessed for effectiveness to derive a residual risk rating using Air New
Zealand’s Group Risk Matrix. This matrix applies a traditional 5x5 risk
model (i.e., likelihood x consequence = level of risk) using qualitative
assessments to identify its significant risks, determine risk level
and prioritise risk management. Risk ratings are used as a proxy for
prioritising of identified risks.
Climate change risk (being a consolidated view of physical and transition
risk), is currently rated ‘Very High’ - the highest rated risk on Air New
Zealand’s Group Risk Profile.
Key controls and mitigations for both physical and transition risks are
identified and assessed for effectiveness. Risks are monitored against
the Air New Zealand Board’s Risk Appetite Statement which expresses
the organisational risk appetite for key strategic risks including climate
change risk and also sets target residual risk levels. This drives risk
prioritisation, mitigation actions and business decision making to ensure
that Air New Zealand operates within risk appetite.
More generally, significant risks identified through business unit risk
reviews are captured in a Divisional Risk Profile for regular review by the
Executive member responsible for the portfolio. The Executive and the
Board of Directors also periodically review and assess Air New Zealand’s
top strategic risks summarised into a Group Risk Profile which includes
how those are tracking against the Board’s Risk Appetite Statement.
Periodic workshops are also held with the Board to gain insights and
input, including into risk identification, assessment, and management.
These areas are also discussed with the Sustainability Advisory Panel.
The Sustainability team supplements the above identification and
assessment processes with specialist input for climate change-
related risks, in relation to factors in the internal and external operating
environment that inform the qualitative assessments of the likelihood and
impact of climate related risks, emerging developments, and the outlook.
All material parts of the value chain, and all functions/organisational
units across the organisation, are included within the scope of the
Enterprise Risk Management framework. Leaders consider in detail
their internal and external operating context when considering their key
risks. They consider their key activities/processes, systems, people,
and relationships with all stakeholders including business partners and
suppliers. At a minimum, formal updates are required every six months.
Climate-related risks are identified and assessed at various levels of
the organisation, including at business unit, divisional and Group level.
On a six-monthly basis, leaders across the organisation collectively review
the top strategic risks to achieving business objectives.
RISK MANAGEMENT
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Metrics
and targets
Gross emissions
This includes metrics related to assessing the impact of gross carbon
emissions and emissions intensity values. Key metrics are reported below.
The impact of Covid-19 has had a significant impact on the airline’s
operations and network as well as the key metrics that the airline reports
on. As a consequence, it is difficult to meaningfully compare the key
metrics with prior years.
The airline uses a range of climate
related metrics in its internal reporting,
strategy formation and decision making.
Greenhouse gas emissions inventory
11,12
20192020202120222023
Scope 1 emissions (tonnes CO
2
-e)
Jet fuel emissions – domestic network629,876518,607508,737465,303621,444
Jet fuel emissions – international network3,286,5022,649,922817,0781,040,7862,210,836
Jet fuel emissions – ground sources9411,1801,6161,048953
SAF emissions (CH
4
and N
2
O)
13
----108
Liquid propane gas emissions1,5791,4371,2271,4131,295
Natural gas emissions2,7322,7252,2492,1412,092
Diesel emissions3,9353,1292,2182,1292,554
Petrol emissions7367525261
Wood pellet emissions (CH
4
and N
2
0)1318141415
Total scope 1 emissions3,925,6503,176,6341,333,1921,512,8862,839,358
Biogenic and biomass emissions (tonnes CO
2
)
SAF emissions (CO
2
)----3,082
Wood pellet emissions (CO
2
)7251,050828818845
Total biogenic emissions7251,0508288183,927
Scope 2 emissions
Electricity – location based3,0982,8322,7202,7363,357
Total scope 2 emissions3,0982,8322 ,7202 ,7363,357
Total scope 1 and 2 emissions3,928,7483,179,4661,335,9121,515,622 2,842,715
Scope 3 emissions
Category 1 – purchased goods and services----242,215
Category 2 – capital goods----104,303
Category 3 – fuel and energy-related activities---307,335
14
570,462
Category 5 – waste generated in operations----1,729
Category 6 – business travel----11,916
Total measured scope 3 emissions---307, 335930,625
Total measured emissions
15
3,928,7483,179,4661,335,9121,822,9573,773,340
Total well-to-wake emissions from jet fuel
16
----3,402,307
11 Refer to the Sustainability reporting and communications page on Air New Zealand’s website for the full Greenhouse Gas Inventory Report (Report) including Deloitte’s Assurance Report. Full definitions of emission scopes can be found within that Report; extracts from that Report are duplicated
here within. Gases included in the carbon dioxide equivalent (CO
2
-e) factor are carbon dioxide (CO
2
), methane (CH
4
) and nitrous oxide (N
2
O). 12 Deloitte Limited was engaged to provide reasonable assurance over the scope 1 and scope 2 components of the Report, and limited assurance over scope 3,
categories 1, 2, 3, 5 and 6 components of the Report. 13 As SAF gets blended with other fuel in shared fuel infrastructure, it is not possible to trace the physical SAF molecules. As such, there is no assurance that the airline that contractually purchased the SAF used the physical product. Air New Zealand
has used a mass balance approach to calculate emissions related to SAF. This relies on purchase records to demonstrate contractual ownership of the SAF. 14 In 2022, Deloitte Limited was only engaged to provide limited assurance over scope 3, category 3 emissions. No other scope 3 categories were
considered. 15 Scope 1, 2 and 3 emissions. 16 Well-to-Wake (WTW) emissions cover the activities and accompanying emissions across the value chain of jet fuel in the aviation sector. WTW emissions can be split into two components: Well-to-Tank (WTT) which encompasses emissions from feedstock
sourcing, processing and transportation to fuel production and distribution (measured as scope 3, category 3 emissions); and Tank-to-Wake (TTW) encompassing emissions from the combustion of fuel (measured as scope 1 emissions).
METRICS AND TARGETS
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Metric
and targets
Our 2023 emissions snapshot
75%
Scope 1
0.1%
Scope 2
99% is from jet fuel
25%
Scope 3
61% is from jet fuel
26% is from purchased
goods and services
11% is from capital assets
2% is from remaining categories
19
90%
of our total carbon footprint
relates to jet fuel use
17 Well-to-Wake (WTW) emissions cover the activities and accompanying emissions across the value chain of jet fuel in the aviation sector. WTW emissions can be split into two components: Well-to-
Tank (WTT) which encompasses emissions from feedstock sourcing, processing and transportation to fuel production and distribution (measured as scope 3, category 3 emissions); and Tank-to-Wake
(TTW) encompassing emissions from the combustion of fuel (measured as scope 1 emissions). 18 Scope 3 categories 1, 2, 3, 5 and 6 were subject to limited assurance. 19 Remaining categories are
categories 5 and 6. Category 7 was excluded in 2023.
InternationalDomestic
Carbon emissions from flying activity
In 2023 the airline produced 3.8
million tonnes of CO
2
-e (scopes
1, 2 and 3). Total scope 1 and
2 emissions increased by 88
percent in 2023. Total well-to-
wake emissions
17
from jet fuel
also increased by 88 percent
in 2023. These increases were
due to the increased use of fossil
jet fuel resulting from greater
network capacity as the airline
operated a network unconstrained
by Covid-19 restrictions. These
emissions levels remain lower than
pre-Covid levels.
In 2022 the airline disclosed its
scope 3, category 3 emissions for
the first time. This year, relevant
categories of scope 3 emissions,
excluding employee commuting
(category 7), have been disclosed
for the first time and subject to a
limited assurance engagement
18
.
Further work to quantify employee
commute emissions will be
undertaken in 2024. Scope 3
emissions represent 25 percent
of the airline’s emissions and
the largest source of scope
3 emissions are well-to-tank
emissions associated with jet fuel.
In 2023, 22 percent of flight related
emissions were generated on the
domestic network.
4
3
2
1
0
Gross carbon emissions (scope 1)
(tonnes of CO
2
-e) millions
20162021202020192018201720222023
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
35
Payload carriage is expressed as Revenue Tonne Kilometre (RTK)
20
and seat availability is measured in Available Seat Kilometre (ASK)
21
.
These are both prominent metrics for benchmarking airline carbon
intensity. The airline aims to improve carbon intensity by reducing
emissions from flight operations and maximising total payload carriage.
The airline’s carbon intensity (measured in gCO
2
–e/RTK) decreased 21
percent compared to 2022. This improvement was largely due to the
absence of border restrictions in Aotearoa New Zealand compared to
the prior period leading to higher load factors on the network. However,
this metric still remains slightly elevated when compared to 2019 levels
by 0.3 percent.
Carbon intensity (measured in gCO
2
–e/ASK) increased 5 percent
compared to 2022. This increase is a result of the reintroduction of the
less efficient Boeing 777-300ER fleet in the period. However, in the period
since 2019, gCO
2
–e/ASK has decreased by 7 percent largely driven by the
retirement of the Boeing 777-200ER fleet.
Carbon intensity data provides a
measure of emissions generated for
each kilogram of payload flown and
each available seat.
20 Revenue Tonne Kilometre (RTK) is a measure of the weight that has been paid for on the aircraft (freight and passengers) multiplied by the number of kilometres transported. Freight values are from the
airline’s records, and passenger weights are estimated at 100kg per passenger (including checked and carry-on baggage) as recommended by IATA for generating a fuel-efficiency target. CO2-e emissions are
from the airline’s use of aviation fuel over the same time period. 21 Available Seat Kilometre (ASK) is measured by the available seats for sale multiplied by the number of kilometres transported. The airline has
participated in the Maintaining International Air Connectivity scheme using passenger aircraft to fly cargo-only flights. The equivalent ASK’s from these flights has been included in the total ASK number.
22 Well-to-Wake (WTW) emissions cover the activities and accompanying emissions
across the value chain of jet fuel in the aviation sector. WTW emissions can be split into
two components: Well-to-Tank (WTT) which encompasses emissions from feedstock
sourcing, processing and transportation to fuel production and distribution (measured
as scope 3, category 3 emissions); and Tank-to-Wake (TTW) encompassing emissions
from the combustion of fuel (measured as scope 1 emissions).
Carbon intensity metrics2020202120222023
Grams of CO
2
-e per Available
Seat Kilometre (ASK)
82767579
Grams of CO
2
-e per Revenue
Tonne Kilometre (RTK)
7891,039971765
Grams of well-to-wake
22
CO
2
-e
per Revenue Tonne Kilometre
--1,165918
METRICS AND TARGETS
Metrics
and targets
Carbon intensity
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
36
Metrics
and targets
Targets
In 2023, an ambitious
science-based carbon
reduction target was
set to guide progress
in the period to 2030.
Air New Zealand has analysed the levers available to achieve its
aspirational 2030 target. This analysis suggests the target is
possible to achieve based on forecast projections of technology
development in the period. However, progressing these
technologies, particularly SAF, will require collaboration across
the aviation industry and from policy makers to progress. Air
New Zealand is focused on playing its part in progressing the
development, scaling and accelerating of these technologies.
The airline has agreed the annual way points it will aspire to
achieve annually in its journey towards its 2030 target.
In 2020 Air New Zealand announced its ambition to reach net zero carbon emissions by 2050,
ahead of the International Air Transport Association’s (IATA) industry commitment.
20302050
Ta r g e t
Reduce carbon intensity by 28.9 percent by 2030, compared to a
2019 baseline.
Achieve net zero carbon emissions by 2050.
External
endorsement
Developed with reference to the Science Based Target initiative’s aviation
methodology. Validated by the Science Based Target initiative.
Developed with reference to the IATA resolution to achieve
net zero carbon emissions by 2050.
Warming
pathway
The target is aligned to a ‘well below 2°C’ pathway and requires an absolute
reduction in carbon emissions, with no provision for carbon credits.
IATA states the net zero pledge is in line with the objectives
of the Paris agreement to limit global warming to scenarios
below 2.0°C
23
.
Ta r g e t
boundary
Reduce well-to-wake emissions related to jet fuel by 28.9 percent per RTK
from 916gCO₂-e/RTK in 2019 to 651gCO₂-e/RTK in 2030.
The target covers well-to-wake emissions associated with jet fuel. This covers
the entire life cycle of the jet fuel.
RTK is a measure of passenger and cargo payload carried by Air New Zealand.
Non-CO
2
-e effects which may also contribute to aviation induced warming
are not included in this target. The airline commits to report publicly on its
collaboration with stakeholders to improve understanding of opportunities to
mitigate the non-CO
2
-e impacts of aviation over its target timeframe.
The target boundary includes biogenic emissions and removals from
bioenergy feedstocks.
The net zero commitment covers international and
domestic flights, passenger and cargo flights, and revenue
and non-revenue flights.
The emissions and reductions in scope are
24
:
• CO
2
emissions only (not CO
2
-e)
• Tank-to-wake emissions for conventional jet fuel
• Well-to-wake emissions for SAF
• Well-to-wake for hydrogen and electric propulsion
Non-CO
2
impacts are excluded from the target.
23 International Air Transport Association. Net zero carbon 2050 resolution. Accessed 2 August 2023 <https://www.iata.org/en/iata-repository/pressroom/fact-sheets/fact-sheet----iata-net zero-resolution/> 24 International Air Transport Association. TrackZero 2050, Net zero 2050, Progress
Tracking Methodology. Accessed 2 August 2023 <Net Zero 2050 (iata.org)> 25 For Air New Zealand, this commitment means 10 percent of Air New Zealand's total fuel uplift in 2030 is neat SAF, using a mass balance approach. Book and Claim could be used to meet this target if approved by the
appropriate bodies.
METRICS AND TARGETS
ActualAspirational trajectory
Agreed aspirational annual waypoints to 2030 target
Grams WTW CO
2
-e / RTK
0
202220232024202520262027202820292030
700
800
900
1000
1100
1200
2023 performance
918 gCO2-e / RTK
2019 Baseline
916gCO
2
-e/RTK
28.9%
reduction
2030 Target
651gCO
2
-e/RTK
2023 performance
2024
waypoint
2025
waypoint
2026
waypoint
2027
waypoint
2028
waypoint
2029
waypoint
2030
waypoint
Agreed aspirational annual waypoints to 2030 target (grams WTW CO
2
-e/RTK)91881781782482380074 0651
Air New Zealand has
signed the World
Economic Forum's
Clean Skies for
Tomorrow 2030
Ambition Statement,
pledging our
commitment to help
accelerate the supply
and use of SAF to
reach 10 percent of
global jet aviation fuel
supply by 2030
25
.
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02
Caring for
New Zealanders
Showing manaaki
1
and care for
New Zealanders is more than just
providing safe transit from one location
to another. It is the essence of who we
are as an organisation. It is about how
we support, nurture and protect our
people, customers and communities.
As we have continued to rebuild the airline and connect New Zealanders
to each other and the world, we have strived even more to bring manaaki
to life every day and to provide the right support where and when it is
needed most. From how we welcome people to our whānau and create
a truly inclusive workplace, to how we build a culture of sustainability
from the inside out. From our efforts to support local communities by
supporting Kiwi businesses and grow our supplier diversity. It is all about
living our promise of manaaki.
Air New Zealand’s employee
engagement score being
in Glint’s Global Top
Engagement Index.
Grow access to and use
of employee assistance
support tools (including
Employee Assistance
Programme, Peer Support
Network and Bullying and
Harassment contacts).
Double our spend with
Māori and Pasifika-owned
businesses and social
enterprises to $24 million,
and double our diverse
sourcing relationships to at
least 50 suppliers by the end
of 2024.
Better connecting Aotearoa
New Zealand exporters
to the world by increasing
cargo load factors on our
widebody international
network to 85%
by 2025
(from 67% in 2019).
2023 PROGRESS:
Air New Zealand’s Engagement
Index score as at June 2023 was 71
2
(compared with the Global Top 25%
3
benchmark of 79), up from 68 in
May 2022.
2023 PROGRESS:
The utilisation rate of support tools
was 14.7% in 2023
4
, down from 21.3%
in 2022.
2023 PROGRESS:
Baseline established of Air New Zealand
spend with Māori and Pasifika-owned
businesses and social enterprises.
2023 PROGRESS:
67% load factor for 2023 on our
widebody international network.
1 Derived from the word mana meaning authority or prestige, and aki meaning to encourage or uplift. To support, give hospitality to, protect, look out for, show respect and generosity. Includes an implied reciprocity. 2 This score is out of 100 and based on the responses to two questions in our
Employee Survey which is run quarterly on the Glint platform – ‘How happy are you working at Air New Zealand’ and ‘I would recommend Air New Zealand as a great place to work’. Responses are measured on a 5-point scale. 3 As at 30 June 2023, the Glint Global Top 25 percent engagement
threshold was an Engagement Index score of 79. 4 The EAP Association guidelines suggest that a utilisation rate over 6 percent is an indication of EAP being used as a proactive wellbeing service, whereas less than 6 percent indicates it is more reactive. Air New Zealand aims to maintain a utilisation
rate of support services above 10 percent.
Te manaaki
i ngā tāngata
o Aotearoa
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
38
CONTENTS
Bev Afoa
On Job Trainer
"After the pandemic I was given the opportunity to return to Air New Zealand as a Customer Services
Agent in April 2022. I was privileged to be a part of an amazing team who paved the way for customers
to begin to travel the world again. What a refreshing experience it was to witness customers learning to
travel again and greeting customers from other parts of the world. During the process of Air New Zealand
rebuilding our workforce with all the new staff coming through this reignited my passion to share my
knowledge with others which led me to roles of a Service Delivery Leader and On Job Trainer. To be able to
serve others around me has been a humbling experience and I’m grateful Air New Zealand has given me
the opportunity to develop in these roles."
Our people are what makes Air New Zealand one of the most
attractive places to work in Aotearoa New Zealand.
Our values
Manaaki starts
at home
Making sure our culture is strong
and our team embodies our values
every day underpins our ability
to offer an outstanding customer
experience. Our culture of
manaaki and care have also been
critical elements as we’ve regrown
the business.
A key component of embedding
this culture has been the airline’s
move to a new agile way of working
in 2023 to help us reach our Full
Potential. Aligned to our values,
this move has empowered our
people, increased collaboration,
broken down silos, and driven
curiosity and innovation as the
airline has built back.
I am you, you are me
Ko au ko koe, ko koe ko au
Strive for what matters most
and don’t let obstacles get in
your way
Whāia te iti kahurangi
Aotearoa is a vibrant land
Ko Aotearoa e
ngunguru nei
Be proud of who you are and
where you have come from
He toa takitini
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We were thrilled to be able to offer roles to many of those who
unfortunately had to leave the airline during Covid-19. Welcoming their
extensive expertise and passion back has supported the airline during
some operationally challenging times.
To support the speed of growth required we launched a ‘Join our whānau’
campaign to highlight some of the roles across the business and give
a flavour of who we are and what it is like to be an Air New Zealander.
A number of areas of the business also participated in the Auckland
Airport Job Fair as a way to engage with eager jobseekers and attract
new people to our business. We also increased our start rate at Airports
to $30 per hour as part of our focus on creating good, sustainable jobs at
Air New Zealand.
With this level of recruitment comes a renewed focus on culture and
engagement, ensuring we maintain the core of what makes working at Air
New Zealand so special. At its heart, our people.
Our engagement scores have been tracking upwards throughout the
year, with a score of 71 for our June 2023 Employee Survey. Over the past
two years a key focus has been on improving our employees' experience
based on their feedback. This includes significant improvements to our
induction and onboarding experience, enhancements to our Staff Travel
and Parental Leave benefits, more focus on continuous learning and
development, and providing support to our most vulnerable employees
through one-off grants and access to literacy programmes. Continuing
to invest in our people supports our culture, having a positive knock-on
effect on engagement.
With the high levels of people joining the airline, a key aim has been on
improving the way we welcome people into our whānau. Our Kia ora you
induction days are highly rated by employees as one of the best ways to
learn more about Air New Zealand and connect with other new people
from across the business. We brought these back in 2023, giving new
Air New Zealanders the chance to hear from our Leadership Team,
learn more about our Sustainability and Diversity, Equity & Inclusion
commitments and about other areas of the airline. The Kia ora you days
also provide an opportunity to raise awareness about employee benefits
and the support tools our people have access to.
The start of the year saw Air New Zealand begin our
post-Covid rebuild – a mammoth task which involved the
biggest recruitment drive in Air New Zealand’s history.
Building back
What is the most important thing in the world?
He aha te mea nui o te ao?
It is the people, it is the people, it is the people.
He tāngata, he tāngata, he tāngata.
Julia Brown
Cabin Crew
"It has been a privilege to reconnect with so many familiar faces
in the Air New Zealand whānau since returning post-pandemic
redundancy both in the sky and at the training centre. It has also
been an exciting time of growth with many new faces joining our
crew community as well. Cabin crew share a passion for people
and love of our role which allows us to deliver world-class care and
manaaki, to our customers and to each other, fostering excellent
community. Our one-of-a-kind crew culture is both what drew
many of us back to flying post-redundancy and also part of what
makes us exceptional at caring for our customers."
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We have long been committed
to having a diverse leadership
group and we are proud to keep
ensuring our organisation is truly
representative of Aotearoa New
Zealand. Going forward, we will
continue to focus our efforts
to grow our women, Māori and
Pasifika leadership pipelines as
well as identifying opportunities to
grow representation in other areas
to ensure we are representing the
diversity of Aotearoa New Zealand.
We want to be more mindful of
intersectionality in this space,
acknowledging each person can
identify in more than one way. We
currently have 40.7 percent of
women in senior leadership roles, a
drop of 4.8 percent from last year
as we’ve seen some of our talented
women move into executive roles
at other Aotearoa New Zealand
organisations, and 16 percent
Māori and Pasifika leadership
representation
5
, 1.2 percent up
from last year.
As always, our Employee Networks
have continued to provide
incredible support and advocacy
for our people. Some highlights
include our popular social
enterprises Christmas Market
that showcased businesses
run by or supporting those with
disabilities, our all female crews
for our first regional flights out on
International Women’s Day, the
launch of the New Zealand Sign
Language pin in conjunction with
Deaf Aotearoa, and the imminent
introduction of the Project Employ
coffee cart about to launch in our
central Auckland office aimed at
supporting those with disabilities
into employment. With the support
of our Employee Networks we have
also renewed our Accessibility,
Rainbow and Gender Ticks, this
year achieving the Advanced
Gender Tick.
This year we spent time reviewing and refreshing our Diversity, Equity & Inclusion
strategy. We have strengthened our commitment in this space and set new
ambitions to help us achieve our vision of creating an open, inclusive environment
for our people, customers and communities to thrive.
Diversity, Equity & Inclusion
ambitions:
An environment free from
discrimination.
Leaders who are reflective
of Aotearoa.
Fair and equitable
experiences for everyone.
New Zealand Sign
Language Pin
Enhancing our
commitment to
Diversity, Equity
& Inclusion
Enable Network Christmas Market
Will & Able — Our Harvest — The Cookie Project
16.0%
40.7%
Māori and Pasifika
leadership representation
women in senior leadership
CARING FOR NEW ZEALANDERS02
5 A people leadership position includes any position in the airline which has employees reporting into it. Data is based on ethnicity data collected via our people management system Workday. This is an optional data field and coverage is currently 66.0%. We continue to encourage employees to
complete this data to inform our strategies and programmes.
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
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Over the past 12 months we have
been raising the pay levels for entry-
level roles and offered considerable
pay increases, acknowledging the
tough inflationary environment. As
an example, we have lifted wages
for Air New Zealanders at our main
airports, increasing the entry wage
to $30 per hour which has helped
attract outstanding people to join
our Auckland, Wellington and
Christchurch Airport teams.
Supporting our people when they
need us the most, particularly
during times of hardship, illness or
misfortune has been a continuing
focus for the airline in 2023. This
includes providing hardship grants
to support our employees who
faced hardship as a result of the
cyclone and flood events this year,
similar to what we did through
Covid-19 with our Āwhina Trust.
We are establishing an ongoing
Hardship Trust for our employees
and expect to be able to allocate
grants from the Fund in 2024.
A key focus throughout 2023
was the continuing growth and
broadening of our key employee
wellbeing tools, resources and
support networks that employees
can reach out to, including Bullying
and Harassment contacts, Peer
Support Network volunteers, and
Health & Safety Representatives
(HSRs). In addition, the Employee
Assistance Programme and
Wellbeing Check-Ins have
continued to operate, including
for our offshore employees. This
has been particularly important
as we have reopened overseas
ports and routes over 2023.
We now have 116 Bullying and
Harassment contacts, 109 Peer
Support volunteers, and 255 HSRs
across the organisation, covering
a diverse range of work groups,
locations and demographics. The
growth of these networks has been
important to support our significant
increase in employees over 2023.
Overall utilisation of the support
services dropped to 14.7 percent
in 2023 compared to 21.3 percent
in 2022. This was largely expected
due to this increase in employee
population and a steady
de-escalation of our acute
response to Covid-19.
We are also consolidating all the
support we offer our people –
including access to wellbeing,
mental health and financial support
along with our Employee Networks,
Peer Support Networks and
Employee Assistance Programme
– into a central Manaaki Hub to
make it easier for people to access
what they need, when they need
it. In the next year we will continue
to build these support systems
to address any gaps we have and
continue highlighting the support
services we have available.
A lot of work has also been done
to rebuild and upskill our network
of Special Assistance Team (SAT)
volunteers in 2023, with training
held across the organisation for this
important group of volunteers who
are prepared and ready to deploy
as required to provide humanitarian
assistance to those groups affected
by a significant incident.
We remain dedicated to creating sustainable jobs and growth
opportunities for all our whānau.
Lifting up
and supporting
our people
116
109
255
Bullying and Harassment
contacts
Peer Support volunteers
Health & Safety Representatives
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Driving
learning and
development
opportunities
We have continued to roll out our Frontline Leadership programmes in
Cargo, Airports and Engineering & Maintenance, as well as launching an
Emerging Leaders programme to build our talent pipeline in Cabin Crew.
We piloted a successful programme this year which will be rolled out to
all senior leaders, focused on developing personal capacity to lead in an
increasingly complex and diverse world. A Senior Women’s Network has
been established to provide a forum for our women to support each other
and learn together, and collectively raise and solve common challenges.
Our Mangōpare Programme for aspiring Māori and Pasifika leaders has
evolved over 2023 with the focus moving to completing the programme
projects. Two wānanga
6
were held bringing graduates of the 4 cohorts
together to whakawhanaungatanga (reconnect), plan the completion of
their projects, and wānanga
7
how the airline can grow Māori and Pacific
Islands talent for leadership roles.
We have also reinstated our Project Mana programme, which we run
in partnership with Aspire2. The programme focuses on helping our
employees to build stronger language, financial and digital literacy
Supporting Te Matatini
Air New Zealand and Te Matatini Society Inc. have been working together
since 2018 to develop and showcase the Te Matatini festival as Aotearoa
New Zealand's premium cultural event and promote Aotearoa New
Zealand to the world. To celebrate Te Matatini 2023 and the revitalisation
of te reo Māori, Air New Zealand in partnership with Te Matatini Society
Inc., operated a charter flight to bring passengers from Te Whanganui-
a-Tara (Wellington) to Tāmaki Makaurau (Auckland). Except for Civil
Aviation Authority prescribed announcements, the only language spoken
by the pilots and cabin crew was te reo Māori.
We are committed to supporting and
continually developing our current and
future leaders.
CARING FOR NEW ZEALANDERS02
6 Seminar, conference, forum, educational seminar. 7 To meet and discuss, deliberate, consider.
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
43
The Special Assistance Team was deployed to Napier following Cyclone
Gabrielle, providing humanitarian support and basic needs essentials
such as food, baby products, hygiene and sanitary items, torches and
lamps, and generators. To assist in their recovery, Financial Hardship
payments totaling more than $450,000 were also made available to our
employees who experienced hardship due to being directly impacted by
these events. Along with support for our own people, Air New Zealand
was proud to provide assistance to the wider community, including:
• The introduction of a temporary air service between Hawke’s Bay
and Gisborne, intended to connect the regions while the road was
inaccessible, operated since 26 February and was further extended in
March. By the time that it concluded on 10 June, we had carried more
than 5,700 passengers including a significant number of emergency
workers and then contractors
• The transportation of several tonnes of food and care parcels into the
Hawke’s Bay and Tairāwhiti Gisborne region for use and distribution
by charity organisations, along with transport allocation to essential
workers and emergency personnel such as Urban Search and Rescue
and New Zealand Police
• Personal protective equipment (goggles, gloves and masks) was
donated to local police, the Napier foodbank and Civil Defence
staging posts
• Special capped fares and flexibility were introduced from 18 February
to ensure travel to and from cyclone-impacted areas was made easier
as local communities began their recovery
To support those affected by the Auckland floods, Air New Zealand
donated $100,000 for flood relief support in the most impacted areas in
the region. This went to a range of community organisations including
the Mangere Evacuation Centre, the Sunday Blessings and Community
Group, Auckland Council Emergency Relief, and Auckland City Mission.
Responding
to crisis
Many Air New Zealanders and their whānau and communities were significantly
impacted by Cyclone Gabrielle and the Auckland flooding events.
Donna Gerbes — Brittny O'Hanlon
Senior People Safety Specialist — People Safety Specialist
"It’s a privilege to be part of the Air New Zealand Special
Assistance team and support our colleagues in their time of
need. Being deployed to Napier following Cyclone Gabrielle
was an incredible opportunity to provide care, basic needs and
support to our Air New Zealand whānau who were affected, and
the wider community."
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Air New Zealand is continuing to build a supplier diversity programme that fosters
the development of a supply chain that is representative of both the communities
we operate in and our diverse customer base.
To enhance our supplier diversity, the airline aims to double its spend
with Māori and Pasifika-owned businesses and social enterprises to
$24 million, and double our diverse sourcing relationships to at least 50
suppliers by the end of 2024.
