Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (October 2009)
69 slides from Air New Zealand's investor day presentation, Oct 16, 2009
Slide 1: Investor Day October 2009 - Welcome
INVESTOR DAY OCTOBER 2009 For personal use only WELCOME ROB FYFE CEO 1 2009 Investor Day
Slide 2: Continue to Strengthen Position
CONTINUE TO STRENGTHEN POSITION For personal use only • Aggressive capacity management • Market leading innovations continue to roll out • Relishing domestic competition • Employee engagement improvements across entire business • Environmental leadership position • Robust and consistent hedging poli
Slide 3: We Are Overtaking on the Uphill
WE ARE OVERTAKING ON THE UPHILL For personal use only Normalised Ebit / Revenue at 30 June 2009 6% 5% 4% 3% 2% 1% 0% Ai Si So Q Ca Vi Co Br -1% rN ng ut an th rg nt itis Z ap hw ta ay in in h or es s Bl en Ai -2% e Pa ue ta rw Ai t cif l ay -3% rli i c s ne s -4% -5% • Air NZ estimates based on resp
Slide 4: Slow Road to Recovery for Airlines
SLOW ROAD TO RECOVERY FOR AIRLINES For personal use only • Volume of forward bookings continue to strengthen • Yields remain depressed – capacity parked not shed • Heading into our high season while US carriers enter their low season • Consolidation predicted yet to materialise • IATA yet to upgrade
Slide 5: We Won't Waste a Crisis
WE WON’T WASTE A CRISIS For personal use only • Continue to strengthen competitive position • We are increasingly attracting attention • Time to fix long endured industry problems • We play in the Australasian market • We are not sitting still 5 2009 Investor Day
Slide 6: For personal use only
For personal use only 6 2009 Investor Day
Slide 7: Long Haul
INVESTOR DAY OCTOBER 2009 For personal use only LONG HAUL UP DATE ED SIMS GGM LONG HA UL AIRLINE 7 2009 Investor Day
Slide 8: Background
BACKGROUND For personal use only • 20 wide body aircraft – 7 x 747-400 – 8 x 777-200 – 5 x 767-300 • 17 routes across UK, US, Japan and China • 46% of Group revenue 8 2009 Investor Day
Slide 9: Highlights
HIGHLIGHTS For personal use only • Proactive capacity management will continue in FY10 • Employee engagement continues to improve • Condé Nast Awards 2009 - 2nd best long-haul leisure airline overall 9 2009 Investor Day
Slide 10: Market Update
MARKET UPDATE For personal use only • UK – highly competitive and challenging • Asia – tough conditions but volume lift in last 3 months • US – volumes increasing although yields still depressed • Japan – outbound long haul travel remains flat • Outbound NZ – volume improvement but yields lagging •
Slide 11: Long Haul Continuum
LONG HAUL CONTINUUM For personal use only Capital Intensity Differentiation • Tough business through • Industry over Network People and Leadership capacity • Operating and ownership costs approx $6m per day Product Innovation Fleet 11 2009 Investor Day
Slide 12: Long Haul Continuum
LONG HAUL CONTINUUM For personal use only Capital Intensity • Rationalisation – match Differentiation supply to demand through • Flexibility - #1 in all Network People and Leadership markets except HK • Portfolio management • Emerging vs Harvest markets Product Innovation Fleet 12 2009 Investor Day
Slide 13: Long Haul Continuum
LONG HAUL CONTINUUM For personal use only Capital Intensity Differentiation • Right aircraft for mission through • Configuration has Network People and Leadership minimised premium cabin exposure • Young jet fleet with average age 9.3 years Product Innovation Fleet 13 2009 Investor Day
Slide 14: Long Haul Continuum
LONG HAUL CONTINUUM For personal use only Capital Intensity Differentiation • Leading through through innovation Network People and Leadership • “World’s best long- haul product” • Scale – from everyday improvement to total reconfiguration Product Innovation Fleet 14 2009 Investor Day
Slide 15: Long Haul Continuum
LONG HAUL CONTINUUM For personal use only Capital Intensity • Performance-based Differentiation recognition at operational through level Network People and Leadership • Empowering Air New Zealanders • Culture of accountability • Investment in concierges Product Innovation Fleet 15 2009 Investor Day
Slide 16: Opportunities
OPPORTUNITIES For personal use only • Broader strategic partnerships • New interior for 777-300ER to be unveiled in April 2010 – World’s best long haul product – Potential to be licensed • Manage portfolio of routes with agility to redeploy capital • Unique differentiation for full service airline 1