The efforts of the airline in 2023 to continue to strengthen and build
partnerships that will increase our supplier diversity, include:
• Strengthening our partnership with Whāriki as an Air New Zealand
collaboration partner
• Working with Māori & Pasifika supplier intermediary, Amotai as an
Aumatua member
• Partnering with Aotea to provide skincare products inspired by
mātauranga Māori (Māori knowledge) in our onboard amenity kits
• Partnering with Māori and Pasifika creative agency, The Hood & Co,
to capture and tell the story of Te Matatini
• Continuing to use Will & Able’s eco-friendly cleaning products,
created by New Zealanders with disabilities, throughout
our offices
Despite these steps, we acknowledge that there is still much to achieve
with our supplier diversity programme. With a greater awareness of our
diverse supplier base through our intermediary partnerships as well
as identification through our Ivalua supplier portal, a robust network of
partners, and a specific 2024 target now set, Air New Zealand is well
placed to make real inroads in this area.
Developing a
supply chain
reflective
of Aotearoa
Tama Toki
Aotea Founder
"Our company, Aotea, is
the supplier of a Harakeke
Seed Oil Hand + Body
Cream and Kawakawa
Balm for the Premium
amenity kits. Our range
is inspired by our native
flora and underscored by
traditional use. At our farm
on Aotea we extract and
formulate our products.
We are proud to power our
facility with solar and to
continue to design waste
out of our operations. This
opportunity to supply
Air New Zealand has been
significant for a variety of
reasons; chiefly, sharing
our products and story
with the world, and
partnering with such an
esteemed business and
respected brand that is
Air New Zealand."
Over 2023, the airline established a
baseline of Air New Zealand spend
with Māori and Pasifika-owned
8
and
social enterprise
9
businesses:
$2m
was spent with Māori suppliers
$12m
was spent with diverse suppliers
$6.7m
was spent with dual Māori and
Pasifika-owned businesses
$0.2m
was spent with Pasifika-owned
businesses
$3 .1m
was spent with social enterprises
26
diverse suppliers in 2023
8 Māori-owned business are defined as enterprises that are at least 50% owned by Māori persons. Māori and Pasifika-owned business are defined as
enterprises that are at least 50% owned by Māori and Pasifika persons. Pasifika-owned business are defined as enterprises that are at least 50% owned
by Pasifika persons. 9 Social enterprises are defined as purpose-driven organisations that trade to deliver positive social, cultural and environmental
impact. They are often profit-making businesses, but they reinvest profit in their purpose.
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Delivering
Aotearoa to
the world and
the world to us
Our Cargo operations also have an important role to play in our
decarbonisation journey. By filling underutilised belly capacity on our
aircraft, we can reduce the carbon intensity of our Cargo operations.
To this end, we have a target in place to increase cargo load factors
to 85 percent by 2025. In 2023, Cargo load factors were 67 percent,
down from 82 percent in 2022. As we relaunched the passenger
international network we flew circa 50 percent more international
widebody flights in 2023 compared to 2022. Many of these were to
high passenger demand/low cargo demand destinations that we did
not operate during the pandemic.
The connections that Air New Zealand enable are not just
limited to our passengers. Air New Zealand's extensive
international and domestic Cargo network has continued to
support the country’s export and import industries in 2023.
9,000
tonnes flown on the
domestic network
and a further
37,000
tonnes of Aotearoa New
Zealand exports
including close to
114,000
tonnes of cargo carried around
the globe
CARING FOR NEW ZEALANDERS02
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
46
03
Driving towards
a circular
economy
Removal of 50% of single-use plastic items on our
international flights by 2023 from a 2021 baseline.
This amounts to the removal of over 28 million forecasted
single-use plastic items.
65% of total solid waste diverted from landfill by 2023
1
.
2023 PROGRESS:
A 52.6 percent reduction in single-use fossil-fuel-derived plastic items across all
cabins (56.4 percent reduction across Economy cabin), with over 38 million single-
use plastic items removed in 2023.
2023 PROGRESS:
40.4% of total solid waste diverted from landfill in 2023.
47
Air New Zealand’s drive towards a
circular economy has been a challenge
in 2023, with both internal and external
issues impacting our ability to increase
diversion of waste from landfill.
Despite these challenges, in
2023 we did gain greater insights
into our waste profile at Air New
Zealand and made substantial
in-roads into reducing single-use
plastics on international flights.
We have a number of initiatives
we’re working on to further our
circular ambitions in 2024.
In 2023, 40.4 percent of the
airline's waste from domestic
ground sites and airports serviced
by our main waste provider was
diverted from landfill – meaning
our waste diversion target of 65
percent by 2023 has not been met.
As the airline geared back up,
opportunities to drive substantial
change in waste diversion have
been restricted due to operational
challenges Air New Zealand has
faced. For example, with the
necessary focus on essential
training for new starters, there
has been limited opportunities
to further embed a waste
minimisation culture at the
airline. In addition, limited access
to recycling and composting
infrastructure in Aotearoa New
Zealand and the commercial
viability of circular innovations
still being tested have continued
to hamper our objectives under
this priority.
Acknowledging greater work
needs to be undertaken to deliver
on our ambitions under this
priority, we are committed to
re-evaluating our strategy and
relaunching a new plan in 2024.
1 This target covers Air New Zealand’s domestic ground sites and airports serviced by our main waste provider. It excludes hazardous waste.
Te wha i
i te ōhanga
whai hua
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
A clearer
picture of our
waste profile
Waste audits were conducted at
key Auckland and Christchurch
sites by our main waste provider
in October and November 2022
to gain a clearer picture of the
airline's waste profile across our
Engineering & Maintenance,
Cargo, Domestic Inflight, and
support office waste streams.
The audits indicated that 50.6
percent of the general waste to
landfill audited could potentially
be recovered by source separating
and utilising currently available
recovery services correctly.
This reinforced the necessity
of developing a circular culture
within the airline to accelerate
efforts for waste diversion.
The audit results also identified
opportunities to further expand
access to recycling infrastructure
and innovations on the horizon
that could further assist with
delivering on this key priority of
our Sustainability Framework.
The findings of the waste audits
will be a key component of our
work to scope new waste targets
and develop our new waste
strategy in 2024. Our ambition is to
deliver these new targets in 2024.
In addition, the waste audits
played a key role in the scoping
phase of a targeted project
focused on further embedding
a waste minimisation culture in
our Engineering & Maintenance
and Cargo operations. With these
insights and allocated resource,
the project can proceed to the
implementation phase in 2024
to drive waste diversion at these
high-waste output sites. The
project will act as a valuable
test case to identify successful
behaviour change initiatives that
can then be rolled out more widely
across the airline.
In 2023, Air New Zealand recycled 603.4 tonnes of waste
and sent 889 tonnes of waste to landfill from the airline’s
domestic ground sites and airports serviced by our main
waste provider.
2
50.6
%
of the general waste to
landfill audited could
potentially be recovered
2 These totals exclude hazardous waste.
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
48
03DRIVING TOWARDS A CIRCULAR ECONOMY
CONTENTS
56%20%
The airline will continue to scope opportunities to transition single-use
plastic components of our serviceware to more sustainable materials as
these alternatives are proven commercially viable and able to meet our
challenging operational requirements.
What has the new
serviceware achieved?
Economy cabin
A 52.6 percent reduction in single-
use fossil-fuel-derived plastic
items across all cabins (56.4
percent reduction across Economy
cabin), with over 38 million single-
use plastic items removed in 2023
(equating to 379 tonnes of fossil-
fuel-derived plastic).
Premium cabins
Lighter weight ceramics that
are approximately 20 percent
lighter than our previous offering
and reduce fuel use and the
corresponding carbon emissions
on our international flights.
More sustainable
serviceware
flying high
In October 2022, Air New Zealand launched a more
sustainable serviceware offering on its international
flights. New features include a range of bagasse
3
items
in our Economy cabin and lightweight ceramics in our
Premium cabins.
3 A renewable plant-based agriculture by-product.
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
49
03DRIVING TOWARDS A CIRCULAR ECONOMY
Much like the approach taken when developing our new inflight
serviceware, a circular mindset has been embedded right from the outset
of the uniform project. Not only does the project provide an opportunity
to divert waste from landfill, but it’s also a chance to consider more
sustainable options across the next uniform’s entire life cycle, from the
resources that go into the fabrics, to the manufacture of the uniforms,
through to their use and end-of-life. Ensuring the new uniform is durable
and functional are also key objectives of the project. A uniform that is well-
loved and cared for by our uniformed Air New Zealanders reduces the
number of new uniforms needing to be manufactured.
While there are a growing number of sustainability innovations in the
textile space, many innovations are still in the development phase, with
their commercial viability still to be tested. With this in mind, we recognise
the uniform project will be a continuing journey that seeks to iterate
and enhance the sustainability outcomes of the uniform over time as
new innovations are proven viable. We are committed to finding more
sustainable future fabric options for our uniform.
As we look towards our new uniform, we’re also scoping opportunities to
ensure as much of our current uniform can be donated or recycled when it
comes to transitioning to the new uniform in 2025. Despite opportunities
being trialled in the past to recycle our retired uniforms, these proved
commercially unviable. This has resulted in our uniforms that are unable
to be donated due to quality and security restrictions, having to be
disposed of in landfill. This unfortunately is symptomatic of the limited
access we have to commercially viable textile recycling infrastructure
globally, and recycling infrastructure more generally. However, in the last
year, textile recycling opportunities in Australasia have shown promising
innovations. Scoping these innovations to test their commercial viability
will be a key component of the uniform project and enable us to find the
best solution before the transition in 2025. This work will also place our
new uniforms in a better position to be donated and recycled in the future.
Sewing a more
sustainable
future
In May 2023,
Air New Zealand
announced it
was updating its
iconic uniform.
Jared McGregor
Divisional Manager – Major Accounts at Deane Apparel New Zealand
"As the supplier and manufacturer of Air New Zealand’s uniform,
Deane Apparel is excited and proud to be involved in the new uniform
project. During this project, Air New Zealand have continually
challenged the status quo and have always looked for ways to
improve, which is invigorating and has driven us to be innovative
and think outside the box. One of the biggest challenges, due to
the limited access to facilities in New Zealand and our country’s
geographic location, has been scoping a viable end-of-life solution.
We are making good progress in this space and look forward to
working with Air New Zealand to find a great outcome."
03DRIVING TOWARDS A CIRCULAR ECONOMY
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
50
Tried and true
One such initiative is Project Green
– a programme that reinjects
sealed and untouched inflight
items deemed a “non-biosecurity
risk” back onto our flights and
enables glass to be recycled,
rather than end up in landfill.
This year, Project Green diverted
approximately 70 tonnes from
landfill, made up of 3.4 million units
of products like cutlery packs and
sugar sachets, and recycled 215
tonnes of glass. More than 1,500
tonnes of reinjected product and
recycled glass have now been
diverted from landfill since the
Project’s inception.
Using our internal engagement
platform, Workplace, to run
campaigns, like Plastic Free July
and Recycling Week, has also
continued to raise awareness
about ways Air New Zealanders
can embed effective circular
practices both in their work at the
airline and in their personal lives.
These initiatives and stakeholder
relationships will lay a solid
foundation for us to develop our
new waste strategy in the coming
months and develop an integrated
system to deliver on our ambitions
in 2024 and beyond.
While planning towards the future of our circular agenda, we’re
also firm in our commitment to continue with initiatives that
have delivered ongoing circular outcomes for the airline.
70 tonnes
diverted from landfill by Project Green in 2023
approximately
1,500 tonnes
of reinjected product and recycled glass diverted since
the Project's inception
more than
3.4 million
made up of
units of products like cutlery packs and sugar sachets
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
51
DRIVING TOWARDS A CIRCULAR ECONOMY03
CONTENTS
04
Sustainable
tourism
Increase annual growth in bookings for Qualmark-
awarded operators on Air New Zealand’s website by 100%
by 2023 from a 2021 baseline.
60% of New Zealanders aware of Tiaki Promise by
calendar year 2023
1
.
2023 PROGRESS:
In 2023, there was an 85% annual increase in bookings for Qualmark awarded
operators on Air New Zealand’s website from a 2021 baseline. While falling slightly
short of our ambitious target, this demonstrates very strong performance given the
ongoing challenges faced by tourism businesses.
2023 PROGRESS:
23% of New Zealanders aware of the Tiaki Promise as at June 2023.
1 As measured by Air New Zealand’s Market Monitor that surveys 400-500 Aotearoa New Zealand travellers each month.
Alongside the restarting of a
number of international routes
over the last year, a key focus has
been supporting Aotearoa New
Zealand tourism’s recovery.
Restarting tourism is important
for the economic viability of our
country’s tourism industry and the
many communities throughout
Aotearoa New Zealand that rely
on it.
The tourism industry and visitors
who underpin it are becoming
increasingly aware of the
contribution the industry plays
to the accelerating climate and
biodiversity crises. The aviation
sector that Aotearoa New Zealand
tourism heavily relies upon, is a
substantial component of this
contribution.
Air New Zealand, alongside many
tourism operators, is working
towards a more sustainable future
for Aotearoa New Zealand tourism.
For the airline, the single biggest
contribution we can make to
this future, is to decarbonise our
operations. Air New Zealand’s
ambition and work towards
achieving its 2030 science-based
target and 2050 net zero carbon
emissions goals are key to this.
The airline can also contribute to
this mahi (work) by doing more to
support Aotearoa New Zealand’s
precious biodiversity and the
communities in need.
Air New Zealand was delighted to
welcome more international visitors
back to Aotearoa New Zealand in 2023.
Our customers were incredibly keen to
connect with friends and whānau again,
and we were very proud to play our part.
He Tāpoi
Mau Roa
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
52
CONTENTS
The Tiaki
Promise
Air New Zealand remains committed to the Tiaki Promise,
sharing New Zealander’s connection to the land with our
visitors and helping them travel safely and conscientiously.
Care for our environment, care for our
people, care for our home.
Tiaki inspires respectful, responsible, and sustainable travel
behaviour in international and domestic manuhiri (visitors),
ensuring Aotearoa New Zealand is experienced in a way that
protects it for future generations.
Rebecca Ingram
Chief Executive at Tourism Industry Aotearoa
"Tiaki Care for New Zealand is a kaupapa of
significance. It is an excellent example of the
tourism industry working in partnership to
protect what we care about, and enable visitors
to make safe, responsible choices. Created so all
industry can use it, we see potential for Tiaki to
have even greater impact."
SUSTAINABLE TOURISM04
Toitu te taiao, toitu te tangata,
toitu Aotearoa.
The ‘Tiaki and the Guardians’ safety video, inspired by the Tiaki Promise,
has screened continuously since May 2022, providing an influential
platform to spread the message of caring for our people, our place, and
our culture now and for future generations. Since its release, the video has
received more than 43 million impressions globally on digital platforms.
In addition, Air New Zealand has supported the increased impact of the
Tiaki Promise through regular information in Kia Ora magazine and in
communications to our Airpoints™ members.
To further embed the messaging of the Tiaki Promise and help ensure
visitors stay safe while travelling Aotearoa New Zealand, the airline also
screens the New Zealand Search and Rescue Council’s video that details
top tips on how to keep safe when in the outdoors.
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
53
Supporting
sustainable
tourism
The move in 2022 to only feature tourism activities and attractions
that have achieved a Gold, Silver or Bronze Qualmark award for their
commitment to quality, safety, and sustainability on Air New Zealand’s
dedicated site for selling Aotearoa New Zealand activities (airnz.co.nz/
activities), is a key component of this support. For Air New Zealand
customers, choosing activities and attractions endorsed by Qualmark
provides reassurance they will have a high-quality experience, delivered
by a business that has been independently assessed for health and
safety and is committed to sustainable business practices. In addition to
the above, the Tiaki inflight video on Air New Zealand services and two
digital campaigns by Air New Zealand promoting Qualmark endorsed
activities contributed to an 85 percent annual increase in bookings for
Qualmark operators listed on Air New Zealand’s website in 2023, from a
2021 baseline.
Supporting sustainable tourism
businesses that are equally committed to
making Aotearoa New Zealand a world-
class sustainable visitor destination is a
key focus for Air New Zealand.
85%
increase in bookings for
Qualmark operators listed
on Air New Zealand’s website
in 2023, from a 2021 baseline.
Kaitiaki Adventures
(Qualmark Gold accredited)
SUSTAINABLE TOURISM
04AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
54
CONTENTS
Welcoming
tourists again
Air New Zealand encouraged Kiwis
to get out and explore Aotearoa
New Zealand through domestic
marketing activity in 2023. This
included promoting domestic
destinations to Kiwis to support
communities across the country
with the recovery of tourism to
their region. Domestic destinations
featured widely in Air New Zealand
marketing activity. Partnership
campaigns with Regional Tourism
Organisations showcased the
diverse range of landscapes and
experiences and encouraged
visitation to regions. This included
partnership activity promoting
Wellington, Nelson, Marlborough,
Southland, Christchurch and
Dunedin.
In the year ended June 2023,
1.1 million international visitors
arrived in Aotearoa New Zealand
for a holiday, 53% percent of the
holiday visitor volumes in the year
ended June 2019
2
. This is a result
of a huge collaborative effort and
partnerships across government
and industry to attract high-quality
visitors to Aotearoa New Zealand.
One such partnership is the
co-operation between Air
New Zealand and Tourism
New Zealand. Air New Zealand
entered into a new three-year
memorandum of understanding
with Tourism New Zealand in July
2022. Cooperative marketing
activity over the last year included
joint marketing campaigns in key
markets to highlight that Aotearoa
New Zealand is open and to
promote Aotearoa New Zealand
as a beautiful place to visit, at any
time of year.
To further raise awareness of
Aotearoa New Zealand as a visitor
destination and educate the travel
trade on Aotearoa New Zealand,
Air New Zealand was the Premier
Sponsor of TRENZ (Aotearoa New
Zealand’s largest international
tourism business event) and
hosted a number of media and
trade familiarisation visits to
Aotearoa New Zealand.
Domestic tourism has been critical to Aotearoa New Zealand throughout the
pandemic and plays an important role in supporting local tourism operators and
the communities they operate in.
1.1m
53%
international visitors arrived
in Aotearoa New Zealand for a
holiday in year ended June 2023
of the holiday visitor volumes in the
year ended June 2019.
This is
2 Source: Statistics NZ.
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
55
SUSTAINABLE TOURISM04
Industry
collaboration
Such change, however, will only come with a shared vision and strong
collaboration. To this end, Air New Zealand has worked on a number
of collaborations in 2023 in order to set up structures for change that
will reshape Aotearoa New Zealand as a more sustainable and resilient
tourism offering. This has included:
• Air New Zealand was a member of the Leadership Group for the
Tourism Industry Transformation Plan (ITP). The purpose of ITPs is
to set transformative visions and action plans for key sectors in the
Aotearoa New Zealand economy. Tourism was selected as an ITP
because of its significance to the Aotearoa New Zealand economy.
There have been two phases of the tourism ITP, one focusing on
enabling better work, the other on environment. Air New Zealand
have participated in both streams. The Better Work Action Plan was
published in March 2023. The draft Environment Action Plan was
released for consultation in June 2023 and will be finalised by the end
of the calendar year.
• The release of Aotearoa Circle’s Tourism Sector Climate Change
Scenarios and Adaptation Roadmap that considers the climate related
physical and transition risks the tourism industry faces in the coming
decades. The Roadmap outlines a number of objectives to deliver on
Aotearoa Circle’s mission to ensure the tourism sector is resilient in
light of the impacts of climate change. Laurissa Cooney was one of
the co-chairs for the project and Air New Zealand contributed to the
Roadmap development.
• The Tourism Industry Aotearoa is leading an initiative to design a new
tourism industry strategy, that benefits Aotearoa New Zealand, our
people, our businesses, our visitors and our environment. Air New
Zealand is a member of the leadership group.
The significant size and impact of the
tourism industry in Aotearoa New
Zealand means it can be a major force for
positive environmental and social change.
Michael Lakeman, Principal, Rock Stack Innovation; Trent Yeo, Executive Director of Ziptrek Ecotours; Laurissa Cooney, Air New Zealand Independent Non-Executive Director;
Kiri Hannifin, Air New Zealand Chief Sustainability Officer.
CONTENTS
AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
56
SUSTAINABLE TOURISM04
In 2023, the airline continued to support the partnership through our annual
travel fund. Activity enabled by the partnership has been high, as the impact
and disruption of Covid-19 in the travel industry continues to ease. The travel
fund is a significant enabler that has contributed to the rebound of student
interest in the sector, driving recruitment by allowing Careers Advisors from
around Aotearoa New Zealand to travel to QRC’s campuses, and increasing
QRC’s ability to visit schools and career expos to lift its profile. Subsidised
travel has also been available for prospective students to Tai Tokerau,
in turn increasing student interest and enrolments as a direct result of
removing the cost of travel as a barrier to access a tertiary education.
In 2024, Air New Zealand’s partnership with QRC will continue, with an aim
to not only grow tourism as an exciting and prosperous career, but also
ensure sustainable tourism growth in regions of strategic importance.
Air New Zealand partnered with the National Geographic Society to hold a
series of five Photo Camps throughout Aotearoa New Zealand. The Photo
Camps were held in Murupara in 2019 and Russell, Auckland, Wellington,
and Christchurch in 2023. The Photo Camps connected youth, aged 15 to
21, with National Geographic Explorers who provided the students with
a detailed introduction to storytelling through photography. The theme
of the Photo Camp series was "Tōku Mauri," which means "through the
eyes." To showcase the photographs captured by rangatahi who took part
in the Photo Camps, the country’s largest Metaverse photo gallery was
developed in 2023. Supporting the Photo Camps is a further step
in our commitment to youth, their future and the protection of our land
and culture.
Our ongoing partnership with
Queenstown Resort College (QRC) has
continued to grow the youth of today into
strong future tourism leaders that will be
at the forefront of creating a sustainable
domestic tourism industry.
Jasiah Jennings
Auckland Camp
Te r e s a To a
Auckland Camp
Tirzah Thuraisingham
Wellington Camp
Latamai Katoa
Russell Camp
Nurturing
the future of
Māori and
regional tourism
SUSTAINABLE TOURISM04
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
57
Supporting
biodiversity
As part of Air New Zealand’s longstanding partnership with the
Department of Conservation, in 2023 the airline flew 198 threatened
species and Conservation Dogs, with more than 4,300 flown since the
Partnership’s inception in 2012. In addition, Air New Zealand enables
biodiversity projects on Aotearoa New Zealand’s Great Walks that
includes over 43,000 hectares of predator control and critical threatened
species monitoring.
Air New Zealand’s extensive domestic
network not only ensures our people
stay connected, but also enables the
airline to provide a helping hand to our
precious taonga species.
198
threatened species
and Conservation Dogs
translocated in 2023
43,000
hectares of predator control
and critical threatened species
monitoring enabled
More than
SUSTAINABLE TOURISM04
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
58
Supporting
biodiversity
Internal carbon tax on
New York flights
In 2023, Air New Zealand piloted
an internal carbon tax on its
flagship ultra long-haul route,
Auckland to New York return – NZ1
and NZ2.
An internal carbon tax applies an
internal carbon price to an activity,
and creates a dedicated revenue or
investment stream which Air New
Zealand ringfenced for investment
in sustainability initiatives. The $1.1
million collected from the pilot in
2023 has been allocated to our
partner Trees That Count, to invest
in supporting the restoration and
regeneration of Aotearoa New
Zealand's native biodiversity.
Specifically, funds are going to a
reforestation project which will
generate significant biodiversity,
tourism, and community benefits.
In partnership with Trees That
Count, the project will be managed
by a number of key stakeholders.
This is a significant opportunity
for Air New Zealand to help
this community-based project
to become well established,
supporting biodiversity
improvements and tourism
opportunities.
$1.1m
allocated to partner
Trees That Count in 2023
Robyn Haugh
Chief Executive at Trees That Count
"With an urgent need to scale and connect investment to nature
for Aotearoa, this support from Air New Zealand will enable us to
catalyse a highly ambitious programme of work from early concept
into operational delivery. As well as supporting direct native tree
planting we’re also excited to get to work on testing methods
and innovations to scale biodiversity outcomes in challenging
locations. The hope is that this project will also create a framework
for other regions and countries to aspire to, to mitigate the impacts
of climate change with the help of the local community, businesses
and the tourism sector."
SUSTAINABLE TOURISM04
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AIR NEW ZEALAND SUSTAINABILITY REPORT 2023
59
Fundamental
M e t r i c s Ta b l e
1 A people leadership position includes any position in the airline which has employees reporting into it. Data is based on ethnicity data collected via our people management system Workday. This is an optional data field
and coverage is currently 66.0%. We continue to encourage employees to complete this data to inform our strategies and programmes. 2 A new quarterly Employee Survey was introduced in 2021. As at 1 September 2021,
the Glint Global Top 20% engagement threshold was an Engagement Index score of 79. 3 In 2022, Glint amended its top engagement threshold from 20% to 25%. As at 30 June 2022, the Glint Global Top 25% engagement
threshold was an Engagement Index score of 79. 4 As at 30 June 2023, the Glint Global Top 25% engagement threshold was an Engagement Index score of 79. 5 Across all employees, 60.5% identify as a man, 39.2%
identify as a woman, and 0.1% identify as gender diverse, with 0.2% unspecified. 6 Across all employees, 58.6% identify as a man, 40.3% identify as a woman, and 0.1% identify as gender diverse, with 1.0% prefer not to say/
unspecified. 7 Across all employees, 54.1% identify as a man, 44.9% identify as a woman, and 0.1% identify as gender diverse, with 0.9% prefer not to say/unspecified. 8 Risk Control Effectiveness (RCE) review and verification
is part of the company risk management process and is a framework implemented to give depth to the risk declarations. The RCE scale ratings are totally ineffective, largely ineffective, partially effective, substantially effective,
and fully effective. 9 The remaining 16.0% of People Safety Risks are rated partially effective (the minimum for compliance). 10 The remaining 16.0% of People Safety Risks are rated partially effective (the minimum for
compliance). 11 The remaining 18.0% of People Safety Risks are rated partially effective (the minimum for compliance). It is expected that Risk Control Effectiveness at the risk level will continue to fluctuate as ongoing risk
reviews continue to improve underlying understanding and assurance of risk controls in terms of hierarchy, impact on likelihood and/or consequences, and individual and collective effectiveness. 12 We have employees who
are not a member of a union but their work is covered by a collective bargaining agreement. These employees are employed on individual employment agreements that are based on the terms and conditions of a collective
bargaining agreement that covers their work. We also have employees whose work is not covered by a collective bargaining agreement. These employees are employed on individual employment agreements that are not
influenced or determined by collective bargaining agreements. 13 Defined according to the International Civil Aviation Organization (Annex 13). 14 Defined as the number of enforcement actions from the Civil Aviation
Authority New Zealand (CAANZ), the U.S. Federal Aviation Administration (FAA), or the equivalent national authorities that are related to aviation safety regulations. 15 Total recordable rate of injuries is the total sum of lost
time injury and medical treatment injury with the rate calculated as the average over the past 12 months. This calculation is based on the formula: (Sum of total recordable rate of injury reportable event for the past 12 months) x
1,000,000) / (Sum of Total Work Hours for the past 12 months). 16 This calculation is based on the formula: (Sum of lost time injury reportable events for the past 12 months) x 1,000,000 / (Sum of Total Work Hours for the past
12 months).
PillarMetric202120222023
Caring for
New Zealanders
Te manaaki i ngā
tāngata o Aotearoa
Representation of Māori and Pasifika in
people leadership positions
1
throughout
the organisation
16.0%14.8% (our Mangōpare leadership development
programme is creating a talent pipeline to support our
target of 20.0% Māori and Pasifika representation in
leadership roles by 2025)
16.0% (refer to page 41)
Employee engagementEngagement index score of 71 (September 2021)
2
Engagement index score of 68 (May 2022)
3
Engagement index score of 71 (June 2023)
4
(refer to
page 40)
Women in Airline Leadership Team (ALT)51.0%
5
45.5%
6
40.7%
7
(the 50.0% target will be maintained and there
will be a continued focus on building a pipeline of
women leaders at all levels of lead of leadership and
supporting them to grow)
People Safety Risk Control Effectiveness
(RCE) rating of substantially or fully
effective
8
84.0%
9
84.0%
10
82.0%
11
Percentage of active workforce covered
under collecti
[TRUNCATED]
=== IR PAGE TRANSCRIPT: 2023 Annual Results Analyst Call Transcript ===
Air New Zealand 2023 Annual Results
24 August 2023
Page 1 of 15
Start of Transcript
Operator: Welcome to the Air New Zealand 2023 Annual Results call. During the
presentation your phone lines will be placed on listen-only until the question and answer
session. Please refrain from asking questions until that time and with that I will turn thee
call over to Air New Zealand's General Manager of Corporate Finance, Leila Peters.
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.airnewzealand.co.nz/investorcentre.
Also on the website you can find our annual results presentation, the annual report and
media release, as well as other relevant disclosures. This year we have also released our
2023 sustainability report alongside the annual results and I would encourage investors to
review these materials too.
Speaking on the call today will be Chief Executive Officer, Greg Foran, and Chief Financial
Officer, Richard Thomson. I would 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, and thanks for joining
us on today's call. I think it's safe to say that the aviation industry continues to keep us
on our toes. Reflecting back over the past year it's remarkable to think that we've gone
from reporting one of our worst financial performances ever in 2022 and today we are
announcing the second highest profit in our history.
In between times we have ramped up our international network at pace, hired and trained
over 3,000 staff, launched direct flights to New York and developed a roadmap to guide
our progress on decarbonisation through to the end of the decade.
We have announced a new cabin layout for our wide body aircraft coming in late 2024,
including the world's first Skynest, and dealt with two of New Zealand's most severe
weather events this century with the Auckland floods which caused extensive damage to
our head office and our hub at Auckland International Airport and Cyclone Gabrielle, which
Air New Zealand 2023 Annual Results
24 August 2023
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upended entire communities across some of the regions we serve. To say it has been a
busy 12 months would, frankly, be an understatement.
The financial result announced today, earnings before other significant items and taxation,
of $585 million was delivered in the context of what can only be described as an ordinary
operating environment. If we look first at the demand side of things, demand rebounded
far quicker and stronger than anticipated and we welcomed almost 16 million customers on
our network compared to just eight million in the prior year. It has been incredibly
rewarding to get back to doing what we love to do, but it has certainly stretched us
operationally at times.
The surge in demand coincided with market-wide supply constraints, and I'm talking here
about supply of aircrafts, supply of labour, supply of spare parts and supply of all the
infrastructure that supports our operations. We are only now starting to see more capacity
come online but it has taken everyone, ourselves included, time to ramp back up to scale.
Significant delays with OEMs remain difficult to navigate with long and uncertain lead times
in some cases as well as significant pricing increases. This is making it even more difficult
for us to add much needed supply back into parts of the network. From an operational
perspective these bottlenecks are frustrating but they also mean that global aviation is less
likely to return to the levels of oversupply seen in pre-pandemic days any time soon.
These dynamics and constraints have driven the environment you see today both here in
New Zealand and globally across the aviation sector, tight supply and high inflation driving
higher prices for customers and a higher yield environment for operators.
A real focus has been on controlling what we can and delivering brilliant basics for our
customers. That means getting our customers to and from their destinations on time and
we've lifted on-time performance back to pre-Covid levels from 68% in July 2022 when the
first international ports reopened to 84% in June and 82% in July this year.
It means increasing employee levels in key areas, such as refunds and in the contact
centre to work through backlogs and it means investing in digital tools that have seen us
embed greater self-service capabilities for customers, helping us remove five weeks’ worth
of call volumes out of the contact centre.
Richard will take you through more details of the financial performance in a few minutes
but I did want to note that the Board is pleased to declare special dividend of just over
$200 million, or $0.06 cents per share, an acknowledgment of the extraordinary
performance achieved this year.
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24 August 2023
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We've also revised our capital management framework, which is effective from FY24
onwards, and Richard will touch on that as well, including how we are thinking of future
shareholder distributions.
At the interim results we spoke candidly about the challenges we faced with the contact
centre wait times, the on-time arrival and departure of our flights, mishandled baggage
and the wait time taken to process refunds. Alleviating these constraints has been our key
focus for the second half of the financial year.
I have already touched on most of these points in my earlier remarks but these charts
show you the very real progress that has been made in each of these areas. We did see a
small uptick in baggage in July with the school holiday volumes, but performance is much
improved compared to December 2022 and better than the industry averages.
Despite all the change and operational challenges as the second half of FY23 came to a
close a month or so ago there was a real sense that we've started to get our groove back
and we are working hard to keep that momentum going.
Turning to slide 6 now, we continue to see resilient levels of customer demand across our
network, which is encouraging. Domestic demand is largely at pre-Covid levels with our
capacity back at around 94%. We have been pleased to see corporate bookings remain
strong at around 85% of pre-Covid numbers with revenue at around 10% above pre-Covid
levels. We know this is a little different to what some of our global peers are seeing and
we think that it's largely due to the high volume of SME customers we have flying on our
network.
Leisure and visiting friends and relatives continues to underpin demand, most recently
supported by the FIFA Women's World Cup event hosted in a number of cities around the
country. We have increased marketing activity in recent months and customers have been
responding well to those sales campaigns, which has helped maintain our booking levels.
International bookings continued to strengthen in the past six months since interim
results, increasing to around 85% of pre-Covid levels and we returned our remaining 777-
300s to service.
All markets are performing well with North America continuing to show strong demand
both inbound and outbound. Within Asia, Singapore remains extremely popular, serving
as a great hub for onward travel to Europe, Southeast Asia and India. We have also seen
good momentum on our Shanghai services in recent months as China slowly ramps up.
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24 August 2023
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Short haul international markets also continued to see good levels of demand with leisure
based destinations throughout the Pacific Islands performing very well.
Although you have heard me talk today about a trading environment that is as
constructive as any of the aviation industry has seen, we do know that these conditions
are unlikely to persist long term. Even if supply constraints remain as they do today, and
it's likely they will for some time yet, there are some very real headwinds on the horizon.
Market capacity from New Zealand to the US will increase over 120% this summer with
American carriers adding new services, as well as our competitor across the ditch. Turning
to Asia, we're starting to see the Chinese carriers re-engage with New Zealand with
additional services also planned from various ports and while greater levels of capacity are
a good thing for markets that are currently undersupplied, the increasing cost of living may
start to impact discretionary spend and with it, people's travel plans.
Fuel prices are currently elevated and may be for some time and we will see the
annualisation of some costs across the business in the coming 12 months. At the same
time, inflation continues to have a widespread impact. We also know this year that we
have a significant increase in airport costs to factor into our plans, particularly at our
airport hub in Auckland.
As we navigate our way through these challenges I'm confident we are well positioned as
an airline. We have a core set of enduring competitive advantages that we have spent
years cultivating and fortifying. These advantages will support us through both difficult
periods and when times are good and they really help power up our performance.
I will now hand over to Richard to go through the financial results.
Richard Thomson: Thank you, Greg, and kia ora to everyone on the call. Turning to slide
9, I will touch on some of the key financial highlights for the year. Operating revenue was
$6.3 billion, driven by continued strong levels of demand domestically and the restart of
our international network, which resulted in passenger revenues of $5.3 billion. As Greg
mentioned, we're very pleased to announce earnings before other significant items and
taxation for the year of $585 million and statutory earnings before taxation of $574
million.
Liquidity has continued to strengthen since our interim result, ending the year $2.6 billion
which includes the $400 million undrawn Crown Standby Facility. Free cashflow was very
strong at $937 million, contributing to a significant reduction in net debt levels.
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24 August 2023
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Net debt to EBITDA ended the year at 0.3 times which is substantially more conservative
than what we would consider an appropriate long term position. Our pre-tax return on
invested capital was just over 22%, a function of both the extraordinary financial
performance in the year as well as low net debt.
Which is temporarily below lower target levels as we look to higher capital expenditure
over the next few years. I'll touch more on this shortly. Finally, as Greg mentioned, the
Board declared a fully imputed special dividend of $0.06 per share in recognition of the
Company's performance in financial year '23. Which equates to approximately $200
million that we're very pleased to be returning to our shareholders.
Turning now to our profitability waterfall on slide 10. There's a lot of information here so I
will only highlight a few points. Revenue, of course, is the key driver of improvement year
on year, up by over $3.5 billion, with a fairly balanced mix of capacity growth in RASK
performance.
Within that bar, cargo revenue is reduced by $390 million. The majority of which was
driven by the reduction and the cessation of air cargo support schemes over the course of
the year as passenger flying restarted.
Fuel costs were $1.5 billion for the year, increasing by over $800 million. Primarily due to
increased flying activity as the network returned closer to pre-COVID levels. A detailed
fuel cost waterfall can be found on slide 25 in the appendices.
Maintenance, aircraft operations, and passenger services were $1.4 billion, up $597 million
or 81% on the prior year, mainly driven by increased flying, the recommencement of all
remaining international routes, and price increases which grew on average by about 7%.
Labour cost increases reflect the significant rehiring effort that Greg discussed earlier,
primarily of operational staff to support increased flying activity as we restarted much of
the international passenger network.
Investments in temporary labour support were also made in the second half of the year to
address operational challenges across the airports and contact centre in particular. Our
FTE levels increased by approximately 30% to a bit under 11,500 compared to 8900 last
year.
The rate increases across the labour force vary depending on various work groups, but on
average, we saw a 5% increase in wage rates in financial year '23. Lastly on the slide, I'd
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24 August 2023
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like to remind you that we've been utilising a wet lease aircraft over majority of financial
year '23 to support operational resilience.
This lease will conclude at the end of October and added approximately $30 million in costs
over financial year '23 and is expected to add approximately $20 million in costs in the first
half of financial year '24.
Turning to slide 11. The impact of inflation is being felt in business and is certainly not
unique to New Zealand or the aviation sector. We've attempted to summarise in terms of
broad averages, the differential between wage inflation across our operational workforces,
or what we call our direct workforce, and then the price increases from the supply chain
and third party service providers who we need to operate the network.
That's referred to as variable operating costs and excludes fuel prices. You can see that
there has been a substantial increase in prices from pre-COVID across the cost base. The
investments we are making in the digital and infrastructure spaces will help mitigate some
of this pressure over time and help drive efficiencies in the cost base.
Turning now to slide 12 and our unit cost performance. We've shown 2023 performance
compared to both financial year '19 and financial year '22 to provide greater insight into
movements across each period.
Underlying CASK, that's cost per available seat kilometre, which excludes the impact of
fuel prices, foreign exchange movements, third party maintenance activity, and wage
subsidy support in prior periods, increased by almost 27% compared to 2019.
This reflects price inflation across much of the cost base over the half four years, as well as
some inefficiencies as we've ramped up international operations throughout the year.
CASK has also been impacted by the differences in the network mix being flown.
Whereby in 2023 we had lower levels of longer sector, lower CASK flying than we
experienced in 2019. Compared to the prior year, underlying CASK has improved by 15%.
As we look forward to the current financial year, we expect underlying CASK to continue
improving from 2023 levels, reflecting the ramp up in capacity growth year round.
Particularly across long haul sectors. This will be more pronounced in the first half of the
year than the second half.
Turning now to slide 13. There are a few comments I'd like to make regarding our
forecast aircraft investment. Firstly, in financial year '23, we took delivery of three Airbus
A321neos, configured for our domestic network.
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24 August 2023
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We have four remaining domestic neos on order, with two of those aircraft expected to be
delivered this financial year. One in the first half and one in the second half. These two
aircraft will be paid from our existing cash balance and will become part of our growing
unencumbered aircraft portfolio.
Secondly, we have discussed previously the retrofit program for our 14 existing Boeing
787 aircraft. This is a significant program of work which will take several years, putting
the new interior product, including redesign the business class seats into our Dreamliner
fleet.
We're now in a position to provide better insight into the timing and phasing of that
investment which will total approximately NZD$450 million to NZD$500 million depending
on the FX rate. So it has been included in the chart this year. The bulk of that spend is
forecast to occur in the 2025 and 2026 financial years and will align our 787 product
offering across both the new and existing aircraft fleets.
Thirdly, as we announced earlier today, we have entered into agreements for additional
aircraft. Two additional owned ATR 72-600s for the New Zealand regional fleet which are
expected to deliver in the 2025 financial year and will bring the ATR fleet up to 31 aircraft
in total.
We have also entered into lease agreements for two A321 neos in international
configurations which will be utilised on Tasman and Pacific Islands routes. This is an
important complement to enable connectivity for these markets following the reduction in
wide body aircraft when we retired our Boeing 777-200 fleet of 80 aircraft during the
COVID pandemic.
The two additional ATR units are included in the CapEx chart on the upper part of the slide.
But the two leased A321 neos are not. We've included their expected delivery dates in the
table below for completeness.
You can see the expected phasing of the aircraft capital expenditures are showing through
to 2028. Now, we do not have any committed capital beyond that time period. The total
forecast spend to financial year '28 that you see reflected in the bars on the chart, is
approximately NZD$3.6 billion, which also reflects a weaker New Zealand dollar FX rate
assumption.
Finally, before moving on, we do have further captain investments that are not committed
aircraft spends but are just as important to support long term resilience, customer
innovations, as well as operating efficiencies.
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24 August 2023
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These include engine overhauls, digital investments, and some property development out
at Auckland Airport. We do have a slide in the appendix that touches on those areas
for context. So please make sure to have a look at that.
Turning to slide 14 and looking at our fuel hedge position for the year. We are
approximately 74% hedged for the first half of financial year '24 and 35% hedged for the
second half.
This is in line with our fuel hedge policy whereby our hedging profile follows a declining
wedge structure. We are only hedged for Brent Crude and therefore our fuel cost is
exposed to volatility and the crack spread between crude and jet fuel, which has continued
to fluctuate over the past year and especially in recent weeks.
In terms of structures, we primarily have call options in the near term with an average
effective price of USD$80 per barrel. These options allow immediate participation in
downside market movements, should they occur, and we did enjoy that benefit in the last
few months of the 2023 financial year.
Estimating fuel costs for the coming year is challenging of course. But we have provided
our current view of financial year '24 fuel costs which assume an average jet fuel price of
USD$105 per barrel. This reflects the current average of the forward fuel curve.
Based on the makeup of our hedges, we have also provided an approximation of how an
increase or decrease in fuel price would impact our fuel costs for the coming year. At
USD$105 a barrel for jet fuel, our fuel costs for the year is currently assumed to be
approximately NZD$1.8 billion.
Turning now to slide 15. We're very pleased that a fully imputed one-off special dividend
of $0.06 per share has been declared by the Board in recognition of the strong financial
result delivered in 2023.
This equates to approximately $200 million. The Board believes a special dividend is the
best way to provide a return to shareholders at this time, given the unique market
dynamics that have contributed to such a strong result this year.
Given the losses incurred by the Airline over the course of the pandemic, we don’t expect
to have imputation credits to attach to any future dividends for the next several years.
Looking now at slide 16. We have announced a revised capital management framework
today which our Board has approved and will be effective from the 2024 financial year.
For context, following the recovery from COVID, the Board determined that it was
Air New Zealand 2023 Annual Results
24 August 2023
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appropriate to revisit the Airline's previous capital management settings around liquidity,
leverage, investment targets, and distributions.
We have increased our target liquidity range, which was previously $700 million to $1
billion, to be $1.2 billion to $1.5 billion. This includes cash and is currently supplemented
with the existing Crown Standby loan facility which is undrawn.
The revised target is more conservative than it has been historically and is proportionally
in line with global airline peers. A key principle underpinning the capital management
framework remains our commitment to maintaining an investment grade credit rating.
We are currently rated Baa2 by Moody's and it is the Board's intention to maintain this
rating which provides the Airline with financial resilience and flexibility in terms of access
to various funding markets and attractive pricing.
Given this importance, we are moving away from reporting a gearing target of 45% to
55% to implementing a net debt to EBITDA target metric of 1.5 to 2.5 times. This better
reflects how our lenders, credit agencies, and investors assess our financial leverage.
Our distribution policy has been revised from a consistent and sustainable ordinary
dividend to a payout ratio approach of 40% to 70% of net profit after tax. Again, this will
be in place with effect from the 2024 financial year. With the distributions each period
being ultimately determined by the Board, taking into consideration profitability, where
we're at in the CapEx cycle, and other macroeconomic factors.
We will continue to target a return on invested capital on our investments above our cost
of capital. As mentioned earlier, we have some significant capital expenditure programs
over the next three to five years and will continue to maintain discipline on this spend to
ensure it delivers the appropriate long term return for our shareholders.
We are committed to operating within our target credit metrics, noting when there is
surplus capital available, the Board will weigh up potential growth investment
opportunities, as well as additional distributions to shareholders over and above the
ordinary dividend.
Before moving on, it's worth acknowledging that we are currently well outside our target
liquidity and leverage ranges. There are a number of tools that can be utilised to
prudently transition back into this range over time, including, but not limited to, funding
additional aircraft with cash rather than debt, prepaying existing debt, making additional
Air New Zealand 2023 Annual Results
24 August 2023
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shareholder distributions, and/or carrying out a share buyback program or other form of
capital return.
With that, I'll pass you back over to Greg who will discuss the outlook.
Greg Foran: Thanks, Richard. One of the bigger changes in FY24 is the increase in
international carriers who will start flying to New Zealand. We have provided some high
level comments of the competitive situation in each of our markets and I'm happy to take
questions on this.
We believe we are well positioned to face into the increased competition. However, we
acknowledge that this is likely to put pressure on yields from current levels.
I won't linger on slide 19, it's fairly self-explanatory. Clearly there is a significant increase
year over year. Most notably in the first half of the year as we lacked the growth in our
long haul markets.
We expect to be pretty close to our pre-COVID capacity by the end of this year. And as a
reminder, that is with a wide body fleet, about a third smaller. But optimised more
effectively around our network.
The Airline notes that the 2023 financial year was particularly unique, with significant
customer demand, constrained market capacity, and lower overall fuel prices. And as
such, we view the 2024 financial year to be more reflective of future financial performance.
Looking ahead to the first half of the 2024 financial year, customer demand remains strong
across our markets. We are mindful of the uncertain economic environment however and
acknowledge there are a number of factors that may impact future customer demand and
profitability.
These include increased international competition, volatile fuel prices, a weaker New
Zealand dollar, ongoing wage inflation, and increased airport charges. Given the
uncertainty and volatility of some of these macroeconomic factors, the Airline will not be
providing guidance at this time.
Finally, I'd like to end my remarks by simply saying thank you again to our amazing team
of Air New Zealanders for all your efforts. And to thank our customers for choosing to fly
Air New Zealand.
To those on the call, thank you for your time today and listening as we've shared our
results. I know you will have questions, so operator, please open up the line.
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24 August 2023
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Operator: Certainly. As a reminder, to ask a question, please press star 11 on your
telephone and wait for your name to be announced. To withdraw your question, please
press star 11 again. Please stand by while we compile the Q&A roster. One moment for
our first question.
And our first question will be coming from Andy Bowley of Forsyth Barr. Your line is open.
Andy Bowley: (Forsyth Barr, Analyst) Thanks, operator, and good morning, guys. A couple
of questions from me. The first of which is probably for Richard around the new ROIC
target. It appears sensible given what's happened to the risk [re] rate in recent times and
it's a pretty important KPI.
Can you give us a sense of what your pre-tax WACC currently is in terms of your estimate
please?
Richard Thomson: Yes, hi, Andy. Good morning. Thanks for the question. I mean
obviously it will move around from year to year but currently 12% to 13%.
Andy Bowley: (Forsyth Barr, Analyst) That's - and maybe just some of the key inputs in
terms of how you think about the likes of asset beta and various other aspects of the
model.
Richard Thomson: We might take that one offline, Andy, that's probably getting a bit
technical.
Andy Bowley: (Forsyth Barr, Analyst) That's fair enough. All right. Let's move on. So the
next one is around the yield backdrop, and I recognise it's only a snapshot in time and
there's a fair few moving parts here. But what do your forward bookings tell you about the
anticipated yield or RASK trends over the next six to 12 months across your key markets?
Richard Thomson: Yes, good question. As Greg sort of mentioned earlier today and in his
comments, the yield environment continues to hold up and we're certainly going into the
first six months of this year, we've got sort of ongoing confidence in that.
It's been relative to pre-COVID as opposed to relative to FY23. Up around the 30% plus
mark. Sort of depending on the market, anywhere between 25% and 35%. And
currently, it's holding for the first - well, certainly as far forward as we can see, it's sort of
holding around that level.
Andy Bowley: (Forsyth Barr, Analyst) And I guess then translating that into the
competitive pressures that - and the various other head winds that Greg alluded to. The
expectation being is that those sort of trends will remain above - sufficiently above pre-
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24 August 2023
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COVID levels to more than mitigate the inflationary cost pressures that are coming
through in the business?
Richard Thomson: That's right. Look, I think looking forward to next year, Andy, probably
the challenge, if anything, that we've got is that yield, as I say, since pre-COVID, moved
25%, 35% higher.
It's unlikely, given the increase in competition that we're seeing, that we're going to get
much more on that going forward. But we are going to have on the cost side, sort of a
year of increased aeronautical charges, sort of wage price inflation.
Which is why we think 2024 will be more moderate than sort of the profit or the operating
environment we've experienced this year and more reflective of the environment we like to
be trading in going forward.
Andy Bowley: (Forsyth Barr, Analyst) Yes, sure. Great. Thanks, Richard. That's it from
me.
Richard Thomson: Thanks, Andy.
Operator: One moment for our next question. And our next question will be coming from
Nick Mar of Macquarie. Your line is open.
Nick Mar: (Macquarie, Analyst) Morning guys. Just following on on the capital
management side, I'm sure there's a lot of moving parts around sort of the profitability
and the likes over the next five years. But where do you think the net debt's EBITDA gets
to, taking into account this CapEx profile and sort of how you look at the business forecast
from here.
Richard Thomson: Yes, hi Nick, Richard here, look, we expect that to get over the course
of the next 18, 24 months, back into the mid-point of the range that we have described.
Nick Mar: (Macquarie, Analyst) Does that include [unclear]?
Richard Thomson: Yes.
Nick Mar: (Macquarie, Analyst) Okay, great, so when you look at the result, obviously, the
second [PPT] number, but if you look at, I guess, a margin percentage is still some way
off, even the third, fourth, fifth years, how do you think about the business in terms of a
margin, is the particularly relevant to you guys and how you compare against other
airlines? Or is it sort of metric that is supported rather than absolute [unclear]?
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24 August 2023
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Leila Peters: Sorry, Nick, it is Leila. Your question was slightly muffled, can I just clarify? Is
your question on what our view is related to, is it profit margin, or EBITDA margin versus
other airlines? Was that the question? Would you mind repeating it?
Nick Mar: (Macquarie, Analyst) Yes, absolutely. Just in terms of a profit margin, I think on
my numbers it was sort of maybe the fifth best year that you have had, whereas the
absolute profit was the second best, and obviously ticket prices are higher. Is sort of
absolute profit margin something you look at for the business in how you gear that, or
[unclear]?
Leila Peters: I will let Richard respond. But I think absolute profit margin is not necessarily
what we look to versus – we prefer looking at EBITDA margin in terms of underlying
trajectory and health of the business going forward. But I will hand it back to Richard for
any additional thoughts.
Richard Thomson: The EBITDA margin is very much the focus. Once you get much below
that, I would argue the EBITDA margin reflects fleet age as well. But certainly, once you
get much below that what comes through the P&L is influenced then at that point by fleet
age and capital structure. So, we tend to focus on EBITDA going forward. It is an
important metric, Nick.
Nick Mar: (Macquarie, Analyst) Okay, no, that is great, thanks a lot.
Operator: As a reminder, if you would like to ask a question, please press Star 1 then 1 on
your telephone, and our next question will be coming from Marcus Curley of UBS. Marcus,
your line is open.
Marcus Curley: (UBS, Analyst) Good morning. Richard, I just want a couple of questions, if
I can. I just wanted to clarify, I know you are not giving guidance, but as you think about
the current year, you are thinking more in terms of yields holding relatively firm and costs
growing, as opposed to yields fading and costs growing?
Richard Thomson: Yes. Certainly, in the first six months of the year.
Marcus Curley: (UBS, Analyst) Could you help us on what you think your range of potential
unit cost growth is ex fuel, like in particular, I know you have talked to a wage cost rate,
but where do you think staff costs go, aircraft operations, [unclear] or at a high level
[unclear] ex fuel?
Richard Thomson: No, really good question. Yes, Marcus, I mean, obviously, as we go into
the new year there is – and the first half of the year in Sydenham, in particular, more
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24 August 2023
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flying so that activity related cost increases. We think, from a labour perspective, you
would have seen over the course of the last year, labour rates, rate only, has increased by
around the 5% mark. We expect over the course of the next year, it will continue to
increase around the 5% to 6% range. Much above 5% though, we are looking for
productivity improvements amongst the work forces that get increases higher than that.
But that is about where it sits.
As Greg, I think, mentioned in his comments, outside of labour, I think, probably we are
seeing cost pressures over and above that 5% particularly in some of our third-party costs,
aeronautical we have talked about, and you know a bit about Auckland Airport, but
actually, internationally airport charges are going up and ground handling charges
internationally are going up by a bit more than that in a rate sense.
Marcus Curley: (UBS, Analyst) Could I draw you on, if you pulled that all together, what it
means for unit costs ex fuel?
Richard Thomson: Unit costs ex fuel and ex activity increases, so rate only, sort of
between 5% and 7%, 5% and 6%.
Marcus Curley: (UBS, Analyst) Okay. No, thank you that was all from me. Thank you.
Leila Peters: Marcus, could I just – it is Leila, I just wanted to add the nuance which we
covered off in Greg’s remarks on the FY24 capacity plan. There will be quite a different
skew in the costs per ASK and the underlying rate versus price for first half versus second
half, as Gregg mentioned, because of such a significant upswing in long haul, which drives
a mixed effect in the costs. It also drives a mixed effect in the revenue in terms of RASK as
well, which I know you are well across, but I just wanted to draw your attention to that
first half, second half, distinction.
Marcus Curley: (UBS, Analyst) Leila, could I ask, and I am not sure if you have worked this
out, but if you kept underlying airfares stable, that you allowed for the mix change, what
would be the overall RASK impact on the business next year?
Leila Peters: That is a good question, and I have not worked it out, but I will come back to
you on that. It would – yes. It would be diluted to RASK given the long-haul mix, RASK’s
fund is significantly, of course, lower than short haul or domestic RASK. But I will come
back to you with some calcs on that following this call.
Marcus Curley: (UBS, Analyst) Thank you.
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24 August 2023
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Operator: Again, if you do have a question, please press Star 1 then 1 on your telephone.
For any questions, or follow ups, please press Star 1 then 1, and I am showing no further
questions. I would now like to turn the call back to Leila for closing remarks.
Leila Peters: Thank you, Operator, and thank you everyone for joining the call this
morning, we know that there are many announcements going on today, and everyone is
quite busy, so we very much appreciate your time. If there are any questions throughout
the day, or following today, please direct them to Kim Cootes, or myself in investor
relations. Thank you, and have a good day.
Operator: This concludes today’s conference call. Thank you for participating. You may
now disconnect
End of Transcript
=== IR PAGE TRANSCRIPT: 2024 Investor Day Transcript ===
Air New Zealand Limited NZSE:AIR
Investor Day
Monday, November 25, 2024
1
Contents
Table of Contents
Call Participants ..................................................................................
Presentation ..................................................................................
Question and Answer ..................................................................................
3
4
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
Call Participants
EXECUTIVES
Kim Cootes
Head of Investor Relations
Gregory S. Foran
Chief Executive Officer
Mike Williams
Chief Transformation & Alliances Officer
Jeremy O'Brien
General Manager, International Airline
Kate O'Brien
General Manager, Loyalty
Leila Peters
General Manager of Corporate Finance
Nikhil Ravishankar
Chief Digital Officer
Nikki Dines
Chief People Officer
Richard Thomson
Chief Financial Officer
ANALYSTS
Grant Lowe
Jarden Limited, Research Division
Jason Familton
Accident Compensation Corporation
Marcus Curley
UBS Investment Bank, Research Division
John Middleton
Mint Asset Management
Shane Solly
Harbour Asset Management Limited
Wade Gardiner
Craigs Investment Partners Limited
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
Presentation
Kim Cootes
Head of Investor Relations
Kia Ora, and good afternoon. Welcome to our 2024 Investor Day. Thank you to those of you joining us here in Auckland
in person. It has been a little while since we've had one of these events, so we're really excited to have you all here today.
I would also like to extend a big welcome to everyone on the webcast today. My name is Kim Cootes, and I run the Investor Relations
team here at Air New Zealand. I'll be popping up every now and again over the course of the day.
Before we get started, safety first. For those of you with us, the emergency exits are back through the door from which you came.
Once you're out in the foyer, our events team will direct you further. Bathrooms can be found at either end of the foyer, but you do
need to go through the security gates so make sure you grab a pass on your way out.
You will also find Wi-Fi and text a coffee details on the little signs on your table. So if you need either of those throughout the
day, make use of it. And if you get peckish during the event, we've got a whole host of our amazing onboard snacks available on the
table at the back for you to go and grab.
As always, we'd like to remind you that over the course of the day, you will hear comments with forward-looking statements that may
differ to actual performance. And so please take a read of this and make sure you bear it in mind as we go through the day. Next, we
have our agenda.
You're going to hear from several of our Executive team and senior leaders. And you can see more on their bios at the
back of the presentation. In order to get through the session today because there's quite a lot of content, we will save the Q&A for the end.
Leila is going to facilitate the Q&A. As many of you who know her in the room will know she runs a tight ship, so make sure you're
ready and waiting to go when she comes up.
Unfortunately, for those of you on the call, we don't have conferencing capability, but if anyone on the call has a question, please do
get in touch with me after the event. And for those of you that are here, we hope that you can stick around for some refreshments
after the event concludes. There will be lots of people from both the exec and other members of the Air New Zealand team here.
And with all that housekeeping taken care of and before we welcome Greg to the stage, we'll kick off with a quick video.
Greg Foran
Chief Executive Officer
Kia ora, and good afternoon, everyone. And maybe just before I do a few opening remarks, I might just get a few of the
team who are presenting just to sort of stand up so everyone can see who you are. So Mike, can you just stand up? So Mike is going to
take us through our network strategy. Where is Jeremy? There he is. He's going to take us through commercial. Kate? Thanks, Kate.
Loyalty. Nikhil? Nikki? Great. You're going to take us through our people and culture. And Richard? Well, the good news is they've
all turned up. So I'm relieved about that.
Therese, can you just quickly stand up? I'd like to introduce Therese. She is the Chair of the Board, thanks for coming today.
And if I can say, first of all, thank you to all. I know that you've got a lot on, and hopefully, we've been able to schedule this around
your busy schedules as well as ours. And thank you also to those who have joined online.
And just before I do kick off, I just want to say thank you to the team for putting this together. So we've heard from Kim, but Leila
down here, many of you will know, she's been instrumental in pulling this together. Jan, you had your share of work to do, and there's
been plenty of others all across the Air New Zealand team that have pulled this together. As you know, we haven't done one for a
while. To Olivia and all of your team, there she is, thanks for running yet another event for us. Terrific.
So why don't we jump in and get underway? A few weeks back, we were voted the best airline in the world by customers, 30,000 of
them actually. It wasn't our survey, it was totally independent. And I thought it was worthwhile beginning with this and just pausing
on it for a minute because it's not as if we haven't had our share of sort of disruptions in terms of fleets and how that's played out with
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
customers. But dealing with product, particularly on our wide-body, which is over 20 years old, many of you travel on those, and we'll
talk about the refresh of that later on today.
But here we are getting that type of award. And I think it says quite a lot about Air New Zealand and its culture. And I am a supporter
of someone like Peter Drucker, who says culture does indeed eat strategy for breakfast. As part of our DNA, Nikki will share some
more about that with you later on today about our people and what makes us different. And I would say to you that it creates real,
sustainable, competitive advantage. And we're going to guard that fiercely. And it's why I'm very confident that Air New Zealand can
deliver on the plan that we're about to go through.
Drucker also said there is nothing so useless as doing efficiently that which should not be done at all. And I like that one, too. So not
only is he telling us that it's pretty important to have good culture, better have a darn good plan. And importantly, you better know
how to execute it. So you're going to hear quite a lot today about what the things that we're doing, how we feel about the business and
where we see it going. Importantly, you're going to meet many of the leadership team in Air New Zealand.
Richard is going to close out today, and he's got a fantastic set of slides that are going to lay out the future financial opportunity. So
in plain English, you're going to see where we're going to play and how we're going to win and in that order. You're going to see a
plan that's going to deliver strong free cash flow and returns for our shareholders. And you're going to see some talent and depth and
attributes in this team that are going to give you confidence that actually we can deliver this.
It's back. Travel is back. It seems a strange thing to say, but I can tell you for the first 2 years I was in this job, I wasn't quite sure
what was going to happen. I started on February 3, 2020. On February 2, 2020, which was a Sunday, I got a telephone call telling us
-- me that we were no longer going to fly to Shanghai. Good news is I didn't know how often we flew to Shanghai. It turns out that it
happened to be every day of the week.
What was interesting is that 6 weeks later, the only flying we were doing was repatriating Kiwis, bringing some cargo. So I can tell
you now, if there was ever anything that was going to stop the airline industry, it would have to be something like this. Well, it hasn't.
We ended up doing -- this is actually a good fact for you, out of 400 scenarios during about a 2-year period, as we worked hard with
Justin and his team in treasury to pull together the wherewithal to do a capital raise.
And you'll see from Richard's presentation, we've got a really good balance sheet now. But let's be clear, demand is back, and we can
fulfill our promise of connecting people. And not only that, but we can do it sustainably, and we'll talk a little bit about that soon.
About 5 weeks ago, Therese and I and a couple of others actually caught up with Kelly Ortberg, who is the new CEO of Boeing. He
was in the middle of a strike at the time, and I'm very pleased he's back at work. So he had his hands full, but he gave us a day, and we
chatted about a whole bunch of things. One of the things he shared with me was he said, we got about 2,000 aircraft that have not been
built over the years since COVID. So we've got an order book which is pretty full.
And I can tell you that Airbus have got the same issue and so have ATR and so have all the engine manufacturers. So I think there's
no question in my mind that we've got any issue here with demand. And Mike reasonably soon is going to share with you what our
growth looks like, and the headline there is it's between 3% and 4%. We think that's a pretty good number.
I've had plenty of wise counsel in my time of being a CEO in various different countries and businesses. One piece of advice I've got
I've never forgotten was the 3 rules of the strategy, maintain market share, maintain market share, maintain market share. Sounds
simple, but people move away from it. So you can see how important domestic is to us. That's how we set it down. And guess what
we're going to do in domestic, maintain and grow market share.
Inbound tourism is also a pretty important part of that. We'll make sure we get our share of that. And we're an interesting business
because we have to be a bit ambidextrous, don't we? We're not the biggest around. So domestically and across the Tasman and into the
Pacific, we're a pretty egalitarian business. We don't get too caught up with business class and all the traffic and nor should we.
So we have to maintain that approach. And at the same time, we're very clear that on our long-haul international routes, we're a
premium leisure airline. And we understand that well. And through this afternoon, you're going to see how we have adapted our
offerings to basically play in those particular markets.
Over 40% of international travel to New Zealand is on us. Jeremy will talk some more about that. So global demand is strong. We
expect it to stay that way, tick. And New Zealand, demand is strong, and we also expect that to stay tick.
It doesn't mean that we don't have a few headwinds to deal with today, and these are pretty well documented, aren't they? Whether
you're talking about engine issues, whether you're talking about trying to get new aircraft, supply chain or even chasing down some
engineers, a key role for us, we're still having to work hard at all those things.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
Quick story. About 18 months ago, these are all the things I've had to learn in this gig, I found out that there were about 40 parts that
required your Dreamliner to be AOG, aircraft on ground, before you could order them. So in other words, you just couldn't go out
there and fill your distribution center up with reverse thrusters or whatever the part happened to be, simply because you thought you
might need one. You actually had to demonstrate to the OEM that the plane couldn't fly. I think one of those, David, was a windscreen
at one point. Toilet seat was another one. Go figure.
Anyway, that number was 40. About 12 months ago, it changed to 80. About 2 weeks ago, the number was 794. It keeps us on our
toes, I can tell you that. But we stay close to the issues, and we need to. This time next week, Richard, we'll be getting close to getting
off a plane and catching up with our good friend, the CEO of Rolls-Royce. He's a good friend because I've got to know him closely.
So Richard and I will enter yet another discussion on Trent engines with Tufan. The next day, we'll be shooting over and catching up
with the CEO of a company called Safran, probably the biggest part supplier because parts are a challenge. Next day, we'll be catching
up with the CEO of Airbus and ATR.
Why do you have to do those things? Well, you got to do them because when you're not the biggest and you don't have that leverage,
and I have worked in a company that used to be quite large, so I had quite a bit of leverage, I've worked out relationships are really
important. And how might that play out? Well, here's a good example of it. Baden -- who's Baden? He is Baden. Baden had to go and
find us three 777s the other day because we needed it.
And the reason for that is that we've got four 707s that we can't fly at the moment because we haven't got any engines. Now I can tell
you that there are a lot of airlines out there looking for 777s. Why do they want a 777? Because the 777 is a bit like a 1986 Toyota
Corolla, likely going to start every time. These GE90 engines on them are something to behold.
You don't have to take them off wing every 750 cycles. You can leave them on there for several thousand. We like them. How did we
end up getting 3, really good ones? Relationships. Now it also helps when you've got a good balance sheet, and it also helps when you
have a good engineering and maintenance department that look after these things, but that's one of the ways that we've been able to
keep this thing moving along.
Most of you will have caught up with the fact that we've gone out with an update to the market. I'll tell you how I feel about things at
the moment. I feel pretty good. If you would have asked me on the 1st of July, which was the beginning of our new financial year that
we could put our guidance this morning saying we'll be between the $120 million and $160 million, I would have taken that every day
of the week. And the reason for that is that I knew and so did the team, it's going to be pretty tough domestically.
We've got to spend out a government, which is about minus 25%, and I'll give you a hint, that isn't going to improve anytime soon.
They're going to keep the screws on their expenditure. And that represents a reasonable portion of our domestic business. I can tell
you that corporate spend is down about 12% and will gradually start to improve.
And we've got plenty of competition still coming in, in various markets, the U.S. for one. And I won't bore you with the geopolitical
issues that we're dealing with there. Suffice to say that I think traffic between the U.S. and China are still only operating at 19% of
pre-COVID levels. So they've got a few extra aircraft that they don't mind sending to Australia and New Zealand.
So you add all that up and to come in with the sort of guidance that we have, I'll take that every day of the week, especially when you
consider that you've got over $1 billion worth of your aircraft sitting on the ground that you can't fly. I think it's a credit to the team.
They've delivered the result that they have. I'm proud of them.
So here's what I would say to you, like us, be patient, stay focused, hold us to account to get stuff done. And I hope that when you
finish today, you see that we actually get stuff done. And just as importantly, make no regretful decisions.
I've been in plenty of businesses when I see they get into tough times, they do short-term things. We don't do that. We think long term.
We're building hangars that are going to be really good for another 50 years. We're investing in Christchurch engine centers. Why?
Because it's a good business, and it's one we should be in. We'll retrofit planes because we know it's the right thing to do.
And the good thing is we've got 85 years of legacy. Boy, did I inherit something pretty good? 85 years of goodness. And you'll hear
some more from Jeremy about how he's thinking about our brand and Nikki about how we're thinking about people, a loyalty program
that just gets stronger and stronger. But we now have re-platformed it so we can do some pretty exciting things. You'll hear about how
we're continuing to simplify the fleet, and you'll also get a sense of how these numbers start to play out.
As I said, we haven't been sitting on our hands. We have a bit of a saying in the place, which is you got to be able to walk and chew
gum. So yes, I get the fact that we might have to deal with a Trent engine that didn't come in or Pratt & Whitney instead of having 5
AOGs on the 321s, we've got 6.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
I want us to make sure that we are doing lots of things to build this business. So it is something that not only we are proud of, but the
country is proud of for the next 10, 20 or 30 years. And this list is by no means exhaustive. In fact, if we would put everything on it,
and you'll see some lists and some of the other slides that are coming up, the font would be incredibly small.
As I said, we know how to get stuff done at pace. Some of these are going to drive revenue, some of these are going to reduce costs,
some you're going to see and some you won't even see, it's going to happen behind. I'll give you one example. I just came out of a
meeting an hour ago, and we just turned on Apple Tap to Pay, so we can do a better job of collecting excess baggage fees.
We've worked out how to do 100 things 1% better. I'll quite often get out around the business. Why? Because actually, that's where
the truth is, the unvarnished truth. It's kind of when you're talking to an engineer or you're talking to someone checking someone in.
I worked out the other day. I think I've checked 20,000 people. Kate is often with me. We're a great buddies, often on a Saturday out
there, checking people in.
We've worked out how to lay the floor out better. We've worked out how to improve the speed through kiosks. Even when you use
your app now and you're checking in for a flight, how many buttons you have to check? One, thank you, Nikhil. So we're doing a good
job on that. You'll hear a bit more about all the things we're doing with people.
I was at a key Kia Ora Youth induction day with Nikki a couple of weeks back. We had about 250 new starters. We do 1 every 6
months, but really low turnover, and she'll tell you about that. But gee, I get excited about the talent that I see coming in the business.
This retrofit that we're doing on the Dreamliner. Fingers crossed, we get it back in from Singapore, circa 10 January or something like
that. We're literally chasing parts every day from all around the world, relationships matter. But I think you're going to really like what
you see on that plane. Do you know we are the first airline in the world to do a major retrofit on a 787? Not only that, we're having to
do it using what we call an integrator.
So it's not just us being able to work with Boeing. Boeing are so far in the swamp filled up with alligators, they haven't got time to be
doing all these retrofits. We've had to work out how to teach them to partner with NAT to get this retrofit done, but the team are doing
a terrific job.
And then you're going to hear some more from the team about some of the operational work that's getting done. And to Alex, stick
your hand up, Alex, over there. She runs our operations. David, you'll all know David. They're into that absolute detail in this business
around what's happening with getting flights in and out in time. And Nikhil will share some of the terrific work that he's got underway
in terms of the digital pieces to make that operate well.
Every business needs a plan on the page. Here's our one. You will hear through the afternoon as the team follow me. They'll take you
through each of these pillars, and they'll show to you, we know how to grow domestic. We think we've got a great vehicle there, great
aircraft in the A321, the most efficient around. They'll talk to you about better regional connectivity and routes, fleet utilization.
Jeremy and Mike will talk to you about premiumization of our long-haul fleet, and you'll get into some detail there around why we
know we can drive more revenue in those areas. We'll talk to you about some enhanced product offerings. We'll get into loyalty in a
new way. You'll see new ways to earn and burn. We'll introduce something to you called variable redemption. Take note on that one.
It's a really interesting one.
And then, of course, we've got all the aspects down below, whether it's the brilliant basics or our people and our culture, sustainability
and all of it wrapped up in a digital cloak that gives us competitive advantage.
Here's another interesting point. I think Nikhil raises it, but I'll do it, so it will really sink in. Think about 95% of our information is
now in the cloud, 95%. So 3 years ago, we're still running servers all over the place. In a world where AI is coming at us at 100 miles
an hour, you need access to data, and you need it accurate and fast.
Maybe one of the most important slides in the afternoon, Mike thinks he's got a pretty good one as well. He's going to show you where
we're #1 in the market in a whole bunch of areas. This is an important one because it really says, okay, so you got a plan to deliver, I
get it. But let's be clear that what we've got on this page is above and beyond steady-state business.
And I would say to you, we're not in a steady-state business at the moment. We've spoken about sort of $100-odd million worth of
hard costs that we deal with because we've got to lease planes, and we've got to change things in call centers and all the other stuff.
This is what we believe we can deliver above and beyond state business.
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Now one thing I've learned in this business, get ready for the next side swipe. So there will be things that will come our way. But
there's also some aspects in our plan, where probably we will over-deliver. We've probably been a bit too conservative, but this gives
you a sense of how we're thinking about the business. Lots of exciting things that the team will get into now with details around that.
And just as I wrap up, last one, the reason why we're focused on delivering these transformational benefits is pretty simple, it drives
sustainable competitive advantage. We know we're a cyclical business. We'll have our ups, and we'll have our downs. We won't be
immune from getting the bumps, that's for sure, but I can tell you, I am 100% confident that this is a team that understands how to
structurally improve the CLI and build something to last because that's what we're doing.
I often say to the team, you get 1 point for talking, 9 for doing. That's the execution part. But we developed a muscle, and you'll hear
some more about it around our ability to do just that. Our word is our bot. We've got a solid foundation. We're digitally led because we
believe that's where the future is going to be. And most importantly, we have a culture that's going to allow us to deliver this.
So, Mike, it's over to you my friend. All yours.
Mike Williams
Chief Transformation & Alliances Officer
It's been now 5 years, we've been waiting for this. So I'm very excited to be able to have a bit of time to talk with you today, and as the
slide says to share a bit about our network strategy, I do have, as Greg mentioned, a good slide coming up. I'll make sure you see that
one.
But I wanted to really touch on 4 points through the next 20 minutes or so. The first is that we play in an attractive market, and you'll
see that. The second that we've got clear advantages, and it's the combination of those 2 that translate to us winning in the markets
that we choose to play in. And the third being that we have some exciting opportunities for [indiscernible] as well. I think this is
interesting.
Before we get into all of these advantages that I've been talking about, we really have this good combination between a purpose
that really drives a lot of the decisions that we make day to day, week to week, and that's enriching New Zealand, and we do that by
connecting each other. New Zealand is with each other, but also between New Zealand and the world, and as Greg showed on one of
the earlier slides, we are a nation that likes to get out. We're also a nation where people like to come and visit.
So we have a really clear role to play, and it's an important job that we do. And then our location as well just reinforces that and
put some meat behind the purpose that we have. That point there about the 2,000 kilometers, we can travel 2,000 kilometers in any
direction. And we haven't quite reached anywhere. We're almost at Australia, I think. And I was looking over the weekend that if you
put that same circle, a 2,000-kilometer circle over middle of Europe, you cover the whole lot. You get all the way, including Moscow.
You've got almost Iceland in the Northwest down to Turkey in the Southeast and then even to the south.
So we're in position where we're isolated from the rest of the world, but with a country that loves to travel and the world that loves to
travel to us. So we've got an important role to play. And we can look at that whether it's cargo or connecting passengers, it's all the
same.
So one of the things I want to take you through over the next few slides are the features of our network. And there's 5 here that really
stand out. I'm not going to touch on them all on this page, but you can see that together what they create is our strong right to win.
And the first of those is regarding this diversified network. The best for us is in a few forms. It's not just about where we operate, be it
domestically or short-haul or long-haul, but that's important.
It's also about the customers that we serve, and Jeremy is going to spend some time really unpacking that, and it's also about the way
that we think of the network in totality. So we've got new markets such as New York, JFK, but we've also got markets that we've been
operating for many decades. Of course, those close in the home, but even Hong Kong has been I think in the network. Richard knows
all of these stats, but I think it's 1978 or so.
So we've got this balance of network, of destinations, of customers, and that really provides both balance, but with that balance comes
opportunity. Obviously, during COVID, we had to quickly pivot towards our role as a cargo connector. And New Zealand, again on
that last point, is a nation that trades. 20% of the value of all of our imports and exports is by air freight, and Air New Zealand has
about 40% of that value. So that's an important role that we play.
But even more recently, what we've been finding is, again, Greg touched on the point that the traffic as an example between China and
U.S. at the moment is only close to 20%. So Air New Zealand is actually stepping in and being able to connect these 2 markets from
an airfreight perspective, carrying a lot of e-commerce goods between China and the U.S., just as one example.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
So this is our network. I think you know it well. Many of you probably used it today to get here. If not, I think there'll be many New
Zealanders using it over the next few months as we get away for a bit of a summer break, and we know it well. And one of the reasons
that we perform so well is because we know these markets intimately, and there's opportunities in each.
I think one of the most important pieces of this is the fact that when it comes to the market that we know the best is our citadel, it's
domestic, we've put an 80% share. And that's something. Again, it's a bit like our purpose. We're constantly referring back to that
understanding not only how we protect that, but also how we can grow it. And it's not just about looking at competitors domestically,
it's also thinking how do we actually do a better job of connecting customers, both in the way that we serve them on the ground and
the way that we connect them with our network. I mean, in some cases and in the future, in particular, that could be even taking traffic
off the roads and finding more opportunities to connect in a better way, in a more productive way through the year.
I'll tell you a quick story as well regarding opportunities on long haul. Recently, I was with some colleagues visiting our partners in
Asia. And I don't know if many of you have been to Shenzhen recently, but it is a megacity, one of China's Tier 1 cities. I actually
used to live when I was young. I lived on the border -- in Hong Kong, but on the border with Shenzhen. Now this is going back some
decades.
It was a fishing village at that point, but today, it's a mega city, unrecognizable clearly from when I last saw it. And we actually
checked in for our Air New Zealand flight in Shekou at the Ferry terminal, took a 30-minute ferry ride to connect right into the heart
of Hong Kong International Airport using this ferry. And then on the airside connection directly transited to our Air New Zealand
flight within about 1 hour transit time once we arrived at Hong Kong Airport.
Now that experience not only was it great, but it's important, and it touches on the opportunities that we have to really develop the
network that we already have existing. And that's because Hong Kong has got a population of 7 million, using this example. But
within that 2-hour radius of Hong Kong in that Greater Bay region, there's a population of 87 million.
Now that's just 1 example. We could talk about New York, and the fact that when we fly direct, we stimulate this new wealthy
catchment that otherwise wouldn't have really thought that New Zealand is a place that they can get to in 1 sleep. But the point being
that we know our network well. There's opportunities for growth.
When we combine this real, strong position that we have in the markets with these clear advantages, what we have is a winning recipe.
Now I think this is the slide that Greg was referring to. Thanks, Greg. This is the #1 slide. And what we're talking about here when
we're talking about #1 is the passenger traffic share that Air New Zealand has connecting, for example, Australia and New Zealand
and New Zealand and the Pacific Islands, et cetera.
So no other airline connects more people, more passengers between these destinations in New Zealand than what Air New Zealand
does. And that's not through luck, that's through sheer hard work and all also the advantages that we have. It's through understanding
our customers and making sure that we've got a product fit with the markets that we're operating.
And Jeremy, again, is going to talk a bit about Seats to Suit. Seats to Suit is a product that we've had in the market on domestic and
short-haul markets for 10 or so years now. And then more recently, others in markets across the world have figured out that this is
something that's interesting, it's something that Air New Zealand has been doing for many, many years.
We'll talk in a little bit about the fact that on our long-haul network, we're really focused on our premium leisure product. And that,
again, translates to a winning proposition and then winning results. Interestingly, if I just talk to Asia for 1 second, our geography,
again, plays to our advantage. We're not so close to many of our Asian markets that we can be reached with a narrow-body aircraft,
which is typically what's used by lower-cost carriers. So we're slightly out of reach, which means that wide-body has become the
primary aircraft to connect New Zealand and Asia, which again introduces the need for a more premium experience, which Air New
Zealand has an advantage.
Interestingly, what this all means down the bottom is that between New Zealand and these international destinations, we actually have
a 45% share of that traffic. I'll touch on shortly, but there's also room for growth there, so the top 20 largest origin and destination
markets, Air New Zealand is directly serving 13. And we look at that and say, that really means 2 things. One is that we can do an
even better job servicing those 13 such as that Hong Kong example, and secondly, the 7 that we haven't directly served in a nonstop
sense, which means there's opportunities for further profitable growth.
So I mentioned the 5 features of our network. We're now on #3. This is our cost advantage and the real focus that we have on making
sure we compete aggressively from a cost perspective, both domestically and on short-haul markets. There's a few features to this.
Let's just touch, first of all, on the fact that we are transitioning. We've now got 8 321neo aircraft, which is the bottom aircraft. You
can -- for those Hawkeye planes models, you can see, it's got a slightly different engine type versus the ceo at the top there.
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But what it needs to bring it to life is if you were traveling between, say, Wellington and Auckland on a 321neo, there'll be an
additional 46 seats on that aircraft versus the 320. And together with better engine technology, we can operate those 46 seats with
very, very small additional trip costs. But of course, with the 46 seats, we can do either serve a lower-yielding passengers, make sure
that there's opportunities for that domestic growth as part of our strategy by offering cheaper seats, for instance, in the middle of the
day.
And on peak time flights, we can make sure that we're not spilling very high-yielding demand, so really catering to both ends of the
market in that single aircraft, and we're very excited. The numbers on the spreadsheets would say that we get about a 1.5x contribution
margin using the 321neo aircraft. When we're operating them, and clearly, we've still got some work to do to bring them into the fleet
as much as we'd like. But when we do operate them, we're actually seeing closer to that 2x contribution margin.
But it's not just the aircraft type itself, it's also the fact that we value the simplicity of a single cabin, again, to that egalitarian point that
Greg mentioned. We've got the ability on these shorter-stage lengths, so shorter duration flights to provide a differentiated experience,
but without the complexity of having an economy cabin in the back end of the business cabin at the front.
Then we're talking about premium leisure. So now we're really thinking more long haul and the way that we're developing that long-
haul international network. Premium experiences isn't just a feature of airline travel. I think in any industry that you look at, whether
it's events or consumer products, there's this shift towards premiumization. And it's something that we picked up on in some strategy
work that was being done in 2018 or so. So well prior to COVID. It actually came through a question we asked ourselves about how
do we best position Air New Zealand to win in this long-haul space.
Now it turns out that what differentiates Air New Zealand already is the fact that we can offer those premium experiences. It's not all
about the hard product, the seats, the lounges, for example. It's also about the way that we service customers, and that's what makes
Air New Zealand special, and Nikki will touch a bit on that later.
And so you could see that back then, we placed a bet, and we said, we think that there's going to be growing demand for
premiumization, and we need to make sure that we can provide customers ultimately what they're looking for, which is that premium
Air New Zealand experience, and so we started to reconfigure our aircraft. We introduced what we call economy stretch, which is
some more leg room within the economy cabin. And I think, again, Jeremy will share some of the stats we're seeing on that as an
ancillary opportunity.
But right now, if you're in Singapore at the airport, there's a hangar, it's a SASCO Hangar, where we get some of our wide-body
maintenance done. One of our 787s is in there, and that's actually undergoing a retrofit. This is the one that Greg spoke to, and we
hope by mid-January to have that back into Auckland with our new product on it. Not quite down the Skynest, but that will be coming
in the future when we get the new aircraft from Boeing. So you can see that we have made a decision years ago to head down this
premiumization path, and we're excited about the benefits that, that will provide.
Relationships are key. Greg spoke about that. We're also having amazing relationships with really the best airlines in the world, and
they allow us to connect New Zealanders with parts of the globe that we don't serve directly. So you can see here, it doesn't matter
which region we've got some of the strongest partners. In Australia, we have a co-chair agreement with Qantas.
It's a co-chair agreement. It's a very common type of agreement that allows us to connect into their domestic network. North America,
we work with, in many respects, the world's largest airline, being United, and we've got an extremely close relationship with them.
And then towards Asia, U.K., Europe, we're working very closely with Singapore Airlines, and of course, Air China and Cathay,
rounding up those Asian destinations.
In addition to that, we've also got co-chair partners, as you can see down the bottom right, which provide further connectivity options.
And what this all means is that, first of all, customers get more choice and access to more destinations. Secondly, that we can have
capital deployment efficiency in terms of where we deploy our own aircraft when thinking about the sales support and distribution and
marketing support from these large airlines who have strengthened the home market.
So translating this into some facts and figures for you. On the left there, this is what I was referring to when I said that customers
have more choice. So Air New Zealand can directly travel to 50 destinations. That's where we fly to ourselves with an Air New
Zealand aircraft. But if you actually look at where an Air New Zealand ticket with an Air New Zealand flight number can get you, that
increases to 320.
So recently, we -- some of us in India, we were meeting with other Star Alliance partners. I could fly on Air New Zealand to
Singapore and then seamless connection at Changi Airport in Singapore to connect to a Singapore Airlines flight to Delhi, for
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example, but that whole flight has got an Air New Zealand flight number and the benefits of flying with Air New Zealand such as
lounge exits.
From a capital deployment perspective, an example to bring this one to life, we work very closely with Singapore Airlines. Right now,
actually, we have 3 to 4 daily flights between Auckland and Singapore. Now interestingly, the airlines would struggle about how these
sorts of things could be divided between the various airlines. The depth of the relationship that we have with Singapore Airlines means
that we can actually share that third bank. So we each fly 1 daily flight, and then, depending on the season, either Singapore Airlines
or Air New Zealand.
And again, that brings to life the sense that we can make the best capital deployment decisions as it relates to our aircraft and our
network, but working collectively with these partners. And then in the case of Cathay Pacific, again, recently meeting with them in
Hong Kong, Cathay actually sell about 1/3 of all the passengers on our Auckland-Hong Kong flights. And reciprocally, we sell a very
large share of passengers onto their Auckland-Hong Kong flights. So the power together means there's benefits not just for each of the
airlines, but the customer and also New Zealand as a whole in a sense.
We're excited, excited because, as I mentioned, there are 7 of the top 20 destinations that we don't currently connect to directly
ourselves with an Air New Zealand flight. And we see that as opportunity. There's 2 that I can touch on briefly here, one being
London. And you would have seen, I think, there's been some discussion and commentary about the fact that we've got an interest in
London. It's been a while now since we haven't been operating directly.
And one of the things that I think we hear about from customers more than almost anything else is when are you going to go back
because it's great as it is to be able to connect there with your alliance partners. There's something special about Air New Zealand
flying into London, and we'd love the chance to be able to fly there with Air New Zealand.
And we listen to all of the feedback, not just on network decisions, but it has made us consider when a possible return could be and
what that could look like. So at the moment, clearly, with aircraft challenges and engines not being available as we'd like them, we're
in a position where we can't quite firm up the decisions, but it's one of those areas where I think we could be looking to share more
news in the next months, maybe in the next year or so.
Another market that we're really interested in is India. I mean it's one of the largest growing markets. Air New Zealand, together with
Singapore Airlines, already served that market incredibly well. In fact, I think about 50% of all the customers traveling between New
Zealand and India transit via Singapore. But as that grows and develops further, together with Singapore Airlines, we're really excited
and interested about what we could do to serve that market even more efficiently in the future, so more to come in that space. But
obviously, our ambition, it's high but tempered by the fact that we need to make sure that we do a good job servicing the existing
network first.
And bringing it all together, really, from a longer-term capacity growth perspective, here's what we're expecting to see. It's --
the headline is 3% to 4% capacity growth over that next period. But really, we need to think about this as a different story really
domestically from what we see internationally. So domestic, it's around 2% to 3%.
And many of you have been close working with Air New Zealand for a while now, and that's probably a little lower than what
you've seen in the past. And it's reflective of, in the short dates, that more difficult trading environment that Greg has referenced with
corporate and government spend behind where we'd want it. But it also reflects into the structurally higher cost base that we're going
to be working to offset through things like emissions trading scheme, costs, higher aeronautical charges, et cetera. So as we look to
grow, which we will be looking to do, we'll be obviously calibrating those growth aspirations with the need to make sure that RASK is
growing in the way that we'd like it to. And we do have some new aircraft coming in the form of ATRs and, ultimately, new 321s, and
that can be used to support some of this domestic growth as well.
And then internationally, clearly, again, we're a country that likes to explore. And as we add new destinations and grow existing
destinations, that will support some of this capacity growth that you'll see. Slightly higher range, 3% to 5%, probably weighted a little
more towards long-haul international, but again, making sure that we maintain the share and the passenger share premium that we
have on those short-haul markets.
So that's this network section. There's obviously the chance to have some questions and a bit of a discussion later. But maybe
I'll just wrap this bit up by saying with what I started, that we operate in a market where there's a real need for air travel and
strong connectivity. We've got clear advantages across those 5 features of the network that I talked about, and that translates to
winning results. And that's exciting, but also what makes us excited is the fact that we've got clear opportunities to support future
[indiscernible]47:47.
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So thanks for your time, and I think Jeremy will follow me.
Jeremy O'Brien
Thanks, Mike. Kia Ora, everyone. I'm Jeremy. I am the GM of International here at Air New Zealand. And as Mike
just alluded to, our network and fleet is one of the fantastic foundations we have for our commercial success. But it's not the only
foundation we've got, and I want to take you through a little bit of why I believe you can be very confident in the commercial returns
we're going to be providing as a business in the years to come.
So we've got 3 other kind of core foundations to our commercial success. First and foremost, we've got this unenviable high market
position. I kind of think of New Zealand to Air New Zealand like Eden Park is to the All Blacks. We're really bloody hard to beat at
home. And there's a bunch of reasons why that is, and I'll talk to you about that shortly. Secondly, as Mike alluded to, we are #1 for
travel to and from New Zealand internationally. And that sets us up really well to take advantage of growth in international as we go
forward and a great source of long-term sustainable earnings. And thirdly, we have this appeal across quite a substantive and diverse
range of customer segments. We've got, in each of our domestic and international markets, 3 big segments for based on reason to
[ travel ]. And each of them have unique characteristics so that we're not beholden to or reliant on any given [indiscernible].
So let's unpack these bases for our commercial success really quickly. If I think about us at home, there are 3 key reasons why we're
unbeatable at home, and the first of them is that iconic Air New Zealand brand. Our brand is well known, and it's loved. We have over
97% of spontaneous awareness amongst New Zealanders. Pretty much every single New Zealander knows who we are. Not only do
they know us, they love us. 82% brand in the New Zealand market.
Now that doesn't mean we're perfect. There's 80% -- 18% customers who think maybe we're not so great. And so we need to continue
to work on that. We need to always lean into it in terms of developing better product, being better at customer satisfaction, being
good with our communications. But that is a very unenviable position for our brand to be in and actually one of the leading brands
consistently here in the New Zealand market, regardless of industry or category.
Part of the reason we've got a great brand position is that we invest ongoing. We invest around about 2% of Air New Zealand point-of-
sale revenue every year on our brand and into our marketing activity. That's around about $40 million worth of investment year after
year for us to be able to have that strong sustainable brand position, and we're going to continue to do that.
The second reason we're really strong at home is this unrivaled distribution footprint. Based on Google Analytics data,
airnewzealand.co.nz is the single largest travel retailer in the New Zealand market. On a monthly basis, on average, we generate
around 7 million unique user sessions. Those sessions translate into around about $181 million worth of sales, on average, on a
monthly basis, and it represents around about 62% of all of the revenue we generate here out of the New Zealand market. And that's
up from 55% pre-COVID. So we had this incredibly strong direct business-to-consumer channel that's unrivaled in the market.
But it's not just that channel that's important to us. Our trade partners are really important. They represent around about 38% of the
revenue that we generate here out of our New Zealand market. And we have strong enduring partnerships with all the leading trade
partners in market, and we do a huge amount of co-branded and co-marketing activity to stimulate travel, both within New Zealand
and between New Zealand and the rest of the world, with those trade partners.
The other big thing we've got is really strong business-to-business relationships. We have over 270 contracted corporate clients. Those
corporate clients have an entry level spend of around $350,000 on their domestic travel and about $150,000 on their international
travel. So that provides a great sound base for which we can build our revenue across the course of the year. And you can't talk about
the market here in New Zealand without talking about small businesses. And across that above and beyond and at Airpoints for
Business program, we have over 40,000 small businesses who are a part of one of those programs transacting with Air New Zealand.
So we've got this really strong iconic brand and unrivaled distribution footprint, and then we have this amazing loyalty program. Now
5 years ago, I was fortunate enough to lead our loyalty program, and it was a good program. Kate O'Brien took it over, and
she's going to talk to you shortly. But what I can say in the last 5 years, she's taken it from a good program to now a great program.
And she'll talk a lot about the value that we're going to drive out of that loyalty program going forward.
The bit that's important from a commercial success perspective is the scope and scale of that program. Around 4.6 million members
now across the Airpoints program, 3.2 million of them being Kiwis. That's 2 in every 3 Kiwis over the age of 18 are a member of that
program. And as I go a little bit more into the builds we're going to be making from a commercial perspective, I'll explain why that's
so important. So we've got this really strong home market advantage.
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But as Mike talked about, we're also really strong internationally and, in fact, [indiscernible] for travel to and from New Zealand.
From a New Zealander perspective, 55% of Kiwis who travel internationally do so with a koru on the tail of the aircraft they're flying
in. And the reason that we were able to get that position is based on that home market advantage I talked about upfront.
But that's not the only place where we have preference. In all of our offshore markets, we also have significant brand strength and
purchasing intent from customers. 35%, so just over 1 in 3, of every single visitor who comes into New Zealand comes so -- comes to
us on an Air New Zealand aircraft. So you combine those 2, that's where you get that 45% that Mike talked about. 45% of all travel to
and from New Zealand is on Air New Zealand. And based on last financial year's visitor numbers of about 13 million, that's 3 million
more customer journeys than the next biggest airline that services international travel out of this market.
And so why do we get that from an international perspective? If I look at our offshore markets, one of the things we've always done
is we've invested for the long term. So we don't launch a market, do a big song and a dance and walk away. We build sustainable
strategies to build long-term demand and partnerships in market, and we invest in people in each of those markets we operate within.
So in every single one of our direct markets, we had Air New Zealanders employed by us on the ground, salespeople, marketing
people, commercial people. And in the front of house in our airports, Air New Zealand is who are servicing our customers.
We do that because no one knows Air New Zealand better than any Air New Zealander. No one cares more about inspiring travel to
New Zealand than an Air New Zealander. We put it into our training. It's in our brand. We talk about share our [Foreign Language].
Having those Kiwis and those people who think like Kiwis in market in all of our offshore locations means that we become the partner
of choice for selling Air New Zealand and New Zealand.
We also have this amazing brand offshore. So if I think about the global brand that we have and our innovation, the likes of safety
videos. The one we've just launched with Steven Adams has had over 40 million views globally already. So that's helped us to cut
through and resonate in all of those offshore markets and kind of differentiates us and helps us stand out from the crowd.
The other partnerships that are really important to us are our marketing partnerships with the likes of Tourism New Zealand. We have
a joint venture partnership with Tourism New Zealand, where in all of our key markets, we're pulling resources and taking a New
Zealand [ ink ] approach, again, to get the awareness of destination New Zealand up but in a long-term pipeline and funnel of people
who are interested in coming to travel to the country and, then through our salespeople and our marketing activity, converting them for
travel to our country.
And finally, I can't talk about what we do in those international offshore markets without talking about our alliance partners. So Mike
has talked about the fact that the incredibly strong
[Audio Gap]
perspective. They bring about 14% of the customers who come into our international network off those alliance partners. But they're
also really important for us from a distribution perspective. If I look at United Airlines, Air China, Cathay Pacific and Singapore
Airlines, in each of those markets, they increase their distribution footprint by about 10x versus if we were there on our own. So again,
they enable us to have that really strong international presence when we're looking to encourage travelers to come to this country.
The third piece I want to talk about in terms of those core pillars, those core foundations for our commercial success are the customer
segments that we have that are varied. So here in New Zealand domestically, around about 65% of all passengers we carry across
all of our network are passengers who fly domestically with us here. That generates around about $2 billion of revenue on an annual
basis. And there are 3 quite distinct customer segments based on reason for travel: one being the leisure segment, which includes VFR,
so visiting friends and relatives. That's around about 50%; 30% is business broadly and can be broken down at the subsegments of
corporate, government and SME; and then 20% is either international connecting traffic into our domestic network or a traveler who
has booked, from an offshore location, a domestic flight here in New Zealand within New Zealand.
Now the reason that it's important that we've got these substantive and quite varied customer segments is because it can help us
withstand some of the changes in demand that any one of those segments might get. And we've alluded a little bit to the slowdown in
government spend over the last 12 months, and that's trickled down through into corporate and SME as well. And we've had to pivot
our approach and look to stimulate a bit more of that leisure market to be able to backfill some of that demand that we've lost from the
market.
We do that really effectively, and part of that is because of the data we get out of our Airpoints loyalty program. Those Airpoints
customers are twice as likely to convert because we're able to put relevant and contextualized our offers in front of them. And so when
we put a leisure campaign in market to stimulate the market here in New Zealand, we see at least a 40% uplift in bookings versus a
noncampaign period. And from a marketing investment perspective, we have a return on marketing investment of about 20:1. So we
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can move between customer segments and stimulate demand, particularly in leisure, incredibly well, particularly here in our New
Zealand market.
Now internationally, that represents around about 35% of all the passengers we carry. It's $4 billion worth of revenue. So it's a good
business. It's high-quality business. And again, we've got these 3 distinct segments. Around about 50% of it is leisure. 38% of it is
visiting friends and relatives, and particularly, we're strong there in our short-haul network, Australia and the Pacific Islands. There's
a huge catchment of expat Kiwis coming back to New Zealand from those countries, but also from Pacific Islanders and Australia that
are traveling back home to visit friends and family and relatives as well. And then around about 12% of our international passengers
are business travelers.
One of the things to note that's important as part of what you take away from today is also the mix of cabin that those international
passengers are flying in. One in 5 of our long-haul customers who arrived here in New Zealand on an Air New Zealand aircraft are
now arriving in a premium cabin. It's 20% of customers who are coming in from long haul who are in a premium cabin. And that's a
green shoot that we've seen since COVID, and that's something that we believe is here to stay and we're going to really double down
on. And you can see that in some of the investment we have in our fleet, and I'll talk about that again shortly as well.
The other bit that's important to note around customers is we just don't kind of sit on our laurels and do nothing. We're constantly
seeking customer feedback in order to see how we can meet their needs better, but also commercially find ways in which we can
optimize the different products that we sell and market. And Mike talked about Seats-to-Suit. And so those of you who've followed
Air New Zealand for a long period of time will know that, over a decade ago, we introduced Seats-to-Suit as a way to segment the
cabin and appeal to a wider range of customers. And part of the reason it was introduced is we were really coming under attack from
low-cost carriers and fifth-freedom carriers. So we needed to find a way that we could compete at the very price-driven end of market,
and that's when we introduced the Seats-to-Suit product and a seat-only product. That was a very much buy the seat, and that was --
anything else, you had to add on.
What we've found in the last couple of years is that customers were starting to give us feedback that the seat product may be -- could
be a little bit more generous based on where pricing was in that and based on what the equivalent offerings were for the -- across
market. So we did a whole lot of rebundling and repositioning around our Seats-to-Suit product. Seat got the addition of our IFE, a
snack and also food and beverage, but it still enabled us to keep it at a really good price point so that we could still compete against
those low-cost carriers and fifth freedoms. We dropped second bag, and bag became a buyer for seat customers, or alternatively, they
could just go into the full service Works product.
One of the major changes we made, though, was to introduce an add-on and affordable flexibility product. So on our short-haul
network, you're able to buy up and add on flexibility, and we've seen a huge change in customer behavior off the back of that. First
and foremost, around about 30% more customers are now buying up in value to the Works product, and between 10% and 18% of
customers, depending on the cabin, are buying into flexibility that gives them assurance that they can book early and, if their plans
change, they can get a full refund. And so that changed in the Seats-to-Suit portfolio. It's been received by customers in a way that
they're buying up into higher value bundles. The other thing that it's doing is we've seen a lift in our customer satisfaction. So we put
it into market in July. And on the short-haul network, we've seen a 2% increase in CSAT on both the Tasman and the Pacific Islands
since we introduced the Seats-to- product.
The second product on there Mike talked about, which is our premium upsell in the Economy cabin, Economy Stretch. Now again,
there was a group of customers that said to us, "We're prepared to pay for a little bit more comfort and a little bit more space, but we
don't want to buy up into a Premium Economy cabin. So can you find us something that kind of sits nicely within the middle?" And
again, it's classic segmentation, fighting where the sweet spot is with different value products in the market. So Economy Stretch
gives a customer an extra 5 inches of legroom, about 39% extra space, and the customer also gets a little bit more comfort. They get
premium head phones. They get a soft pillow. And they enter that product at about $150 buy up from standard Economy.
So we've retrofitted Air's 777 aircraft. They all now have Economy Stretch seats in them. The aircraft that's currently up in [ Cesco ],
the first of the 787s, has got Economy Stretch being fitted within it. And in the next 2 years, we'll have it across our entire wide-body
fleet. And we think that that's going to give us between a $15 million to $20 million increase in revenue by that new product being a
premium upsell within that Economy cabin.
The reason I share both these case studies with you is you're going to hear a lot more from us today about things we're either in the
process of doing or we're going to do. And both of these products have been introduced in the last 12 months and a proof that you
don't only get the one point for saying, but actually, this is us doing the things that you're going to see for the rest of the day that we're
planning to implement through our strategy. So that's why we're sharing it, so really good base foundation for commercial success, a
really good platform.
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And then the exciting thing for us commercially is we've got these 5 key growth accelerators or opportunities that we're working on
in the business right now, in the middle of implementing or about to implement. Those 5 accelerators are: long-haul premiumization.
So Mike talked a little bit about that. We're going to be increasing the premium seats across our cabins by 30% by 2030, and there's a
lot of benefit we can get from that. And I'll talk to that shortly; we've invested significantly in next-generation revenue management
to enable us to get the most we can out of our existing inventory; we've also got this really exciting opportunity with low-capital,
high-margin growth through ancillary, but we're going to need to invest a little bit of modern retailing to realize that potential;
within loyalty, Kate will speak a lot to what we're going to be doing to extract additional value and provide better value to customers
through our loyalty program. And I'll touch a little bit on the data and personalization side of that; and then finally, we're doing a
transformation in our cargo business. They're substantive, and it's going to drive significant productivity and efficiency.
So if I look at our retrofit program, this is what the new cabin will look like across -- actually, this will be our ultra long-haul aircraft.
And the only difference in this versus all the other aircraft that have been retrofitted is the Economy Skynest, which you can see in the
corner of there, and I encourage you to try that out midway through decision today. So $0.5 billion worth of investment and retrofit.
First aircraft already up in [ Cesco ], going to be back here in mid-January flying by February, 7 products across the wide-body cabin.
Now having 7 products gives you a couple of opportunities. One is it gives you an incredible breadth of customer needs that you can
satisfy, a huge wide range of customers you can satisfy with that one aircraft. It also gives you a huge opportunity to upsell and cross-
sell through modern retailing, and we'll talk a little bit about that shortly.
But if I look at the cabin here, the first big product we're really excited about introducing is our new business Premier Luxe seat. So
that seats right at the front of the business Premier cabin. It has extra space, extra comfort and extra privacy. It has its own sliding
door, has a number of amenities that are special to that seat. And that will sell as a buy-up product at $820 for long-haul flight and
$250 for short-haul flight. So that's a cabin buy-up product that's coming into the fleet. Not only are we introducing BP Luxe, we're
having fully new Premium Economy and Business Premier seats.
And then when we go to the Economy cabin, we make sure that we've got different value segmentation across that cabin. So not only
have you got the likes of the Skycouch that we've had for a number of years, we're introducing, as I said, Economy Stretch. And then
for long haul, you'll be able to get a session of about 4 hours, we can have a lie down and a sleep on an ultra long-haul flight in the
Economy Skynest.
And so a huge range of product that enables us to appeal to a wide, wide range of customers, lots of cross-sell and upsell opportunity.
And we believe across our premium cabins, that we can get between a 10% to 15% RASK uplift in driving that premiumization, both
increasing the density of the cabin by 30% by 2030, but bringing in to play these 7 different products that we can sell up customers to
over time, so kind of quite exciting from a commercial perspective.
Secondly, kind of the bread and butter of airlines is revenue management. And Air New Zealand has always been an innovator.
And around about 2018, we sat down with a start-up business called FLYR, and we worked with them to invest in a new revenue
management system called Cirrus.
Now the advantage of this revenue management system is it's powered by machine learning. And so machine learning is where an
analyst can put their knowledge and their data on what's happening in market, same with inventory, and they can teach the machine to
adjust its forecast in order to keep learning when they see different stimulus inputted and then respond to changing market conditions,
be that extra capacity that's been added in, some surge in demand that's happened. And we can put a whole bunch of parameters
around our system that teaches the machine to optimize our inventory settings and our pricing settings at -- in any given point in time
around where demand is sitting, where capacity in the market is sitting.
So the great thing about the system is it's highly intuitive, and it's got this awesome user interface so that each of our revenue
management analysts who previously will be trying to manage every single flight every single day at every single time point on every
single market, they can actually set and forget a few parameters within some guidelines. And then if anything falls outside of those
guidelines, the system will raise a flag and it will tell them that, that market needs attention. But what it will also do, it will go -- I've
seen this before, and actually, here are 3 ways in which I think you could respond to those changes in demand or those changes in
capacity.
We believe that the introduction of this new system will deliver us between 1% to 2% RASK improvement across the entire network.
It's been implemented across domestic and short-haul already, and we are 2 weeks away from putting our last 2 long-haul markets
onto the system. And 1% to 2% RASK uplift on a $5 billion business , you're talking between $50 million and $100 million of
optimization that you can get out of this new system. And so we're pretty excited about that, and that's driven by better yield and big
load factors.
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The third growth opportunity we've got is this really great capital-light, high-margin growth that we can get through ancillary. And
we've always had some good ancillary product, particularly a direct product where you can buy into the likes of Skycouch. You can
add a bag. You can choose a seat. But we're going to be introducing some new products into our ecosystem as well, as I said, the likes
of Economy Stretch, the Skynest, and we'll be looking at neighbor-free seating on short haul.
And the way in which you get the most out of these new ancillary products is through modern retailing. Nikhil is going to talk to you
a lot more about how we're transforming retailing at Air New Zealand. He will talk about offer and order management. So rather than
having this very analog kind of approach to the customer buying journey, we'll actually be able to almost do a bit of a pick in a mix,
where a customer can personalize the type of flight product that they want through a range of portfolio of options that we can provide
them with. And so that, in essence, is modern-day retailing with offer and order management. And it's going to be critical for us to be
able to get the most out of both our current ancillary products, but those new products we're bringing in as well.
Our aspiration is to grow that twice as fast as we have in the last 10 years over the next 4 years and deliver around about 40% growth
and turn that business into $0.25 billion revenue business for us. So a big growth aspiration, but we firmly believe we've got the ability
to bring it to market and to achieve that.
The fourth growth opportunity we've got is within loyalty, and Kate will talk a lot more about this. I want to talk about data and
personalization.
So loyalty is important. Why? Our loyalty members has spent, on average, 50% more than a nonmember with us. They convert -- 2x
more likely to convert. Why are they 2x more likely to convert? Because of the information we have to personalize and put relevant
offers to them. Information like what their preferences are, what are the destinations that they most often buy, do they have a aisle seat
or window seat, do they add insurance to their flight more often than not.
What about what the Airpoints balance is? That might sound kind of really basic, but actually you can avoid a whole lot of wastage
by not putting Airpoints redemption offers in front of a customer who doesn't have enough points to redeem, now very simple 101
kind of a marketing perspective. But the ability to have that data can mean that you can put the right level of offer in front of a
customer who has the right Airpoints balance to be able to convert. And we also understand a lot about interconnectedness within our
Airpoints ecosystem. So the Shairpoints product, where you can add family members and friends to your Airpoints account, gives us
an indication of people who are more likely to respond to package offers or travel together. And so there's so much data that we can
use to personalize and provide relevancy of offers.
And if you think about kind of all the different products we're going to be offering over time, having proprietary first-party data in
order to do that segmentation is critical for us, particularly when, around the world, we've seen the demise of third-party data and the
ability for companies to be able to access data pools from outside of their own ecosystem. So Airpoints becomes a critical weapon for
us in terms of that personalization and the relevance that we're [indiscernible].
And then our fifth growth opportunity, and it's a really exciting one for this business, is our cargo growth. We're investing in cargo for
the first time in a while. We've always had a great cargo business. It's always been driven by people who work incredibly hard to meet
the needs of customers. But -- and we saw that over COVID actually, where our cargo business, we maintained connectivity between
New Zealand exporters in the world but also brought critical medical supplies in that we needed from a New Zealand perspective. But
that was driven by people and the culture here within the airline.
The reality is we haven't invested a lot in that business, and it's going to change over these next 4 years. And we're underway already
with 3 key transformation projects within cargo. The first of those is an end-to-end front of house to back of house analog to digital
transformation. If you walk out to the cargo building today, you'll see streams of paper printed out on every flight, where people are
checking off a load manifest and trying to balance up the belly of the aircraft in terms of the inventory that's going in right up until an
hour before the flight goes out. That will soon be fully digitized. And that's going to give a huge amount of efficiency and productivity
to those people to be able to do their job a whole lot quicker but also for us to be able to optimize what we're doing in terms of where
that inventory goes within the belly of the aircraft.
We're also investing similarly to what we've just done in our passenger business, into modernization of revenue management. So we're
going to revenue manage the belly of the aircraft, in the inventory in the belly of the aircraft. So again, great efficiency gains that we
can get through better yield through our cargo business and implementing that new state-of-the-art revenue management system.
And finally, and really exciting, in about 2 years' time, we're going to start construction of a new purpose-built state-of-the-art cargo
facility within our Auckland International Airport cargo hub. And it's going to be incredibly exciting in terms of the ability for our
cargo team to be able to have this modern facility at biggest transit point for cargo into and out of New Zealand. We think that, that
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investment and that focus and the productivity we get from it is going to, over the next 4 years, improve our average revenue streams
by about 20% and build cargo to around $0.5 billion business for Air New Zealand.
So in summary, from a commercial perspective, we've got these really strong foundations that provide us with real confidence in
terms of sustainable earnings for the business. But on top of that, we've got these 5 growth opportunities: long-haul premiumization,
premium cabin that's going to be increased by 30% by 2030, and we think that, that's going to drive us between a 10% to 15% RASK
uplift; we've got next-generation revenue management, and the implementation of that tool, we believe, is going to drive us a 1%
to 2% RASK improvement; we've got low-capital, high-margin growth with our ancillary product and offer more to management,
and we think that ancillary will become $250 million per annum revenue business for us; loyalty is going to continue to enable us to
personalize and provide relevant offers so that we can be confident as we look to upsell and cross-sell product. We can put the right
offer in front of the right customer at the right time; and for the first time in a number of years, we're investing in our cargo business,
and that's going to drive significant productivity and efficiency gains and build that business to upwards of $0.5 billion business for
Air New Zealand.
So huge opportunity for growth, and that takes us from what would be underlying 2% to 3% growth to actually what we are targeting
as 4% to 6% growth from a revenue perspective in the years ahead. I hope that's been helpful.
I'm now going to pass over to the better O'Brien, Kate O'Brien, and she's going to talk to you about the loyalty program. [Foreign
Language]
Kate O'Brien
That's very kind, Jeremy. Hi, everyone. I'm Kate O'Brien, and I look after the Loyalty business here in Air New Zealand. So we have
a fantastic opportunity to grow our Loyalty business by between $40 million to $60 million in EBITDA by 2028. The opportunity
is in 4 parts of the business, so sales of Airpoints Dollars to third parties, our products portfolio, flight redemptions and our frequent
flyer offering. This will drive benefits to our partners, our members and Air New Zealand and is really underpinned by investment in
digital, data and personalization.
So as Greg said earlier, loyalty is 1 of the 3 key pillars in the Kia Mau strategy. And the reason that we're choosing to invest in loyalty
is for 3 reasons. Firstly, it's capital and carbon light. The second is it's a source of stable external revenue generation. And then the
third is it's a driver of share shift and yield premium to our airline.
So our Airpoints program is quite unique in that our currency is pegged to the New Zealand dollar, which means that customers can
redeem their Airpoints on any seat, any flight or through the Airpoint Store for the equivalent of the cash price, and we know that this
drives a lot of trust and utility with our program.
So this goodwill that we have, partially driven by our program structure, has given us this really strong foundation on which to grow.
So we can see here -- firstly, we've seen really strong member growth. So we have more than 4.6 million Airpoints members now, and
that's grown at a rate of 11% CAGR over the last 10 years. Our Airpoints members drive a revenue premium to the airline. And so you
can see as members move up tiers, that shows how much more engaged they become with the airline.
And thirdly, the program generates strong and stable cash flows. And this really illustrates the breadth and strength of our program on
the ground, so beyond flying and how our members are engaging on the ground.
So there are 4 parts to our Loyalty business and 4 opportunities for us to grow. And I'm going to go into each of these in a bit more
detail in a minute. The first is sales of Airpoints Dollars to third parties. The second is our proprietary products portfolio. The third is
Airpoint Dollar redemptions on Air New Zealand, and then the fourth is our frequent flyer program.
So all of this is underpinned by investment in digital, data and personalization. We have recently replatformed the Loyalty business,
so this was quite a significant 3-year transformation for us. We now have this brand-new platform to power loyalty. And this is really
important because it gives us the capability and to be able to do a lot of the things that I'm going to talk to you about today.
So in addition to our new platform, as Jeremy has already spoken to, we have this really rich data set. And we can use this to better
drive loyalty to the airline, to provide our members with a more personalized service and to give them more relevant [indiscernible]
offers. So this investment in personalization is really important for us. We've got this really strong member base of over 4.6 million
members. This will help us increase or continue to increase the leveling of engagement that we see with our members.
So the first pillar of our program is the sale of Airpoints Dollars to third parties. So we've got a really broad range of partners that we
sell Airpoints to, and we're looking to accelerate this growth further. So we've got 2 sets of partners or 2 types: financial partners and
retail partners.
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Close to 70% of Airpoints Dollars that are issued are issued by third parties, and 70% of those are issued by 4 financial institutions, so
primarily through card payment products such as credit cards. Airpoints members spend more than 3% of New Zealand GDP on the
Airpoints Dollar eligible cards. And our benchmarking shows us that this is strong compared to peers, but there is still an opportunity
for us continue to grow in this space.
Interchange regulation in 2022 did impact sales of points to third parties, and we do expect there is any further regulation for that
to have an additional impact. So there are 3 things that we're looking to do to mitigate this. The first is we're looking to expand our
partner network and bring on new Airpoints partners. The second is we're looking for -- we're looking to give our members new ways
to earn Airpoints Dollars, so moving away from the traditional spend X get Y concept. And then the third is to grow our products
portfolio, which I'll talk a little bit more about in a minute.
On the retail partner side, we have more than 35 retail partners covering more than 85 brands, and this gives our members lots of
opportunities to earn Airpoints Dollars on their everyday spend. So we've got partners in the key retail categories of grocery, fuel,
DIY, and home and living.
One thing that we're always looking to do in this space is to grow and bring on new partners. And one thing we do is we utilize these
data to understand where our members are spending and therefore, which categories we might want to bring new partners in on. One
thing we noticed during COVID and coming out of COVID was that by babies and pets became quite large spend categories for our
members. So as a result of that, we've added 2 new partners recently, Petdirect and Baby On The Move.
Everyday Rewards is our newest partner. So that now goes live on the 2nd of December, which is very exciting. This is quite a
big deal for us, this relationship, for a couple of reasons. The first is it gives us -- whilst we've already got this really broad partner
network, it gives us really strong coverage in a couple of the key spend categories. And a good example of that is grocery. So at the
moment, our members can earn Airpoints Dollars when they shop with New World. That will still be the case, but from the 2nd of
December, our members will also be able to earn via the Everyday Rewards program at Woolworths, so it gives us much greater
coverage in the grocery category as well as a couple of others.
So the other reason why this is a really interesting relationship for us is it is a move away from the traditional earn setup that we have
had. So traditionally, we've required members to show their Airpoints number at point of sale. This relationship doesn't require that.
So it gives our members new ways to earn, new partners to earn at, but it also opens the door for us to grow our coalition in new and
different ways.
So we have an aspiration to double the earn that we get from this retail partner network. And in order to do that, we are actively, at the
moment, exploring partnerships in insurance, utilities, wealth management and experiences.
So the second way that loyalty generates value for the entity is through our proprietary products portfolio. So currently, that consists
of the Airpoints Store, our OneSmart travel card and Koru memberships.
The Airpoints Store has grown quite materially since FY '19. It was traditionally a redemption site for our HVCs that had a small
number of products. We have now grown this to a $50 million-plus e-commerce platform. We now have the ability for customers to
earn and spend Airpoints dollars. We have over 14,000 SKUs available now. So this provides relevance to a far larger portion of our
members.
At the moment, 4% of our member base interact with the store, on average, 1.5x a year. So if we can grow that to even just 6%
interacting, on average, twice a year, we can double the turnover that we get from the Airpoints Store.
So there are 3 opportunities to grow in the product space. The first is to grow the existing portfolio set, so the store, OneSmart and
Koru. The second is to launch and to grow further into the Airpoints-branded or white labeled space. So that could be things like
payments products, insurance, wine. There's quite a few things we could do in that space. And then the third is partner services, so
selling data insights and marketing services to our partners. Growth in this space is also a really good way for us to mitigate any
further interchange impacts.
The third pillar of the Loyalty business is Airpoints Dollar redemptions on Air New Zealand. So Airpoints can be redeemed on any
flight, any time with no blackouts. And we know that this transparency creates a lot of value for our members. They tell us frequently
how much they value this utility that we give them, and you can see that our members have been increasing the number of Airpoints
that they have spent with the airline over the last 10 years. As you would expect for an airline loyalty program, Air New Zealand
flights are our most popular redemption choice with 80% of Airpoints that are redeemed being redeemed on Air New Zealand.
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Redemptions are as valuable as a cash sale. So because the redemption price is the same as the cash price and that moves based on
demand, we do get a yield from a redemption that mirrors a cash sale. So this pegged currency concept where a point equals a New
Zealand dollar is quite unique in the airline loyalty program world. And we do periodically review whether we should move to a more
opaque points-based system like most of our competitors use.
Now there are pros and cons to each of these structures. But the pros of our current system that it's -- that creates a huge amount of
transparency for our members. And as I said, they constantly tell us that they really value that.
What the current structure doesn't offer us so, is it doesn't offer us the ability to move the price of a redemption seat below that of the
cash price. And there's a couple of reasons why you might want to do this. One is it helps give a reward back to a member sooner.
So it helps reinforce the value of the program by getting a member to a reward faster that in turn creates loyalty and gets that loyalty
flywheel spinning. So that's the first reason.
The other reason is it gives us another tool in the revenue management toolkit to help us optimize load factors. So what the team are
working on at the moment is a redemption offering that allows us to preserve the dollar-for-dollar concept, meaning any Airpoints
Dollar will always be worth at least NZD 1, but it gives us the ability to make Airpoints Dollar offers to customers.
So that means, for example, if we know Richard likes to go to New York and maybe we have a soft period coming up on our New
York flight, we might decide to send him an Airpoints Dollar offer. That helps to speed up the loyalty flywheel with Richard, and it
gives our analysts another tool to help manage our loads.
And then the fourth pillar in loyalty is our frequent flyer program. So we have a really good opportunity here to improve the benefits
that we offer our HVCs and further drive loyalty to the airline. So there's 3 things that we're doing in this space. The first is we are
going to add a new tier above Elite. So what we know happens is at the top end of the Elite spend, our members reach the ceiling of
our program, and we know that they split their wallet between our airline and others. So creating that aspiration for the top end of Elite
helps drive loyalty back to the airline.
First new tier will be -- for our very top end of Elite, all around providing a seamless travel experience for these members. So the
second thing that we're working on at the moment is refreshing the benefits that we offer our Silver, Gold and Elite members.
So just to give you a couple of examples, things that have tested really well, which the team are now further exploring, are mid-tier
rewards, so giving members rewards within their current tier to keep them engaged, a status point top-up option. So essentially giving
members the ability to self-save if they don't happen to -- if they just miss out on maintaining their tier in a particular year. And then
access to an Elite and business class only lounge at Auckland International.
The third part of this tiers and benefits refresh is just ensuring that the benefits we already offer today are offered in a really efficient
manner. And a good example of that is our recognition upgrade process. So we know that there's more that we can do to make that
process more seamless, and that's something that the team are actively working on at the moment.
So in summary, we have a really strong loyalty program and a great foundation on which to grow. We've got these 4 clear
opportunities for growth, and we believe we can get an additional $40 million to $60 million in incremental EBITDA by FY '28.
To finish off this section, we're going to hear from one of our Airpoints partners, American Express, as to how they value the loyalty
partnership.
Unknown Attendee
American Express and Air New Zealand have a long-standing and valuable partnership that is united by the common fact that our
customers love to travel and have unforgettable experiences. And together, we have created the fastest Airpoint Dollar earning
Platinum card here in New Zealand. It really helps Kiwis get on their next adventure sooner with Air New Zealand.
I love speaking to our customers, who have been able to take their family on an overseas holiday, explore our beautiful backyard here
in New Zealand or even pick up something from the Airpoints Store simply by turning their everyday spending into Airpoint Dollars
with their Amex card. And with Airpoints being such a sought-after loyalty program, our partnership helps us to tack new customers
as well as ensure that the existing ones receive extraordinary value and benefits from American Express and Air New Zealand.
Well, there are many reasons American Express enjoys working with Air New Zealand. We share a commitment to delivering
exceptional customer experiences through our customer-first approach, and both brands have a global presence, and that presents
a unique opportunity to partner in the many countries that we operate in. Our team also enjoys the collaboration and commitment
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to excellence that comes with working with the Air New Zealand team, and that includes the pursuit of innovation in the Airpoints
Program, which benefits our mutual customers.
While there are so many exciting opportunities on the horizon for our partnership, ultimately, our future is guided by the shared values
we have and our commitment to customers, our dedication to providing exceptional customer experiences and the integrity in how we
work together to build meaningful relationships for our customers.
Kim Cootes
Head of Investor Relations
All right. Thank you to all of our presenters so far, and thank you, everyone, for your attention. We are now going to take a break.
I make it is roughly 20 to 3. So we'll come back here for 3 on the dot. So please have some afternoon tea. It's out the front or there's
snacks, go to the bathroom. Do your thing, and we'll see you back at 3. Thanks.
[Break]
Nikhil Ravishankar
Chief Digital Officer
Good afternoon, and welcome back. I hope you're well snacked up. This was a section that needed to come after the break because it
all things digital. And if I followed Kate, you'd probably fallen asleep. So I'm glad you all had a break and have caffeinated yourself.
Look, it's my great pleasure to be able to share Air New Zealand's digitalization journey with you. It's an area of the business where
we've got some great momentum. And some of the positivity you're hearing from all of my colleagues is really underpinned by the
success we've already seen to date in this program of work and the plans we have ahead.
As Greg mentioned, digital is one of our core pillars in the Kia Mau's strategy. And our ambition here is quite genuinely to build
the world's leading digital airline, and we're dead set serious about that. And we're well along the way of doing that. But there's 3
things I'm going to cover today. I'll share with you sort of our approach. I'm going to use a couple of analogies to try and make this
interesting, but bear with me. It didn't quite work with my wife. So I'll give it a go anyway. And I'll also share with you some progress
we've made to date. Secondly, I'm going to talk to you about our plans ahead for the next 2 to 3 years building on this momentum.
And finally, I want to highlight the importance of this program to the fundamental performance and profitability of this airline. So let's
get into it.
Speaking of our approach, our approach is based on sort of 4 high-level principles. First of which Greg spoke about. He referred to
it as walking and chewing gum. We really need to be ambidextrous, have needed to be and continue to need to be ambidextrous as
we execute this program. Secondly, we have a program here that necessitates us to lean into the complexity that we face, and I'll talk
about that in a second. The other thing is we can't fix what we can't see. So a large part of this program has been about improving
our situation awareness. And as an airline, we generate terabytes of data every day. And finally, about 2.5 years ago, digitalization at
the airline became a team sport. So every Air New Zealander has a role to play. It's not necessarily outsourced to me and my team in
the digital department to get this work done, but rather, we've all sort of stacked hands and we've said that the ship has sailed. We're
already a digital enterprise, so we might as well all play together to try and execute on this program.
Using that approach, we have 4 focus areas. The first one being strengthening our digital foundations. Look, this is where our need
to be ambidextrous comes into play. We've had to solve for this while we've been delivering outcomes in the other 3 focus areas to
its right. And we've had to do that in a way where we deliver thousands of little changes while we also focus on executing very large
complex multiyear transformation programs of work. I'll give you a bit of a sense of that in a second.
The next focus area is winning on customer experience. This is where our approach of sort of meeting complexity head on has come
into play. Pre-COVID, not just at Air New Zealand, but airlines around the world, the focus was around digitizing the happy path or
the sunny day scenario. And when the proverbial hit the fan, we relied on our frontline staff to come in and save the day. They were
there to deal with the exceptions. Post-COVID, when volatility and changes are new normal, we can't get away with that. We really
have to lean into the complexity and start digitizing the exceptions as well.
The third focus area is maximizing revenue potential. This is where Jeremy's 4% to 6% of revenue growth comes from. This is a mega
transformation of the industry, and we have some structural advantages that puts us in a very good place to take advantage of it. And
I'll share a bit of that also.
And finally, last but not least, unlocking operational efficiencies at pace, not as once and done. But now that it's a team sport and we
have digital, data, design people embedded in all parts of the airline, this could be one where the flywheel continually rotates. So we
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aren't just trying to find one-off efficiency gains but continuous improvement across all parts of the airline. So that's a bit of a sense of
the recipe.
Now let's get into the dishes themselves. So this is the analogy coming up. Strengthening our digital foundations, the best way to think
about this is the pantry. This is what allows us to cook the dishes in the other 3 focus areas, and the pantry needs to be well stocked.
The first 2 bits, the top 2, think of it as the more basic ingredients in the pantry, the salt and pepper. It's not working, is it, [ Jan ]? I'm
in now. So keep going.
So as Greg mentioned, 3 ago, only 30% of our infrastructure, the storage and compute that we build everything off was in the cloud.
Today, that's 93%. That's industry-leading stuff. And we've done that with great work internally but also alongside some global
partners like AWS and Microsoft. The reason that matters is, a, it makes the boat go faster; b, it gives us the agility and adaptability
we need; and three, as you've been hearing these snippets of digital transformation from my colleagues, it allows us to execute a
program concurrently across all parts of the airline. The airline is 9 key domains, and each 1 of them has the technology size of a large
enterprise in the New Zealand context. So there's a lot of moving parts. So that matters a lot.
As far as connectivity is concerned, again, there's a lot to talk about there. But maybe the one thing I would say is low earth orbit or
Starlink plays a really interesting role for us as an airline. A, on the ground, it allows us to improve resiliency. So 18 of our 20 ports by
the 9th of December will be Starlink enabled, not just to access the Internet but also our all core internal systems. So if they are cut out
from the physical network, those airports can operate in isolation. As a lifeline service provider, that's a pretty big deal.
In the air, it allows us to give our customers access to ground-like internet capacity while they're flying with us. That allows you to
access your favorite media streaming service. Obviously, the relationship with the IFE changes over time and maybe our domestic
A320s now can also fly Trans-Tasman, et cetera, but also allows you to do work like you do on the ground, except maybe take those
pesky video conference calls. Maybe you might want to avoid that. But 2 of our aircraft will be Starlink enabled by February this year
-- next year.
The bottom 2 are the more exotic ingredients and as a sort of critical infrastructure player and a lifeline service provider, cyber and
identity is one where we have to be in the top quartile. We get this externally assured regularly, and we have an extensive program in
place. And our teams are doing a great job, and it's based on some industry best practice and so on.
And finally, I'll butcher this again. Maybe this is not the exotic ingredient in your pantry, but this is the cooking oil. There's no dish
that you can cook without data and analytics. And here, again, great momentum over the last few years.
Lot of enterprises generate a lot of data, but you can't really use that data because they're trapped in the applications that generate
them. Mike Parsons is here, our Head of Data and AI. Him and his team, along with a lot of our colleagues across the airline, have
been busy freeing that data so that it can be used to, a, improve situation awareness; but b, also improve the quality of decision-
making, either by humans or by the numerous bots that we have running alongside our staff across the airline. 75% of all the data we
generate is now available for inside generation and decision-making.
Just so as it happens, when we started this program, GenAI was not a thing. Now it is a thing. And the thing that gets GenAI going
is data. These LLMs, large language models, are trained on the Internet, but they don't quite understand Air New Zealand. And it's
the same data that makes them useful in our context. So these 4 pillars of our foundations are in pretty good shape. And under the
covers of any enterprise, large or small, these are the same 4 key pillars that are the sort of unsung hero of digital -- heroes of digital
transformation programs.
So with that as the [ package ], we'll start cooking some dishes maybe. No 3-course meal goes well if the entree isn't very good. And
winning on customer experience is our ticket to the dance. Our Chair is absolutely having a ball at the back there.
So winning on customer experience for us matters because that creates loyalty to the brand, and it allows us to monetize that
loyalty obviously. And for us, customer experience has 2 components to it. Number one is to not just meet but exceed our customer
expectations. And in the digital realm, our customers' expectation isn't just benchmarking against -- us against another airline.
That said, the United app is very good, and we keep a close eye on that, but actually, benchmarking us against their most favored
experiences. And that bar is much higher. And the teams have been doing a phenomenal job in that space post-COVID. We've got a
lot of momentum.
The second aspect of winning on customer experience is self-service. As far as we're concerned, an airport is a means to an end. And
the more we can get you to do outside of an airport, the better, and so a lot of investments have gone into enabling self-service through
our digital assets. This, again, [ is not ] an exhaustive list, but it is a list where we've either delivered these initiatives or we're working
on delivering them as we speak.
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Maybe the best way I can bring this to life is through the case study of our app. 1.6 million users use this app on a monthly basis. It's
got a rating of 4.7 on the App Store versus 3.5 the App Store rating that our old app had.
We decided to build this app as we were coming out of the second lockdown in Auckland. And one of the reasons we did this
was to create an ability to communicate in real time with our customers. The old app was much loved, but it was not a channel for
communication. We needed to get customers to download the app every time we needed to make any change to it. Obviously, when
you have a couple weeks to open the Trans-Tasman border, that's not flexible enough.
So we built this app using a framework called back end for front end. What that really means is your app is just a blank canvas, and
every time you open it, we paint over it. So it gives us great flexibility to do a bunch of stuff around communication. But one of the
other thing it allows us to do is to deliver features at a great pace, great frequency. And here's some of the sort of phenomenal stats
that we've seen that we've been able to sort of deliver through this new app.
The first one is around disrupt management. As I said, the need of the hour post-COVID was to lean into exceptions management, the
complexity. Today, the app allows you to self-serve in the context of a disrupt 65% of the time. So 65% of all disrupts we have can be
managed through self-service. Three years ago, you would have to queue up at the airport or call a contact center to be able to do that.
The benefits obviously are pretty -- are significant for us as an airline but also for our customers.
The other stat maybe worth paying attention to is the number of calls into the contact center. Only 12, 18 months ago, we were
consistently getting 90,000 calls into the contact center, 45,000 of which we would abandon. And if you did get through, you
would wait on average about 40 minutes to speak to us. Today, we get 25,000 calls into the contact center. Some of those calls have
vaporized because of schedule surety, but we've still got our fair share of disruptions. A large part of those calls have disappeared
because of the self-service capabilities we have enabled.
Not only do we only get 25,000 calls into the contact center, most of which we answer under 5 minutes, a lot of which under 2
minutes actually, 40% of those contacts are non-voice. And a non-voice contact to us is 3x more productive. That stat is industry-
leading. No other airline in the world can claim that. So just one digital asset, of which we have many, is proving to be a very valuable
tool for us to win on customer experience. And we'll continue to do a lot more in this space.
Now the main course, maximizing revenue potential. This is a mildly complicated story, but let me give it a go. Look, the airline
industry digitized itself quite a way back. So one of our pieces of software here went live in 1973. And we created an airline retailing
marketplace quite a long time ago. We called them the GDS systems, the Sabres, the Amadeus, the Travelports, Navitas, et cetera. But
since sort of digitizing the airline retailing paper-based process, so rather than getting a sort of 3-copy paper ticket, we now send you
a PDF in the -- in your inbox or through our app, so the focus has really been about digitizing that paper process. And we've sort of
plateaued out after that.
We haven't really taken advantage of the new e-commerce capabilities that are available today. So that's really the sort of revolution
that's happening in the airline industry, moving from a digitized paper-based process to real digitalization of the airline retailing space.
We internally refer to that as next-generation retailing.
What does that actually look like? We're all familiar with the left-hand side process. It doesn't matter on our website, at expedia.com,
if you go to your favorite travel agent. Apparently, people still do. You essentially follow -- Jeremy is giving me -- we essentially
follow that same linear process. We search for a flight. We pick the dates. We enter the number of passengers that are going to be
traveling, and we go through that process, and we end up booking a flight. That happens during the booking flow. And once that's
done, you'll now -- we shift you into a travel part of the process. That process, as I said, is digitizing the paper process that we have.
Going forward, we are taking advantage of the Internet and the e-commerce capabilities that we have all taken for granted when we
shop online, sort of the amazon.com experience. So we're introducing in the airline industry, the concept of a -- it's not revolutionary,
but it is for the industry, a shopping cart, which allows us to do a few different things we haven't been able to do. And that's being --
and that's very much focused around being customer-centric.
The first thing it allows us to do is to generate dynamic offers. So dynamic offers beyond just the airline seat into airline ancillaries,
which we've done to an extent but taking it to the next level and also extending it into first-mile, last-mile transportation, hotels and
other non-airline ancillary products.
The second thing the shift to that model allows us to do is hyper-personalization. And Jeremy and Kate have talked about that, our
4.7 million members and the data we have not just about your travel preferences but also how you interact with your ground partners.
Using all of that, we can generate offers that makes sense to you. Rather than a more ubiquitous sale to Hawaii, if we know you're
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a road warrior between Auckland and Sydney, we can generate offers that is more -- that are more meaningful to you, a 6-flight
package, for example.
And finally, what it also allows us to do is the ability to cross sell and upsell more effectively. This process on the left-hand side is
typically done ahead of travel and we leave a lot of value on the table by not being able to cross sell and upsell either at the airport or
in the air.
So just to bring this to life with a couple of examples. For the road warriors amongst us, especially if you're going back and forth
between the same city pair, regardless of how many times you've traveled with us, we still put you through the same process each
time you want to [indiscernible]. You might also have a favorite hotel. You might use Uber at both ends of your trip. What we can do
with the new model now is, with a click of a button, clone the previous trip; and 2 clicks, and book that travel for you. And that would
include also the hotel stay that you've got. And the teams are busy prototyping this on the back of some of the early investments we've
made.
The other thing it allows us to do is to -- the entry point to booking can be very different to what it is today. So if you're a family of
4 looking to go on a holiday, rather than start with the destination you want to go to and search for your flights, you can start with
the budget you have for your holiday, and we can auto generate a set of holiday options, including the experiences in each of those
destinations. So that's the type of stuff that we've been able to prototype, and we're starting to work on productionizing, if you will,
over the next 2 to 3 years. This is what really helps us unlock that 4% to 6% revenue growth that Jeremy has been talking about.
Here we go. Now to the third course, the dessert course, unlocking operational efficiencies at pace. There are 3 components to this.
The first for us is about making sure that our staff are given the right tools to do their jobs more efficiently. The second aspect to that
-- to this program is ensuring that we improve our situation awareness. And third is to either remove steps in the process or reimagine
the entire process through the lens of automation.
In terms of tooling itself for example, we're one of the only airlines in the world where we've issued an iPad or an iPhone to almost
every employee. The only 2 groups where we haven't done that is baggage and ramp. And Kate and I are very busy working through
the business case to make sure that they're also tooled. And we're not doing that to make sure that they can take selfies while they're
on shifts but rather to use that as a platform for innovation. We have put out about 2 dozen apps that our staff use today to facilitate air
travel either to deliver a better service onboard or on the ground in terms of our airport staff. And I'll share one of the examples with
you in a second. But in the flight deck, this has also had a very interesting impact.
So we're, again, a world's first, the only airline across all our fleets to have a paperless flight deck. So across our widebodies, narrow
bodies and turboprops, pilots now carry a single iPad. And on that iPad is some crucial apps that they need to do their jobs effectively.
Now that's been great in terms of improving operational efficiency, our on-time performance. From a sustainability point of view,
we've taken paper the height of the Sky Tower out of our operations. But also going forward, what that allows us to do is what we call
dynamic flight planning. And this is something that Richard, I think, will talk about as well in a second, but this allows us to really
optimize how much fuel we are using by, in real time, adjusting our flight plans either on the horizontal or vertical axis.
One other tool that I want to share with you that's having a really big impact in our operations is what we call Ops Collab. I've just
recently come back from Austin, Texas, where we got to present this to a bunch of our airline peers and Apple and some of the
partners. And this app was the talk of town. And the reason for that is this is having some quite significant impact on our on-time
performance stats since we've started to introduce it.
This app here, Ops Collab, is used during a turn. A turn for an airline is our version of a Formula 1 pit stop. So as you guys all -- as
one of our planes pulls in and we dock it at the gate and you start to disembark, grab your bags and hit to your next airport, there are
dozens of teams at the airline executing about 2,000 to 3,000 tasks, in the case of an A320, in 45 minutes to execute a turn. That needs
to be executed with precision for us to have a chance for that aircraft to take off on time for its next flight. This is the tool that we've
built to help facilitate that.
Before this tool, our staff relied on 2-way radios and a hub-and-spoke model where message would go to an airline operations center,
which then would get broadcasted to the various different parties. And we lost a lot of time in not getting the right messages and
situation awareness to the right people across the airline. This tool allows us to do that more effectively. Think of it as a WhatsApp
for every flight. And anyone who's involved in the turn of that flight gets to subscribe into that WhatsApp group, and they can
communicate with each other in real time.
There are 3 benefits that we've seen from this app. One, obviously, is improved communication and coordination to execute that turn
precisely. Two is it's had a massive impact on the psychology of the turn. The turn historically is a penalty-based sport. If the flight
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is delayed, we try and find the team that's -- that we can pin the blame on. So is it catering that was late or was it fuel that was late, et
cetera?
What this app allows us to do is actually flip that on its head and turn it into a reward-based sport. So we've taken some inspiration
from gaming. And, we've spent a lot of time designing in micro rewards. So if the cleaners finished 30 seconds ahead of time, they can
gift that to the next group. We can celebrate that. At the end of a successful turn, imagine with virtual high fives flying. So people are
enjoying the fact that they've now got a way of celebrating each other's success and being very being -- sort of moving away from it
being sort of a high-stress penalty-based sport. So more serotonin, less cortisol is what we want when we are executing our turn.
And finally, situation awareness. Every step of every turn now is a data point that we can collect, and this is important because then
we can use that information to fine tune our -- what we call our precision time line, the macro process that defines the sequence of
activities that executes a turn.
This is an area where we are under stress obviously with the aircraft issues, the engine issues and so on. So having it [indiscernible]
has been a bit of a game changer for us. We're targeting 2% to 4% on-time performance improvement using this capability. And we're
already starting to see progress towards that, particularly in our turboprop fleet. It's been quite a successful launch, and we've just
launched this on domestic a couple of months ago, and it's going to be rolled out into our international fleet as well.
Look, it's very hard for me to get through every example of -- or every initiative we have in our digitalization program. But I wanted
to give you a sense of how we're approaching it and sort of the key focus areas for us and the momentum that the teams have been
building in this space.
In closing, the reason this audience should care about this is because 70% to 80% of all of the incremental EBITDA benefits that
we've been talking to you about today, and Richard will talk about it a bit more, comes from our ability to execute these programs
well, and what we've now got is a track record for delivery. So we've been scoring a lot of these 9-point tries that Greg talks about, 1
point for talking, 9 points for doing. And we have a very solid plan and momentum to continue to score those 9-point tries. And this is
a big success area for us, and we expect it to continue to be so.
All of these are impossible without some fantastic talent. Air New Zealand, as Nikki will talk to you about in a second, it's been the
employer of choice for many, many years. And so we get to attract some fantastic talent not just in the operational parts of the airline
but also in my area, in digital. 35% of our staff are brand new with contemporary skills, but we also rely on some global partners who
help us execute programs like this.
The other thing that's really been helpful for us is our new ways of working. And I think that's a good segue actually for me to stop
butchering my kitchen analogy and hand over to Nikki Dines, who's going to talk to you about our most important asset, our people
and these ways of working I've been sort of alluding to. Thank you.
Nikki Dines
Chief People Officer
Hi, everyone. It's great to be here today talking to you about our people here at Air New Zealand, which, as Nikhil has said, we
consider to be our most important asset in delivering on our strategy.
So you heard Greg talk earlier about the importance of culture, having the right team. So I'll talk to you today about why that is
important to us. I'll talk to you also about our union relationships and why they're important and why we invest in them. I'll also talk
to you about our operating model. So what we've done to change the way that we work and the way that we plan for our business and
how it's helping us to deliver value faster.
So put simply, we think our people are what differentiates us in the market. If you look at those awards that Greg talked about,
winning the airline of choice, the Condé Nast award that we -- were announced a couple of months ago, first and foremost, that comes
down to the people that we have. So we think you probably all have had this experience or know of people who say when you step on
a plane overseas and you're greeted with a kia ora at the door, feels like you're already in New Zealand. So that is really what we think
gives us that competitive edge in the market.
We're often asked [indiscernible] what makes it so strong and how we've sustained it through some pretty challenging times,
particularly through COVID, and that's not something that we take for granted. It is something that we really actively invest in because
we think, with a strong culture, we can attract the best talent. And you'll see there on the screen there that we have over 1,700 jobs last
year and 68,000 people applying for them. And that's pretty standard for us. I've been here for 11 years, and we tend to get to those
kinds of rates of applications each year.
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It also helps us to retain our great people. And again, from the screen, you can see our turnover rates. So in New Zealand, you're up
around the 17% mark. Here at Air New Zealand, we're at 6.4% [indiscernible] we're at less than 5%. So that's really important to us to
be able to really bring in great talent and keep them here and have them highly engaged.
We've got a really diverse workforce. You can see that from the screen. We're a very heavily unionized workforce. We've got people
located around the globe. We've got quite a range of tenure for our staff. We've got particularly long service in those safety sensitive
areas like in cabin, pilots and engineering. We've got other parts of the organization where we're building back our workforce after
coming out of COVID.
Now our view is that regardless of people's union membership, where they're working, how long they've been here, if we treat them
fairly, pay them a fair wage, we give them opportunities to develop, that's going to translate into a really strong employee experience,
which then translates through into our customer experience. And we see that. We see in our frontline workforce. We have scores of
over 86% in the airports for customer satisfaction, 91% onboard the aircraft. And we know that, that is one of the things that impacts
the most on our customer satisfaction, is that experience that they have with our people, particularly when they're in flight.
It also translates into loyalty. So what we saw through COVID was we unfortunately had to let 3,500 people go as we've kind of head
into COVID. We've built back very rapidly, and we saw over 1,000 people come back and rejoin us. So for us, it was excellent to get
there, that loyalty and that experience back into the organization.
You'll see there on the screen, we have employee engagement at 71%, and you might ask why it's not higher than that? We have an
aspiration. We used the Glint employee survey tool to measure engagement here. The global top quartile benchmark is 78%. Now
we are -- that includes all sorts of businesses. We are obviously a very heavily unionized, very heavily operational business. So 71%
actually scores pretty well when you look at those types of businesses, but it is something that we want to continue to work on. And it
does remain a real focus for us.
And one thing that's been great to see is actually that's held pretty steady. And the last few years have certainly come with their
challenges through the significant ramp-down and ramp-up out of COVID and some of the challenges we're experiencing now. So
we're really pleased to see engagement holding steady for us.
Something that's important to us is that we really understand our workforce. So we know what skills we have -- we need to have in the
organization right across the business now and into the future. We also want to make sure that we don't get caught short because we
know that there are some types of roles where it's pretty hard. There's a global shortage of talent, areas like pilots, engineers, digital.
So we're making sure we did a piece of work around strategic workforce planning, very detailed piece of work that every part of the
organization did earlier this year.
We know we have got some challenges in terms of the global shortage in pilots. So we have introduced -- you might have seen in
the media, a cadetship program, our Mangopare program. We've just sent 12 people offshore to get a type rating, their first type
rating. We're sending another group off shortly. And the idea is that, ultimately, we will bring that program back onshore and run that
ourselves, just to really broaden out that pipeline of talent that we have through the existing channels of getting people into flying.
We've got a really long-standing engineering trainee program, and we've really beefed that up in recent years. So again, we're making
sure that we've got a good flow of future talent coming into that workforce.
And we've also set up a digital intern and graduate program so that we can really tap into the greatest talent coming out from
universities but also on the wider workforce where we're seeing people potentially re-skill into digital roles. So we want to be able to
make sure we can capture that talent and bring them into Air New Zealand.
As well as looking at our talent pipeline, we invest significantly in development, so leadership development. We think our leaders play
a really critical role in terms of driving productivity and driving engagement. So we have leadership development programs right from
the frontline workforce through to our senior leaders.
We bring in -- we partnered with TupuToa, which some of you may know about, it's a Maori and Pacific intern program, so that we
can make sure that we're bringing in some really diverse talent. We have a real focus on customer service trading.
As I said, that's really what differentiates Air New Zealand as an airline is that strong customer service. And we've also set up a digital
academy, and there's 3 parts to that digital academy. One is around upskilling those grades and interns that we bring in. Another one
is continuing to build the skills of people who currently work for this organization and digital role, so that we're really continuing
to grow and develop their skills. If you heard from Nikhil, we've got a really ambitious agenda around what we want to do with our
digital workforce.
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So the third one part of the Digital Academy is actually upskilling the wider workforce. So every single person in this organization
knows how to really make use of the tools, the technology that we're giving them. We've given all of our frontline staff mobile devices
and access to data that they've never really had access to before. We want to make sure that they can really optimize the use and drive
as much value as we can out of using those tools and that data.
From diversity, equity and inclusion perspective, why is it important to tell us or we serve a diverse customer base. So we need to
make sure that we have a good understanding of what those customer needs are. We think it leads to be the decision-making as well
to have diversity of thought sitting around the table. We've got 11 employee networks who are very active. We partner with Pride
Pledge. We have the general accessibility tech that enables us to audit ourself and to benchmark to see what else we need to be doing.
And I'll share a little story with you, for those of you who have got a coffee here today. That's from our cafe up there, which is our
Flourish cafe, and we've done that in partnership with Project Employ, and it's an opportunity for young adults with disabilities to have
employment, get their first job. So that's just one of the things that we're doing to make sure that we really bring it to life within the
organization.
From a safety perspective, as an airline, the most important thing and what we -- is very much front of mind for us in everything that
we do. We take a lot of focus on driving a really robust safety culture. So a lot of emphasis on safety training and safety reporting. We
have a very extensive and robust safety reporting process. And those efforts in terms of safety saw us recognized as the world's safest
airlines this year by airlineratings.com. And if we ever going to win an award, that's the one we want to win most as an airline.
In terms of union relationships, we have a real focus on making sure that we can build really strong and constructive relationships with
the 5 unions who represent people here in New Zealand, because we think that, that can either contribute to enhancing or eroding the
long-term value of this business. And you can see that from events around the world, things that have played out for many years now
across many sectors when you don't have those strong [indiscernible] relationships, you can end up in a lot of problems from a cost, a
culture and an operational disruption perspective. So we do prioritize investing our time and our efforts in building those relationships.
For those who have been here before, we've talked about our high performance, high engagement model that we use. It's pretty unique
actually in the aviation sector. I think we're the only ones doing it. We got it from the U.S. health care sector about 10 years ago. And
we just had a look at that earlier this year, we refreshed it, and we've put in place something called a strategic engagement charter.
Now we as an organization have signed up to that and so have all of the lead teams of each union.
And we have a set of core agreed objectives in that charter that we all have agreed are going to be the way that we govern how we act
towards each other. And they're around things like superior returns, superior world-class productivity and return for things like greater
job security and superior terms and conditions because actually, at the end of the day, our unions and we have the same interest.
We want the business to do well over the short term, but we also wanted to stick around and to do well right into the future. So the
strategic engagement charter sets us up to be able to work together on productivity initiatives, change, et cetera, in a way that's really
constructive.
One of the things that's really key to our union relationships is around transparency. We have a lot of points of engagement with the
unions. We engage with them on a day-to-day basis at business unit level, there are structured monthly catch-ups. We, as an executive
team, catch up with the senior members of each union on a quarterly basis. Actually, we've got one later on this week. We will share
this kind of information we're sharing with you today, this is what we share with the unions, because it gives us a share degree kind of
platform. They all have the same knowledge that we do in things, whether it's the challenges that we're facing or the opportunities that
we want to go after.
We have partnered with the unions to pursue something that we call sustainable jobs. So that's jobs for people that are sustainable both
for the business and for our people. That means that we look at the way that we pay our people. So all of our people are at or above the
living wage from a total [indiscernible] perspective.
It's also about the tools that we give. You heard Nikhil talk about giving our people mobile devices. It's making sure that they've got
the right tools that they need to do their jobs really efficiently and safely. We also take the same approach to collective bargaining,
because that's kind of where the rubber hits the road often with your union relationships, and it can be a quite a disruptive experience
going through collective bargaining or it can go quite smoothly.
So we're really transparent in our collective bargains around our pay offer. We don't hold it to the union and then pull it out. We tell
them from to start what we believe is an affordable pay increase for the business. And we base that both on how the economy is doing
and how the business is doing. Any pay increases over and above that are funded by productivity gains. So we have a very upfront
kind of conversation with the unions right from the outset on that. And that has really enabled us to get through what could be quite
disruptive times in the organization in a pretty streamlined way.
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Simplification is really important. We are a legacy airline. There are plenty of areas where we are looking really hard at how we can
simplify, it's right across the board. And we've been able to partner with the unions to achieve much simpler terms and conditions in
parts of the organization and also working on things like roster and conditions and look at how we can work together to simplify those
things.
We also have got -- we've been simplifying processes in the way that our staff is knowledge. And a great example of this is in our
contact center. So you probably -- you've heard a bit today about what we've been doing in the contact center and you may know
that we've had some real challenges in the past, and now we've really managed to deliver a quite exceptional service throughout our
contact center in recent times. We have a situation where our contact center agents can face really complex queries.
So they have some -- a family of 4 that wants to travel to London via L.A, Houston, and they want to grab Grandma on the way, and
they've got -- some of them have got core membership, some of them don't, really kind of complex queries. So when they ring the
contact center or go on to chat, that can take our agents quite a lot of time to look at different sources of information to get the answer
to the query. So we have built a GenAI chatbot called [ TUI ] and the contact center, and that enables our agents to have their complex
information at their fingertips straightaway.
And what we've seen from that we're seeing 95% daily utilization of that in the contact center. So people love it. They're using it. We
have seen response rates for chats go down by 2 minutes in voice goes down by over a minute, and we've seen savings already of
over $2 million annualized. So those are the kinds of things that's really simplifying how we give people access to the right kind of
information to improve customer satisfaction, cost and employee experience as well.
And just finally, our operating model. So another significant step that we've taken to really unlock value in this business is to change
the way that we operate and play in our business. So we were traditionally a kind of a top-down functional operating model. As we
came out of COVID, we knew that we needed to have an operating model that allowed us to move really quickly because as I know
you'll all know, this is an industry that requires it's got a lot of change. It's got a lot of things happening all of the time. We need the
ability to respond really quickly to those things.
So we took the opportunity to reframe how we work and put in place a more agile operating model. So that's all about having
hundreds of cross-functional teams working together to solve problems or go after opportunities. And a good example that you heard
Nikhil talk earlier about some of the changes we've made to our app. So we've got a team of people that are made out of a number of
digital skill sets, could be airport staff, design skill sets, all working together to go run of the highest priority things that we need to
solve for and you've got all the skills there together to be able to do it.
So we've got hundreds of these teams working across the organization. We've also changed as well as changing the way that we work,
we've changed the way that we plan. So we have a really rigorous quarterly business planning process. We call it our QBR process. So
every quarter as an executive team, we come together, we have a couple of days together where we sit down and we look at what have
we learned over the past quarter, what do we say we're doing have we done it, what have we learned from that, and what are we going
to do for the next quarter, and we tied it into value.
So we look at what are the things that are the highest priority for us that are going to help us deliver our strategy within share that with
the organization and they set their priorities based on that. So quite a change for us. And what we've been able to see through making
these changes to our operating model is that we can get things done faster. We can unlock value faster. We've seen teams being able to
deploy at 7x the rate that they have been previously.
So to summarize, why do we invest in people? Well, quite frankly, it's just good business. Our people are our highest operating
expense. They have such a significant impact on the organization and on our profitability. It makes sense for us to really make sure we
invest in our people. We've got a volatile industry. We really want to make sure we have a stable and high-quality workforce and you
can see there on the slide, higher engagement means that we have higher discretionary effort.
We get a great customer experience from our people, strong retention, lower trading costs, greater productivity, again, greater
customer experience and then also increased wellness means we get a strong focus on safety outcomes. So for us, that is really why we
focus on driving the culture of this organization and investing in our people.
So I'll hand now to Richard just to bring us home.
Richard Thomson
Chief Financial Officer
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Welcome, everybody. Good afternoon. That's the final session. We're almost there, almost there. Just by way of introduction, it is a
really tough operating environment at the moment. It is hard to understate the operational and economic impact of these. But listening
to my colleagues this afternoon or certainly this afternoon session is a really good reminder of the incredible work that's going on
in the business at the moment to develop and maintain a very strong foundational core. So I take great heart from that. It will pay
dividends literally in figuratively over time.
I want to cover 3 things this afternoon. There will be other things that sort of crop up. But one is we are in a strong financial position
as interline and that is underpinned by 3 fundamental planks. We've got an investment-grade credit rating. We've got a formal capital
management framework, which is critical to that. And we've got a large unencumbered portfolio of modern aircraft, which is not
something we've had before. We've got a modern young increasingly simple, not as simple as we'd like it, yet fleet with capital-light
growth opportunities, which I'll cover in a bit more detail.
And I want to finish just by reiterating our medium-term financial ambitions as an organization, which include top line revenue
growth over and above what we might expect just from capacity growth and the commitment to sort of flat nominal declining real
CASK.
Strong leverage with plenty of flexibility in the business. We do continue to have very modest leverage, particularly given the average
age of our fleet relative to a lot of other players. Our leverage ratio at the moment is very low, probably too low, but that is a function
of the delayed new Boeing aircraft deliveries, which we now expect to take the first of just over a year's time in early 2026, and
we'll get back into the target leverage range, a range that we've occupied with a great deal of consistency actually in the post-GFC
environment ignoring the cover.
The supply chain remains very difficult and the engine challenges are well publicized. But when we do get the aircraft, we've already
bought back and operating the fleet and the new aircraft coming online at the start of 2026, we will see very strong benefits associated
with that. I'll come back to those soon.
But I think one message on this slide that I'd like to leave you with above all else is that we have kept replacing our fleet along
the way. So we've got strong leverage, young fleet. We've kept replacing them. We're up to date. Therefore, we're in a pretty good
position relative to many peers in terms of that fleet age to leverage ratio, which gives us wonderful flexibility as a business.
Investment grade credit rating. The key point here is we are committed to maintaining it. It gives us really good access to global
funding markets. We're the only airline and thank you, Justin, probably with some of your assistance in this a few bankers in the room
that helped us through this. However, we're the only airline to avoid a downgrade or a negative watch since March 2020, which is
fantastic, and we benefit as an airline from a long-standing presence in the international secured aircraft funding markets.
More recently, we're in the unsecured markets as well be aware we've got a relatively modest since the New Zealand retail bond. But
in the last couple of years, we've diversified into the unsecured funding markets, particularly the Aussie medium-term note market.
But in a nutshell, we've got great access to the funding and just as importantly, really good pricing on net funding, particularly for an
airline our size.
Capital management framework. I assume many of you have seen this, we issued this in the middle of last year. quick summary of
the targets. We've got a liquidity target of $1.2 billion to $1.5 billion, which we are toward the top of at the moment as I sort of stand
here today, and we've got liquidity just under $1.5 billion. I think we're at $1.45 billion as of this morning. And a net debt ratio to the
EBITDA ratio, as I mentioned before, of 1.2 -- sorry, 1.5 to 2.5x, which we trading under at the moment, but again, expect that to
normalize as we take new fleet into the system.
This framework is foundational to maintaining the investment-grade credit rating. The dividend payout ratio is linked to earnings
deliberately so. We're in a cyclical business, although we do smooth that somewhat by approaching the 12-month impact calculation
that we use in that on a rolling basis. But we have opportunities to distribute excess cash. Those opportunities exist today. We assess
them separately from the dividend payout ratio based on leverage, liquidity and where we think we're setting in the CapEx cycle.
Growth CapEx is subject to a 10% post-tax nominal hurdle rate. And I'll give you a good example of that and reselection very shortly.
And return on invested capital ROIC, we do expect to increase as the average fleet age floats up. As I mentioned before, we've got
relatively low gearing relative to our fleet age. And we do think that we can comfortably float the average fleet age from sort of 8.5,
9 years up to 12 years over the course of the next 5 or 6 years, particularly given that we don't see major -- with some exceptions,
major advances in current aircraft technology, the 350, the 320, 787, the Boeing MAX for those buying it are sort of the cutting edge
of current aviation technology. And so we don't feel like we're going to be forced into the need or suffer a disadvantage by continuing
to operate the technology we've got for some time yet.
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Unencumbered fleet, the third part of the financial flexibility formula. Just a quick comment on this. If you go back sort of pre-
COVID days, we had relatively few unencumbered aircraft, about $400 million with typically older 777-200s, ATR 72-500s for those
that sort of follow that and our older 320s. Fast forward to now, we've got $1.6 billion worth of unencumbered aircraft, so a significant
change, and they're all modern. So ATR 72-600s, new version of that, 787s A320neos. So we're in good shape there. And they do
form part of contingent liquidity.
We don't include them in our liquidity number. But effectively, they do. And you will see, as you probably picked up from the
guidance note that we issued this morning, we're taking advantage of a little bit of it at the moment, although for different reasons.
We are in the advanced stages of sale and leaseback transaction on 4 of our mid-life A320s, taking advantage, one of the very strong
market values of those aircraft at the moment. And secondly, using that as an opportunity to retire some of our residual value risk on
those aircraft further down the track.
So that will be an introduction of additional liquidity if the transaction settles before Christmas. That sounds easy. The aircraft have
actually got to sort of end up flying out over international waters to avoid GSD problem. But assuming we can manage that, we'll get
that transaction completed in the first half of the year.
Fleet simplification, we've made a bit of this of -- teams made a bit of this in the talk today. We've gone from 8 different types of the
aircraft 10 years ago to 5 on our way less than that without compromising the mission fit and flexibility of the fleet. The A321, which
we've got, we can't fly at the moment and the 787-10 when we get it, have the best unit costs in Aviation but nothing else. They are
the most efficient aeroplanes in the year, and we're getting them. Some of the benefits on the 321, in particular, being covered by Mike
earlier in the presentation.
As I said before, fewer new aircraft programs being rolled out by the aircraft manufacturers. And as a consequence of that, no major
improvements on aircraft technology, at least over the next decade from our perspective. So we're happy to flip the fleet age up over
time.
787, a brief update on this. So the new aircraft are late to arrive sadly. I rejoined the business. I've been here -- I joined first and sort of
early 2004, rejoined in very early 2021. And at that point, we were expecting to get the 787s in September of that year.
What are we now? November, going December 2024. We're still waiting. But they will be excellent aircraft when they arrive. So the
GEnx powered. It's a lighter, more efficient engine. So we're going to get 1% to 2% improvement in fuel burn when those aircraft
arrive. And as I think I've mentioned to some of you in the room before, the aircraft come with an increased maximum takeoff weight,
which is about 6 tonnes of lift to the existing aircraft, roughly half of which we can use for revenue-generating activities, the rest of
the capabilities used to carry the aircraft around -- or sorry, in fuel, rather.
We have, over the course of the last 6 months, made some or 2 significant adjustments to the fleet plan over the next 5 or 6 years. The
first of those is a decision to retain our fleet of 777-300 aircraft out until the early -- intention was to retire those by the end of FY '28.
The reason we're keeping them is because they are very efficient, reliable, capable ubiquitous aircraft. And secondly, it will help us
to mitigate some of the vagaries of the widebody new aircraft delivery program as well. So it's capital -- very capital-light growth and
also gives us a bit of resilience over the next couple of years.
We made a decision -- the board met last week. We've made the decisions as an organization to invest and modest some money, but
some significant enough in the premium cabins on those plants to ensure that we've got a really good customer proposition to get us
out into the early 2030s. The other part of the fleet plan that's still a work in progress is the Q300s, which are an older aircraft now that
16, 17 years old now, but actually a very rugged aircraft despite some of the unreliability we've seen recently on the regional network.
But they are quite capable with the right investments of operating in the fleet for longer, which will serve 2 purposes.
Again, it's capital-light retention of capacity than the regional network, which is fantastic. But it also allows some of these new aircraft
manufacturers, who are typically starting with smaller aircraft and developing the gauge over time, gives them a bit more of a runway
so we get to the point we need to make a decision on the Q300s replacement. So we'll watch the space or provide you with an update
on the Q300 shortly. We have had a team in the room, Greg, a couple of others. I think Alex in the room have been up to the OEM
of the Q300 and I bought them to get some confidence in their ability to maintain fleet over the long term and come back from that
particular trip with a great deal of confidence and the ability of the [indiscernible] to do that.
So really, the only critical fleet replacement, if you like, that we've got in front of us over the next 5 years are out to the end of 2030
as a sort of 777-200 replacement program effectively. After the event, we retired the 200s during COVID. But as we get the new
787s, they're effectively going to be growth CapEx units for us rather than replacement. Beyond that, into the early 2030s, there
was some fleet replacement that we'll need to lean into the older A320, A321 -- A320ceos will be -- need to be replaced in the early
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
2030s. Again, reiterating comments I've already made, we're not going to not required to do a lock stock and barrel replacement of that
narrow-body jet fleet.
Again, we expect the technology to be incremental advance on what we've got at the moment. So we'll be able to replace some of
those older aircraft unit by unit progressive, which will help the CapEx profile. And in the Q300s, I've mentioned sort of briefly
earlier. I'll cover what all this means the long run maintenance CapEx in a more detail at the moment.
Lastly, this slide, I'll keep it short because it's somewhat artistic. But the point I did want to make here is that we've got a lot of
flexibility within the current fleet once Boeing starts to deliver new aircraft. And on the Boeing order, just a reminder to everybody
that order was placed in 2019. We've got 8 year firm order at the moment, but a lot of optionality within that order book to add aircraft
should the need arise. And the important thing about that is as we -- if and when we exercise options out of that order book, it's on
the same terms and conditions as the deal we struck in 2019 including all the clauses that pertained price escalation of those aircraft,
which I think is pretty important in an environment that's become as inflationary as it has in the intervening period.
CapEx, we've got a bit going more than usual going on at the moment in the space as mentioned, we've got some important
investments going on with the 787 retrofit currently, the 777-300 interiors hot off the press. [ Hangridge ] at Auckland Airport,
Auckland Lounge redevelopment at our key hub. And Jeremy, I think, mentioned before, an investment in both cargo systems, in
physical infrastructure at the airport over the next 5 years, although the new cargo facility at the airport is not expected until financial
year '29 for commissioning.
What that means in our sort of average CapEx terms is between now and 29, we think both aircraft and non-aircraft-related capital
expenditure in the round, we track around $800 million, $850 million a year over that period. I mean once the [ Hangridge ] in the
cargo facilities are being commissioned, which is one-off ground capital investment was enduring benefits over many decades.
We expect maintenance CapEx to drop down at that point to more like $600 million, $700 million a year, which will obviously
contributed to very strong free cash flow over time.
Unit cost improvement. So as mentioned several times today, we've got transformation initiatives with between $300 million and $400
million out between now and FY '28. Roughly 1/3 of those, roughly, are attributable to larger programs targeting specific efficiencies
in the labor cost base. And there are too many to mention in a session. Not this. We're happy to take some of those off-line, but I didn't
want to kind of cover some of the more topical ones right here right now. Nikhil discuss the investments being made in tools and
systems, driving lower costs of contact center in particular at the moment, we wove carry a lot of additional resource as we've come
out of COVID and floods and various other disrupt events. That includes the live check functionality that Nikhil mentioned before and
automated disrupt recovery tails.
And the engineering and maintenance, we're restructuring the aircraft maintenance packages to improve alignment between those and
the sort of rosters and patterns of activity in the engineering and maintenance hangars that will improve labor productivity.
In cabin crew, we have cross-trained or in the process haven't quite completed it of cross-training cabin crew on both wide-body
fleet types, so the 787 and 777, so they can move between those 2 aircraft seamlessly, that's already quite apart from the efficiency
improvements that delivers. It's provided some practical benefits to us over the last 6 years, particularly as we've had to juggle the
schedule and the deployment of different aircraft types in light of the Rolls-Royce engine challenges.
And pilots right now, there's sort of a lengthy program of work there, but we are reviewing our domestic regional network and
schedule at the moment, again, to make sure that our commercial and operational planning parameters are better aligned, which will
deliver much improved reliability and more efficient bolsters. And in the airports, Nikhil talked about the ops collab tool, but we're
looking at precision time lines. We have looked at them in detailed standards. Again, both those things will better inform airport labor
demand.
For those of you that were watching Nikki's slide, you will have seen that the FTE in the businesses is just seeing just over 11,500 was
as high as 11,750, I think. So over the course of the last 3 to 4 months we've taken 220-odd FTEs out of the business. Quite obviously,
a very painful exercise to go through as anybody that means cost exercise -- cost out exercises know but that has been completed
very efficiently and well. We've had to do some reprioritization of some of our activities that is done. And just to put that in numeric
terms it's about $28 million of annual sort of labor cost, not all of which will hit the P&L, some of it's what we call OpEx or capital
costs that are capitalized to parts of the business. But in the P&L sense, it's $19 million to $20 million of labor efficiencies that come
through there.
None of these things we're talking about in the $300 million to $400 million include the efficiencies that we are going to gain by
getting the aircraft we've already bought back into service. So the scale efficiencies that come with there, and there are fuel costs and
other efficiencies that come with that. So that is separate.
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So we just -- I may note so we step back a little bit from all of this. We've got, from a fleet perspective, 787s and 320neos returning
to service over the course of the next 18 months. We expect to see the worst of these engine issues over come in early calendar 2026.
And we've got additional A321 as I mentioned new 787 GEnx technology on the way.
Labor and nonlabor overheads, again, we'll get the scale benefits, economies of scale of growing the network without growing
materially the indirect labor cost base. And just on the procurement side of things, I mentioned some labor cost savings in the last 6
months, but every year, we target roughly that can even flow $20 million to $25 million of procurement cost benefits. And the most
recent example of that is in the sort of domestic hotel space where our crew we've seen tens of millions of dollars a year on accrue
accommodation across the network in a chunk of that's in New Zealand. We've taken the team and managed to take $2 million out
of the hotel budget just in New Zealand over the course of the last couple of months. So those sort of productivity improvements are
happening all the time.
So the practical effect of all of these 2 things, and I'll come back to this in my closing comments, is we're expecting over the next 3
years to keep CASK as a business flat or very close to flat in nominal terms as a consequence of those improvements. And for the
purposes of that statement, we're assuming CPI of 3% next year, 2.2% year following and 2% the year following that.
The single biggest challenge we've got, was alluded to earlier this morning or this earlier this afternoon are the increases that we're
seeing in aeronautical charges coming through, which we've called out specifically the chart here. What we've done here, they will
be what they will be, and we're doing our best to manage them, but they will have an impact on what might have otherwise we could
have achieved on the domestic network, in particular. So we've taken that into account. And the figures Mike quoted before, about 2%
to 3% compound and domestic growth going forward.
Sustainability, very important topic I'm going to comment on it briefly here. As you all know in the room, we reluctantly withdrew
from the science-based target a few months ago, is it became part that we were too reliant on a lot of external factors in pursuit of that
target that we had relatively little control being met. We do still have the World Economic Forum's Clean Skies target, which is 10%
SAF uplift by 2030. And in financial year 2025 will be 1/5 of the way there on that. And just to put the sort of cost of pursuing that
target in monetary terms, we're spending USD 10 million, USD 12 million extra over and above what it would have cost us to buy
non-SAF aviation fuel this year to achieve 1/5 of that target.
The BETA ALIA airplane that you see in the middle of the screen there, which we've talked about some time delivers into New
Zealand, I think, in April next year. That's not far away. It's 4 months away. It's a small aeroplane, just to put this thing in context,
several hundred kgs of payload, I think it probably carry 4 or 5 passengers. So clearly, we're not going to be able to build a
commercial airline around sort of an aircraft of this size.
But what it does for us is allows us to get them a really good understanding of the developments that have got to occur in the
regulatory environment to support an aircraft of this type or technology of this type and also allows us to learn a lot about what we
need to do from a sort of engineering and operating support perspective to operate new aircraft technology going forward. So while
the aircraft itself is not big enough to replace the Q300, it may scale over time. It's an opportunity for us to get familiar with the
regulatory and operational requirements of very new technology like this.
Lastly, I can't remember who -- also before I get to this, lastly, 2 things I did want to mention just around fuel burn, which aren't
included in the $300 million to $400 million of sort of big rock targets. But they were mentioned earlier, one of them was. There are 2
developments, tech developments that will help with fuel burn. So this is where we spend a lot of money.
On the 777-300 fleet, there is a new, the call it the [ shark skin ] technology being developed sort of a dimpled service that you can
apply to the aircraft, which include, I think, [ Dave ], the laminar flow, I'll get my terminology right of the aircraft, which have done
well can produce fuel savings on the 777-300 fleet of up to 1%. We haven't signed off the business case on that yet, but the technology
is rapidly developing.
And Mike had mentioned new flight technology available on the 787, which allows the pilots in flight to modify what's called cost
index on urban. So normally that happens as part of the flight planning process before you leave the ground, do the flight plan, you
sort of capture what you think the ambient conditions on the route, they're going to look like, plug that in and come up with a cost
index, which dictates sort of how high the plane will fly and how fast you're going to fly it for a given payload given those ambient
conditions. But there's no ability to update that on route if those ambient conditions differ to the ones that are in the flight plan.
So that's on the cusp of changing so you can make those updates in flight, sounds small, but it's a huge cost and again, on the 787 with
that properly implemented there's the opportunity to clean up to another 1% of fuel burn efficiencies on that particular graph type as
we roll out that technology.
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So I think Greg mentioned it right in his earlier comments and the $300 million to $400 million we've taken a kind of a middle-of-
the-road view on that. There'll be some things as part of that, that don't deliver all the benefits envisaged. Equally, there are a bunch
of things in that like those, the 2 I've just mentioned that are not included in those calculations provide a bit of upside. So watch this
space.
Investments in -- or our sort of growth hurdle rate, as I mentioned before, 10% plus post-tax nominal. And as I mentioned earlier, we
are interested in investing in earnings diversification, particularly if we can stay focused on our core capabilities and provider that
meets those hurdles.
The crisis engine center is a good example of this. We were down there a couple of weeks ago launching the GTF capability down
there. Just for those sort of background, that's a facility, we have been in parts with Pratt & Whitney with since 2001. In 2004, it
became the V2500 capable, that's engine on the A320ceo, which is a hugely popular engine internationally. And over the course of the
last 20 years, the Christchurch shops developed a reputation as being one of the best, if not the best shop in Pratt & Whitney's V2500
engineering and maintenance universe. So much so that in 2014, the facility down there doubled in size. And while the DTF is not
going to -- the V2500 is not going away, I don't know how many are in global service at the moment, but it's likely to continue flying
out to late 2030s, early 2040.
There was an opportunity here to both come up with a product replacement platform for the V longer term, but also do something that
can supercharge the earnings or the economic value we get out of the center. So the GTF geared turbofan, that's the engine on the neo,
the PW1100 to 1500 as well, USD 140 million getting invested down in Christchurch between us and Pratt's to make that facility GTF
cable and we'd expect the first engine to go in early calendar '26. The whole program is sort of self-funding out of the CEC, out of the
free cash flow down there in the IRR comfortably, comfortably exceeds the hurdle targets that we've spoken of.
So quite apart from being aligned to it it's a great New Zealand Inc. story. It's a real testament to the regard that Pratt's hold the shop.
And it's a great investment, we believe. And as a sort of cherry on top, Air New Zealand will be able to get its own PW1100 engines
maintained in that shop, which improves our turnaround times and saves on a lot of freighting costs. So it's a really fantastic outcome,
we're excited about.
Medium-term financial ambitions, just sort of bringing all this stuff together. So $300 million to $400 million of big rock
transformations plus the benefits of the aircraft we've already got coming back in the networks going back more generally. So we do
expect that the portion of those transformation benefits that pertained to cost plus the other fleet benefits that not included in that are
going to help us with the nominal flat, nominal CASK, declining real CASK objective.
Well, 4% to 6% revenue growth annually as part of those targets 3% to 4% we're going to get through capacity growth. The additional
1% to 2% is going to be delivered as a practical consequence of many of the things you've heard about from Jeremy and Kate and
others today attributable to long-haul premiumization in the New Zealand domestic business, up-gauging aircraft 321 over time and
growth in ancillary and loyalty revenue.
As I mentioned, we've got a very young fleet with strong balance sheet metrics. So we've got a lot of flexibility in terms of growth and
capital management. We can and will return excess cash, expect us to take a thoughtful and measured approach to that.
Tough environment. But just to reiterate, everything that's been said today, starting with Greg, we've got a high-performing customer-
focused team with really strong values. We're not operating at scale right here right now, 16% of the jet fleet is grounded. But I hope
you leave the session this afternoon with a strong sense that we've got a detailed plan, and we're continuing to invest in the business
foundations, whether it be fleet, ground infrastructure, simplification and modernization of the digital estate, which Nikhil talked
passionately about in people and processes, Nikki again talked pertinently about. As I mentioned, revenue growth will be underpinned
by premiumization and further new fleet in the international part of the business, upgauging domestic jet and loyalty.
Capital management opportunities exist that I think in the round, we've got real confidence despite the current challenges, real
confidence in the platform and the core foundations that we've built and continue to build as a business. And on that note, will
conclude.
[Presentation]
Leila Peters
General Manager of Corporate Finance
Could I please invite the whole leadership team to come up to the stage and Jeremy and Kate. I'll just do some quick intros as well to
those that didn't speak yet today. So really excited to do Q&A, and we will not rush it, but I would just like to let everyone know that
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after Q&A, we have drinks and refreshments at the flight deck and actually some pretty cool things for you to see. I think we've got
some touch and feel things that have surprised us with.
So just to round out the introductions, for those of you that haven't yet met, Alex Marren, over to my left is our Chief Operating
Officer; David Morgan, who I think everyone here knows, he's our Chief Operational Integrity Safety Officer, also Chief Pilot. Kiri
Hannifin, I think most of you have actually met before our Chief Sustainability and Corporate Affairs Officer. So welcome, and thank
you.
And just briefly, could all the Air New Zealanders in the room raised their hand? Okay. So just so you know, we can throw questions
to you, too. And we will because it's a team sport, as Greg said. Good? Okay.
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Question and Answer
Leila Peters
General Manager of Corporate Finance
Now it's time for questions. We're really excited to hear from all of you and see what's on your minds. Could you just raise your hand
and just wait for a microphone to come to you because otherwise people on the webcast won't be able to follow what you're saying.
And when you wait, we'll start with you since you're brave, please just introduce yourself with your name and where you're from, just
so everyone knows. Thank you.
Wade Gardiner
Craigs Investment Partners Limited, Research Division
Wade from Craigs Investment Partners. Given to more premium in the long-haul cabins. What does it do to maintain in market share
in the economy space? Or is this about maximizing revenue market share rather than seats, if you like?
Leila Peters
General Manager of Corporate Finance
Mike or Jeremy, would you like to take that?
Jeremy O'Brien
Yes. I'm happy to start on that. But ultimately, we've got to choose where we think we can best win. And so -- and a short answer to
your question, it's absolutely going after where we believe the best revenue this year is for us. We now going to be the largest and
we'd probably be going to have the most capacity. And so therefore, it's about giving us customers that we most want to win and
doing the best job against that. And we think that premium customers of where the growth is going to be and we believe, based on the
investments we're making, we're best positioned to win that market share. So the short answer to your question is, yes, it's going to be
about going after ultimately the best of revenue share that we can get out of that cabin.
Gregory S. Foran
Chief Executive Officer
Can I add a bit to that and Baden get yourself ready. It's a discussion that we have because you got to be careful you don't pivot 2-
way and then you lose market share, market share, market share. So one of the things the team did before I got here is I think they
negotiated an incredibly smart deal with Boeing in terms of options on other planes. And I don't know how much you can say about
that Baden and Richard because you've got no notice of this question, but say what you think you can.
Richard Thomson
Chief Financial Officer
So the flexibility, as Greg said, that we have on that deal with Boeing that we struck in 2019 as some of the people at Boeing sort
of suggest that the most flexibility that they've ever put in their deal. I'm not sure that that's 100% true, but it is a lot. And one of the
things that we can do with the order is we can make choices aircraft by aircraft as to whether it's a -9 or a -10. So where we have the
opportunity to play in the premium market where we want to protect that premium market. As Jeremy was saying, we can choose
[indiscernible] because it might meet our operational requirements quite nicely, and we can fill it with a quite high premium sort of
mix.
But equally, there might be markets where we're a little more predictive of just outside market share. And an example of that might be
Los Angeles, for example. So -10 in the long run, once the 777-300s finally retire might be the right aircraft for that market. We might
be able to use that or we will be able to use that then to be able to maintain that market share more economy seats down the back. But
then we can have the flexibility of intermixing that aircraft depending on the season with the more premium -9s.
So I think it's a nuanced story. I think the general story is we are wanting to play in the premium space because we have the right to
win, but we will look at market by market and define our aircraft deployment based on that.
Leila Peters
General Manager of Corporate Finance
I think Liv we have a question right up here.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
Unknown Analyst
Great. Thanks, Leila. So just maybe sticking on that premiumization theme. You're not the only airline in the world pushing
premiumization on front of cabin in particular, segmentation of products, getting more out of what you've got on each aircraft,
particularly on long haul. How do you see this impacting the industry profit pool?
And in particular, the retention of that over the longer term? Do you -- in essence, do you see it getting competed away? Or is this a
broader supply-demand issue in light of the fact that we don't have sufficient supply across the industry at this stage?
Gregory S. Foran
Chief Executive Officer
I might say a couple of words and then hand people who know a lot more than what I do about it. I guess I see this playing out in other
industries, to be honest with you. I see it play out in retail that I'm recently reasonably familiar with. And you're not all retail analysts.
But if you were, you would say, well, who's doing really well. And I would say to you, well, people like Costco are doing well, people
like Aldi are doing well and the discounters. And I think what I see happening in the world is bifurcation and wealth. Richer getting
richer, poorer getting poorer. Why did Trump do so well in the election because there's a hell of a lot of people in America who were
worse off after 4 years than what they were in the previous 4 years. And they may -- we may sit here and say Trump this and Trump
that. But at the end of the day, if they're worse off, they say, well, it's I don't want to continue where ongoing.
So what do I see happening in the airline space? I see growth was -- Michael O'Leary in Ryanair and I've met him and got to know
him. And that's a pretty simple model, and he's playing that hard and fast. Interestingly, I look at someone like Southwest to sort of
getting a little bit core in the middle there. But I see the discount is doing well. I see the full service carriers doing well. I think as the
world bifurcates in terms of wealth, which I suspect will continue providing the premium market doesn't become too oversaturated
then you're probably okay, and you can see both United and Delta playing in that space. American trying to catch up, our Qantas
playing in that space. I deliberately use the words. We're a bit ambidextrous in this country, and you need to be. We're 1.5x the size of
Arkansas with 5 million people.
So let's be clear that domestically, we should continue to be very egalitarian in our approach. Short sector lengths, it actually plays to
the culture of the country it works pretty well into the Pacific, works pretty well across the Tasman. We can put a little bit of premium
in there because we've got spare aircraft time when you're flying back from the States, you can use it in the middle of the day, good
aircraft utilization. Long haul, most of our flights are over 12 hours. We're really playing here into a market of, I think, premium
leisure travelers.
And whilst you don't discount the economy person sitting down the pack, you have to decide who your core customer is, and you've
got to do a great job with them. And a good example of that is McDonald's. McDonald's -- everyone goes to McDonald's but who's a
core customer. It's a mom with young kids who eat chicken nuggets. And be pretty clear, don't leave your core customers.
So our core in the long haul has to be the premium traveler and do a damn good job with that, with wine and food and a nice
entertainment screen and get those business class seats changed out, so they're a great feature but we still will do a great job with
economy. And I like what we're doing with SkyNest, a bit of innovation, better DNA in the organization, that's what we're good at.
But not only that, but improving the entertainment with SBI now in terms of in-flight entertainment. So we've moved away from
Panasonic. We're doing something there that not many other airlines have done. We think it's a better system. Nikhil had, I don't
know, 6, 7 people up there working with them for the last couple of months to get them up to speed. So that's how I think about it.
Unknown Analyst
Good answer, Greg. Can I just have another question, Leila? Just it's refreshed here the return on capital desire in terms of exceeding
WACC at some stage over the coming years. Can you talk about return on capital in the context of domestic in terms of Tasman PI, in
terms of long haul, how it applies, how we should think about your ability to generate that desired WACC type or WACC-plus type
return across each of those business segments?
Richard Thomson
Chief Financial Officer
We don't -- it's a system. It is a network and my old boss, [ Rob Donald ] used to describe it, is sort of a pyramid, if you start chipping
away the bottom of the pyramid sinks or you build on it. So we're not sort of breaking it up by segment. and won't do that. So
the ambition is, obviously, as an enterprise to exceed those return on capital targets. And the best way to describe it. I think the
international business, the long-haul business arguably has a slightly higher cost of capital. It's sort of an inherently more volatile
business than domestic in a very capital-intensive business. The domestic business is the opposite of that.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
Although having said that, that's essentially a New Zealand dollar revenue business with a chunk of U.S. dollar cost. So it's not
without volatility. But the targets that we've described today are enterprise-wide targets in the round and won't go much further than
that.
Unknown Analyst
Just following on from that. The return on capital outlook and how far you should exceed the sort of 11% by. Has that moved up a lot
with the $300 million to $400 million target. You were talking about that prior to all this transformation and other digital benefits. Is
this -- should this all be additive?
Richard Thomson
Chief Financial Officer
It's a good question. And I will have a sort of initial chat that we'd like. So just to again put this in a bit of context. So it's you shouldn't
review it as additive relative to the current position. We're not in a normal position, 16% of the jet fleet not operating. So it's additive
provisor around that in a moment to what we would expect in a normal operating environment.
Having said some of that, as I mentioned before, 1/3 of those benefits relate specifically to labor cost improvements in relation to
improvements. And they are part in part of ensuring that we maintain flat nominal cost going forward. So it's part of that formula. And
there may be, particularly on the revenue side, some of those transformational benefits may or may not get competed away. So it's a
roundabout answer, but I wouldn't take a necessarily a $400 million normal EBIT operation environment and simply add $400 million
of it, it's more nuance than that. But it is certainly incremental to our normalized sort of EBIT performance subject to the vagaries of
competition.
Leila Peters
General Manager of Corporate Finance
Just the other thing I would just add to that is, of course, the denominator or the invested capital base certainly will be improved with
the extension of the 777-300s, enabling the 3% to 4% growth ambition, but also very, very capital-light way to deliver that. And
so as we look towards the end of that 4 year horizon and even beyond, I think you're right, Nick and saying sort of that really starts
powering up, at least in our internal estimations.
Unknown Analyst
No, that's great. And just on the net debt-to-EBITDA forecast you provided to be back in range. Does that assume a lot of those
EBITDA benefits come through? And does that also assume capital management to get you there? Or is that purely the fleet
investment?
Leila Peters
General Manager of Corporate Finance
Questions, Marcus over on this table.
Marcus Curley
UBS Investment Bank, Research Division
Is there any reason why you haven't converted it into a long-term aspiration around profit? [indiscernible] converted your EBITDA
uplift into absolute exploration. The second part of that question is, how are you going to measure success? If you don't give us a
proper number to benchmark against?
Leila Peters
General Manager of Corporate Finance
There's a few reasons and then please maybe Mike or Richard join in. One is we wanted to -- this is something internally that we, first
of all, have rolled out for quite some time now, so about 18 months and when we talk to the business internally, we think in terms of
EBITDA because we think in terms of the underlying business performance, separate and above from capital structure and financing
decisions. So that's kind of the first thing.
So we wanted to share with you how we think about things internally, and so that they are aligned because not just talking to you
about our plans, our detailed plans and aspirations is important. But having internally 11,500 Air New Zealanders aligned in marching
to the same drumbeat is critically important for delivery. Mike, do you want to touch on the other?
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Mike Williams
Chief Transformation & Alliances Officer
Maybe taking a bit of a step there. We've always had profit improvement. We invest in the basis that we think it will deliver. I think
the thing that's changed and hence that now, and Nick you touched on this quarter business review cycles every quarter we sit down to
look at what's on the plate. That will based on longer-term road maps or plans that we want to deliver.
And so ultimately, what we're sure they started with internal conversations over the past year or 2 where we've started to place a lot
more emphasis on where we're going to be focusing in order to drive the performance that we're seeking. And when we're having
those internal conversations, we've actually now really rallied the organization around the EBITDA improvement target. So every --
again, Nick mentioned there's hundreds of things teams set up to look after a particular part of the business. They are all calibrated as
well to go after improving EBITDA performance. In some cases, it's CSAT or operational performance. So that's what we wanted to
share.
I also think that we catched it as this is the medium-term aspiration. We know just looking back in the rearview mirror, that there's so
many uncertainties that we're constantly managing. What we're sharing is what we view as the controllable elements of this plan. Greg
also mentioned that there'll be things where we haven't anticipated something or maybe even some of those initiatives don't deliver at
100%. There are other things that because they're so recent or they're still in this case base, they're not even included in that 3 to 4. So
we're looking at that and actually feeling really confident about it. And quite likely, I think in the future, you'll hear us talk about both
how we're performing against that 3 to 4, but also what the road map looks beyond that.
Richard Thomson
Chief Financial Officer
[ Marcus ] I don't know whether that answers your question or not. But I think Mike raises a key point, which is in a business that's
subject of pretty significant externalities. Big difference between control and uncontrollable of $300 million to $400 million is sort of
a reflection in areas where we can make a real difference from a controllable perspective on outcomes. So I think given the influence
that macroeconomic factors, including fuel changes in policy settings, sort of CPI is on the business of time. I think it would be a very,
very brave sort of management team to put an absolute dollar number on sort of a profit target in 3 or 5 years' time.
But all things we've talked about today, I think, sort of hold us in very good stead. And we are confident that we will see sort of ROIC
improvements over time, profitability improvements over time. And these are tangible initiatives.
And the separate part of your question is, so how do you measure them? And what we can measure them, we can and do measure
them. And so I would expect going forward as we present sort of interim and annual results sort of announcements to the market, we'll
put some energy and effort and to specifically identifying the progress we think we've made in those key transformational areas.
Leila Peters
General Manager of Corporate Finance
Jason in the front.
Jason Familton
Accident Compensation Corporation
Just a follow-on from -- Jason Familton from ACC. Just following from the same conversation. I was just wondering, how are you
flowing this into management and symptoms like TIs or LTIs and how are you guys all going to be remunerated for delivering what
you see you going to deliver today?
Unknown Executive
We have some [indiscernible] perspective, we have a balanced scorecard. We moved to this coming out of COVID actually, we used
to have a 50% basically financial company performance metric and a 50% individual. We've moved away from individual and put
it entirely on a balanced scorecard. So 50% of that scorecard is based on financials, so return on invested capital and controllable
cost out of revenue and then the other half is based on operational sustainability and customer metrics. So there's kind of a clear
line of sight between financial performance and hitting on those key parts of our strategy. From an LTI perspective, it is based on
benchmarking against [indiscernible] and to the airline index outperforming those.
Jason Familton
Accident Compensation Corporation
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
So you can just -- just a question on loyalty. Just can you give us some sort of context what, $30 million to $40 million means in terms
of growth on raters today?
Unknown Executive
Sure. So we don't report separately on loyalty performance, which I'm sure you know. We view loyalty in the airline as inextricably
linked, and we don't separate them out like some others do. The components of that $30 to $40 we haven't split out, but there are 3
parts to that. The first is growing the sales of Airpoints dollars to third parties. The second is growth in our product portfolio. And then
the third is benefits from offering this new redemption offer. So being able to manage loads and yields better through Airpoints dollars
offers and the flow on loyalty effects of that.
Jason Familton
Accident Compensation Corporation
Okay. So a couple more.
Kate O'Brien
Can just quickly add to that just to. How about there are other airlines who do report this separately and one thing I'd probably say is
when we benchmark ourselves against them on a sort of normalized equivalent basis, we perform as well or better.
Jason Familton
Accident Compensation Corporation
A question for Mike. I mean obviously are based in Wellington. If we look at Wellington Newport market share, 60% Qantas and 40%
Air New Zealand. Obviously, the airport itself talked about potential for long-haul flights last week. Can you talk about the rest of
New Zealand that potentially not just Auckland?
Mike Williams
Chief Transformation & Alliances Officer
Rest of New Zealand from a international...
Jason Familton
Accident Compensation Corporation
In network and transdermal competition.
Mike Williams
Chief Transformation & Alliances Officer
I think -- and David will probably want the mic in a minute to talk about runways and lengths and things like this. But look, we serve
all of New Zealand that's the first thing. And we do that again with the pyramid structure that Richard talked about. The network
is designed -- when we're designing the domestic network, we're thinking as much about how that connects with the international
network, obviously, largely out of Auckland, but also Wellington and Christchurch. Just touching on Wellington first, and I'll look at
some others.
Again, this is one of those frustrations that we don't quite have the fleet that we initially had expected. There's aircraft that will
come in the future, the ones which have been delayed and others because of the engine issues, which would have been placing really
Wellington that will come right. And we think when that happens, we will get that market share back in places like Wellington. Same
thing really goes with Christchurch on that short-haul perspective.
Long haul and this is probably the second most frequent question we get after when you're going to go to London and things like
that. Long haul out of places ex-Auckland. This is where Alliance has come to play a big part in the way we think about things. I
mentioned capital efficiency and making sure we're deploying those aircraft in the way that makes the most sense. Ultimately, I know
we're spending all of our time here. We like to think and would want to see long haul route service out of crisis, for example, it's just
too small. And it comes at a cost because we wouldn't be able to have that long-haul widebody aircraft based out of Auckland, where
more of that demand is.
The other thing is we don't have things like pilot hubs or bases in Christchurch. But of course, we could partner with alliance partners.
So Singapore, Cathay and United are all flowing into Christchurch and that's not by chance, that's because we're working with them
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
and supporting them from a sales and marketing perspective on the ground and Christchurch in that instance to make sure that their
flights work. And where is incentivized to support them on those markets as we are our own flights on Auckland, for example.
So I think that's a really good example about how we get benefit in working with alliance partners.
Maybe a final point, just prior to COVID, we were operating long haul ex-Christchurch to Singapore. That signals may be a longer-
term intent. And it worked went well for us. It took quite a bit to get it to the point where it was working and we have the network
organized. We could look at getting back and it's something that's on the longer-term road maps. It all again comes back to fleet and
making sure we've got the right capital deployment decisions in terms of the network choices were in. Does that answer that?
Unknown Executive
Using the accepted international aircraft performance methodology, repaving the runway in safety area with a frangible surface, which
is designed to stop the aircraft in the event of an overrun does not materially increase the runway length. And therefore, Air New
Zealand is struggling to understand how that can be interpreted as an ability to operate widebody aircraft off that runway.
Leila Peters
General Manager of Corporate Finance
I think Paul in the back. And then Jason, if you have more questions after we'll pass it back.
Unknown Analyst
Thanks, Leila. Just so thinking about pre-COVID, there were tens of millions of Indians and Chinese and other Asian economies
getting into the middle class and 4% to 6% revenue growth sounds like normal GDP if I'm lucky, is that an ambitious enough target?
Gregory S. Foran
Chief Executive Officer
Yes, I'll kick off to begin with, and others can jump on. Yes, we think it is, actually. Otherwise, we wouldn't be sitting up here and
building a plan around it. There's all kinds of things that you have to deal with in the industry, and one of them is what you believe
you can deliver based on the aircraft that are available. I'd have to tell you that -- we sort of have got, if you like, a trifecta that we're
having to deal with at the moment. It doesn't apply to every airline. There's plenty of airlines out there with Airbus. A320s and A321s,
but not everyone's got a PW1100 on them. And frankly, if you've got the older engine, which we have on a bunch of them, that's just
great. But unfortunately, because we've got a modern fleet, we've got the new one. Not everyone who's got a 787 has got a Trent, you
have a choice. You can put a GE engine on that one if you want. And in fact, the new ones will have that.
I can tell you that if you're running an A350 at the moment, you don't have a choice as to what engine you put on it, you put on a
XWB on it. And here's what I'm hearing about the XWB engine, which happens to be a Rolls-Royce engine as well. They're down to
2,000 to 2,500 cycles. That's under half of what they expect to get right, Baden? And there's a few people out there now with A350s
that are going kind of low, maybe we've got a bit of a challenge on our hands.
Probably with the trend once they get new blade approved, which I would think probably 6 months' time. It's not actually a new blade.
It's the same blade they run on another engine. They just have to get approved by the FAA as those engines start to go through shop
visits, we may well find that actually the Trent 1000 starts to come right. Who knows? I'm not smarter. But at least there's a sole for
some of that.
So what's happening is that these things aren't shared equally across the industry, and you've got to deal with that. In terms of the 3%
to 4% growth, we think that's pretty sensible. My lesson in this is you're better to be a little bit under and work the assets hard then to
be a little bit over and try and come up with interesting places to fly to. This is a highly capital-intensive business. You measure our
success on return on invested capital. So what are going to do? I've got to work with this team down here to get these planes of their
wide-bodies flying 14, 15, 16 hour a day. If they're the Airbuses, we want them flying 11, 12 hours a day. So good utilization of those
assets make sense.
So at this stage, we're comfortable. As Baden shared with you. We need to add a little bit more in we've got some flexibility. We've
made a deliberate decision to extend the 777 for a couple of reasons. Number one, I can't guarantee you that Boeing is going to deliver
and neither can [indiscernible]. Secondly, they are a damn good aircraft. That's Toyota Corolla in 1986 that just keeps on going. So we
think we've got about the right amount in there, to be honest with you.
Richard Thomson
Chief Financial Officer
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You're right. I mean it's what we're interested in is profitable growth. In some of these markets, I'll pick on China. It's not always
profitable growth. There's lots of volume. That doesn't mean that it makes any money. And so you need to be somewhat selective
about what you're doing and just sort of a longer-term context for decades, sort of areas of any sort, domestic or international have sort
of tracked in flat nominal terms declining real terms over a long time. I think actually, we've reached an inflection point, given where
aircraft technologies got to where you're actually now starting to plan for real -- sorry, nominal growth in yields and some of it is not
related to the [indiscernible]. We've talked today about some of the other things we're doing to sort of help drive that. But I think it is
an appropriate target, and it is a distinct difference from where the industry has been for a long time.
Leila Peters
General Manager of Corporate Finance
Shane. And then John.
Shane Solly
Harbour Asset Management Limited
Shane Solly from Harbour. I've got a couple of questions on there. Firstly, can you just talk a bit more about the economics of flying
as London and potentially pick up India. I want to understand were your customers in a broader sense, the more -- will I get more
loyalty, a little bit more ancillary because it's a hard haul. Is it your products and rise I know a thing to say.
Unknown Executive
I'll start and then others will come. It's not a Project Sunrise. 2 things if I talk about London, we get a bit of a quick touch on India.
I mean, both of these are not announcing a new root today just start there. And you know that these sorts of discussions often come
[indiscernible], we're always looking at new opportunities. Look London has changed for us in two respects, which is why it makes
good sense just to go back and look at it again. The first is we used to operate that with 777s, which was a big aircraft. It still is a big
aircraft. And we didn't have the benefit at that point of putting 787 on. Okay.
So we've got the opportunity now to operate that if we decide to do it with the 787, which is a better size, better configured, better
operating economic aircraft to get to London. Yes, exactly. And it's ready to go. It doesn't require modifications. So that's one big
change.
Second thing is, like I mentioned, we -- when we exited -- of course, we had a lot of work done to look at the impacts of that and
where we've recaptured that passenger flow buyer. Look, a lot of that work as we expected. Some going by Singapore with Singapore
Airlines, some going via the U.S. Obviously, some has gone by the Middle East as well and actually quite a few New Zealand that
want to fly to the U.K., somewhat to Europe as well, travel by the Middle East. We want to reclaim some of that. And some of the
assumptions around how much would trouble by Singapore in the U.S., but it's just not playing out because, as I mentioned, customers
want to fly with their New Zealand. So our job is to give them that choice. So those are two big changes that have really prompted our
thinking.
In India, it's simply a growth story. It really is booming. And I know there's so many ways if you look about that, looking at trips per
capita in the U.S. and how that -- sorry, in India and how that's tracked versus similar markets like China. Some of us have been there
quite recently monetized actually in the last couple of years and seeing that the growth in that market, not just from a total population
perspective, but where that growth is the trade links between New Zealand and India, the increased economic ties, cultural ties, there's
a big Indian expect community in New Zealand as well.
And so coming out of COVID, there was this absolute explosion of travel. Some of that via France, visiting friends and relatives, but a
lot of it increasingly is more trade related. So as we look ahead and we look at government wanting to double exports and a lot of that
being length with India, we look at it as a medium to long-term play with the -- again, aircraft that are suited to that sort of -- was kind
of a [ border ] around an ultra-long-haul mission that we've got the technology now and the economics to make it work.
Richard Thomson
Chief Financial Officer
Mike, one other factor as it relates to London. And Kate, maybe you want to add to this, but we did see the loyalty effect be
material. So Kate mentioned that when high-value customers hit the top tier, then they're making decisions to go to on the European
[indiscernible] west bound, and the loyalty effect of that matters. So it's not the deciding factor, but it is one of the key factors. We
want our HPCs to remain flying on us beyond when they hit gold elite.
Shane Solly
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Harbour Asset Management Limited
Just a second question of your CapEx spend, you talked about for the next 5 years. Can you break out how much is digital? And is it
enough?
Richard Thomson
Chief Financial Officer
Well, Nikhil's probably best to answer that question. We've given them, we've given them, I think, it's $70 million a year or
thereabouts in CapEx. Obviously, the digital budget in the [ realm ] between OpEx and CapEx is bigger than that. But actually, the
team has done a remarkable job of actually working with an envelope. In fact, often we've got the reverse problem if you want to
describe it as a problem, which is we don't quite sort of spend what we've set aside in the budget over the course of the year. Nikhil?
Nikhil Ravishankar
Chief Digital Officer
A combination of the right levels of investment, but also the right type of lever of capability to deliver with precision, the outcomes
that we want to deliver. And there, we've got a fantastic internal team. I mean, for example, our app team is 13th the size of the United
app team, even though complexity doesn't necessarily scale down based on size. So we've got some fantastic talent in the organization,
and we've recently signed partnerships with Accenture and TCS. And between them, they've got 1.35 million staff. So we're using
them as sort of elastic capacity to scale up and down as we execute more of these large big rock transformation programs -- well-
supported program here.
Leila Peters
General Manager of Corporate Finance
John and then Grant.
John Middleton
John Middleton from Mint Asset Management. Two quick things for me. One, I thought the owners lease slide was helpful. There's
not one any focuses in on it. But I think the comment I'd say there is we've got no context for what all the other airlines do, which
makes you look a lot better. But your comment you made about essentially selling down some of those aircraft to generate cash. Why
do you want to generate cash now?
Richard Thomson
Chief Financial Officer
We'd want to generate cash now, particularly. We're just taking advantage of strong market values for those aircraft and retiring
residual risk on net fleet because we wake up in 5 or 6 years' time. It might not be strong in the market. And what we do with the cash
is an entirely different question. It sort of relates, its caught up in the capital management discussion we did.
John Middleton
And so what do you intended to do?
Richard Thomson
Chief Financial Officer
What we intend to do? Watch the space, well, I'm not sort of announcing any capital management initiatives today. But as I mentioned
before, we're looking at liquidity, which is strong. Leverage, which is strong. We are at in the CapEx cycle, which is -- we're spending
a better money on 787 retrofits and as 787s deliver. Obviously, there's a bit of capital associated with that. But as I mentioned in my
comments, we've kept up with replacement CapEx, particularly around aircraft, pretty consistently over time. So we're in a good
position. I think we've got a bit of balance sheet flexibility. We didn't say yes, we haven't even sold the aircraft to sort of accumulate
more liquidity.
John Middleton
And then just I'm assuming that the new 787s will be the new configuration?
Richard Thomson
Chief Financial Officer
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Yes, they will. Yes, there's 2 configs, just to be clear. So we've got a 219 seater that was mentioned in the [indiscernible] today, which
will turn up next year with the new aircraft, the first 5 aircraft [indiscernible] 219 seats 787s. It's basically for those trying to imagine
that, that's a 777-300 size business in premium economy cabin and then the rest is sort of a smaller economy class.
The retrofit aircraft, which is being done at the moment is a 272-seater plane a very similar configuration to scale for aircraft size to
the old 777-200 that we used to operate. So we have 2 fleets and time of 7 and 8 the sort of higher premium configuration and then
the more you put a configuration that we can fly into just about any market. And then to the Baden's point before, after the fifth new
aircraft is delivered, we need to make a decision, but we have the option of taking 787-10 and the configuration of that airplane, it will
be the same seat on the aircraft. So we're not developing anything new but the seat and cabin mix may well be different.
John Middleton
And what -- I mean, given you're sort of doing 2/3 of the 777 going forward in the new configuration. What does that mean for
medium-term growth expectations? It feels like you pared back your cap your capacity growth quite a lot. Does that mean there's more
787 to buy or not?
Richard Thomson
Chief Financial Officer
It may well do. When we say sort of power capacity growth, we've got 3% to 5% capacity growth on wide-body international as part
of this plan, so which we think is a senseful starting point. And if we see the need or opportunity presents itself to do more than that,
we've got enough flexibility within the sparing order we've talked about to add grow units to that should we desire.
Gregory S. Foran
Chief Executive Officer
Keeping the 777 has not only given us a bit of an insurance policy about where the Boeing delivers on time. but it also adds some
more seats to the network. So it sort of makes sense to do what we've done, which is to hold them a bit longer. Thanks, John.
Leila Peters
General Manager of Corporate Finance
Grant?
Grant Lowe
Jarden Limited, Research Division
Grant Lowe from Jarden. Surprise doesn't come up here. But just in terms of today's guidance, just to take a step back to the very short
term. At the full year, the clear message was that first half as there was an expectation that the difficulties at that time would continue
through the first half. We've seen what is effectively an underlying upgrade today. Where has been the improvement relative to what
you might have seen 2 or 3 months ago?
Richard Thomson
Chief Financial Officer
I'll answer that one. So I think the -- on the cost side, as I mentioned before, the team has done some pretty good work on extracting
some labor costs sort of improvements from the system. As Jeremy mentioned, seats to suit on the Tasman has been rolled out and
actually delivered some good tangible benefits there. And then we've made some incremental improvements in the ancillary revenue
space, which is sort of help drive a modest improvement over the course of the 6 months.
I think the domestic environment has not changed a huge amount. We've seen -- you mentioned this morning, there are some initial
green shoots, I think, around SME, corporate travel and domestic. But we're just -- this is a game of ventures, not miles, and we've just
done a whole bunch of things a little bit better in the last 6 months than we thought in February.
Gregory S. Foran
Chief Executive Officer
Basically, what you're seeing is you're seeing the parts of the transformation beginning to play out. And you haven't got the full year
benefit of them at the moment, but it's exactly as Richard just said, A lot of the things that got discussed today are actually already
happening. We just haven't presented. This is what we intend to do on seats to suit or this is what we intend to do on ancillary income.
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So for example, if you went on to our site today and you try to attach a rental car, it is a completely different process now to attach a
rental car booking. And in fact, correct me if I'm wrong, but I think we increased the attachment rates by literally double?
Unknown Executive
Yes, doubled.
Gregory S. Foran
Chief Executive Officer
So it's 100 things and 1% better the beginnings of all that revenues bit better, costs are a bit better. Sure, we got a little bit better fuel
than what we thought. And then there are those other components that we've called out, such as the sale and leaseback and some
compensation. But the underlying business, as I sit here. I actually think it's a pretty darn good result for what we've had to deal with. I
haven't been in this business forever. But when was the last time government spend was down 25% and showing no sign of immediate
recovery. Now very good if you're the government because that's doing exactly what you want to see happening. But those guys book
late by flexible tickets and drive good margins. When was the last time you had at the same time that happened, corporate spend down
12%.
So the fact that we're driving some revenue growth says that the work with Flyer, for example, is actually working. And that's why
we've got enough confidence today to actually put that slide in front of you and say, all right, that's what we think is going to happen.
We control some of those. I can't control spare parts. It's bloody hard. If I can't get seat actuators to fix the business class seats to keep
breaking down, and we get charge basically $50,000 each motor and there's 2 of them in there. We're the only ones in the world, by
the way, who have that particular part. It's really hard.
Now next week will go and see the Chief Executive of Safran, and I'm going to try a full core press on them and say, hey, either drop
our price or give us the drawings because these are basically back in cleaner motors. Not that I'm an engineer or anything, but they're
about that size. You'd find an Electrolux.
Unknown Executive
It's a very expensive [indiscernible]
Gregory S. Foran
Chief Executive Officer
And you getting charge $50,000 a piece. So I can't control that. And that's one of the reasons why we will take these 777s that we're
now going to extend, and we'll wrap out those business plus seats. And we'll put in something because we're going to keep those
planes to 2030, 2031. And who knows, maybe even a little bit longer. I don't have to make that call now. We'll do it on 6 of them.
Jeremy and team are going to be able to sell all the seats because at the moment, we can't sell all the seats, and it's just not a great
customer experience when you get on there and it went then into a bed or the trade table breaks.
Grant Lowe
Jarden Limited, Research Division
So just with that, like there's some green shoots there, you're talking about a lot of positive things, which obviously to annualize. I
know you don't give guidance at this stage of the year for the full year, but I'm hearing a degree of confidence that the business is
potentially on the bit of continuing that good momentum of the second half, would that be a reasonable characterization?
Gregory S. Foran
Chief Executive Officer
Really hard thing to answer the way that you want me to answer that. What I -- what I will tell you is that I hope you go away from
this particular session with a couple of thoughts that are in your mind. Number one, these guys have a plan and is it believable? Did
you see stuff today that you go I get it. I can see how they can increase revenue. Jeremy went through as 5 points what we're going to
do. And Kate's explained what we're doing with loyalty. So can I believe that? Number two, do I think they can execute it? Because
you get 1 point for talking and 9 for doing.
And trust me, I've been around the place long enough to know plenty of businesses, don't. Take North bot, and I shared it with
the business today. The Swedish battery maker. What are they running at, at the moment, 1% production compared to where they
expected to do. So Goldman's have had to take what a $1.4 billion write-down.
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AIR NEW ZEALAND LIMITED ANALYST/INVESTOR DAY NOV 25, 2024
So nothing matter with the plan, it's just I couldn't execute it. We're pretty obsessed here with, if you say you're going to do it and we
sign off on it, do it. So I hope you go away going is a sort of way of working in Air New Zealand, which is coming across as being the
synced up. There's not an internal competition that's going on in this business team. Number two, they've got a plan and it's believable.
And number three, I think they're executing it and they will. And that's why I have confidence in it. Now I can't tell you what other
site swipes coming around the corner. We're going to get another issue with the Trent engine. Are we going to find out that Boeing
actually can't deliver the 787s despite all the work that we're doing, I can't control that, no one in the team can. What we try and do is
build in enough of insurance policies so we can deal with it.
And then we hold ourselves to account for the stuff that we can do. And we are building something here which is going to work
really well for a long time. That's why we're doing the hanger. It's why we're doing the Christchurch Engine Center. We've probably
spent $40 million, $50 million, Alex, on ground service equipment this year. So if you're out at Auckland Airport, you can see new
pushback tugs. You can see new pallet loaders, you can see -- what else? [indiscernible] New water trucks, stuff we haven't spent
money on for a long time, like years and years and years, but it works now, and that's going to help a whole bunch of things in the
business.
Leila Peters
General Manager of Corporate Finance
I could not have scripted a better close. So I think that I will take the opportunity to thank everyone for the formal conclusion of the
Q&A. But just to remind you all that the team is here for the next while, and I really, really urge you to ask them all of your unasked
questions in a more intimate setting.
Again, I just wanted to say on behalf of the Air New Zealand team, thank you so much for spending your afternoon with us. We
know that a lot to take out of your day to listen to a whole bunch of presentations. I'm sure they're much snazzier than others, but still
a whole bunch of presentations is a lot and to absorb a lot of information, and we don't take that for granted, and we really, really
appreciate those relationships. As Greg said, it all comes down to relationships.
So with that, I'll formally conclude the Investor Day, and we will see you in the flight deck for drinks. Thank you.
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