Slide 17: For personal use only
For personal use only 17 2009 Investor Day
Slide 18: Short Haul Update
INVESTOR DAY OCTOBER 2009 For personal use only SHORT HAUL U PDATE BRUCE PARTO N GGM SHORT HA 2009 Investor Day UL AIRLINE 18
Slide 19: Background
BACKGROUND For personal use only • Short haul airline comprises of three markets Regional Turbo Prop (Mt Cook – ATR72, Air Nelson – Q300, Eagle Air – Beech 1900D) Domestic Jet (Boeing 737) Tasman/Pacific Islands (A320 & Boeing 767) • Strong market positions Extensive regional air services network Do
Slide 20: Domestic & Regionals
INVESTOR DAY OCTOBER 2009 For personal use only DOMESTIC & REGIONALS 20 2009 Investor Day
Slide 21: Domestic Performance
DOMESTIC PERFORMANCE For personal use only • Changing competitive dynamics • Award-winning airport innovations • Best on time performance in the market • Difficult economic conditions continue 21 2009 Investor Day
Slide 22: Fleet and Network
FLEET AND NETWORK For personal use only • Proactive network changes Open new markets with community support Review existing markets Exit long term poor performing routes • Narrow body (B737 and A320) Request For Proposal out Decision by the end of the year, aircraft to begin arriving within 2 years
Slide 23: Internet Sales Channel for Domestic
INTERNET SALES CHANNEL FOR DOMESTIC For personal use only Percentage of internet sales channel increasing for New Zealand market Internet sales and indirect sales share are 55% converging 50% Percentage of total sales 45% 40% 35% 30% 5% increase in internet FY09 to 25% FY10 Internet FY09 Internet FY
Slide 24: Domestic Innovations
DOMESTIC INNOVATIONS For personal use only • First full year of airport innovation in AKL WLG and CHC • Frequent flyer barcode innovation speeds up process • Grabaseat continues to be used as a tactical tool • Domestic fare innovations announcement today 24 2009 Investor Day
Slide 25: Tasman and Pacific Islands
INVESTOR DAY OCTOBER 2009 For personal use only TASMAN AND PACIFIC ISLAN 25 2009 Investor Day DS
Slide 26: Tasman & Pacific Island Performance
TASMAN & PACIFIC ISLAND PERFORMANCE For personal use only • Trans Tasman highly competitive • Pacific Islands changing competitive landscape • Inflight entertainment upgrade programme completed • Reduced capacity by 13.6% FY10 YTD • Load factor up 5.8 percentage points FY10 YTD 26 2009 Investor Day
Slide 27: Trans Tasman Innovations
TRANS TASMAN INNOVATIONS For personal use only • Innovative marketing encouraging Australian tourists Australia is our biggest international market Free domestic add-ons promotion on Tasman fares Working with tourism agencies to combine resources • Airport innovations to be trialled for the Tasman s
Slide 28: Summary
SUMMARY For personal use only • We will continue to vigorously defend short haul market • Well placed to lead through Continued development and implementation of world leading innovations Agility to adapt business Aggressively leading capacity decisions Continued cost focus Significant network and f
Slide 29: For personal use only
For personal use only 29 2009 Investor Day
Slide 30: Tech Ops
INVESTOR DAY OCTOBER 2009 For personal use only TECH OPS TREVOR HUGH ES GM COMMERCI AL & 30 2009 Investor DayBUSINESS DEVELOPMENT
Slide 31: Tech Ops
TECH OPS For personal use only AKL Base Auckland Gas Turbines TAE Brisbane TAE Blenheim CHCEC Safe Air Adelaide Christchurch Canberra CHC Base TAE TAE -Masling 31 2009 Investor Day
Slide 32: Portfolio Businesses
PORTFOLIO BUSINESSES For personal use only • Three subsidiaries – Safe Air – Gas Turbines – TAE 32 2009 Investor Day
Slide 33: Gas Turbines
GAS TURBINES For personal use only Fast ferries and Off-shore oil and Electrical generation naval vessels gas drilling / co-generation 33 2009 Investor Day
Slide 34: Christchurch Businesses
CHRISTCHURCH BUSINESSES For personal use only • One joint venture – CHCEC • 850 staff + 440 at CEC 34 2009 Investor Day
Slide 35: Business Update
BUSINESS UPDATE For personal use only • Positive staff engagement • Hangars remain full • Gas Turbines business profitable • TAE, Masling and Tenix Aviation smoothly integrated • Third party contracts • Design development with Altitude 35 2009 Investor Day
Slide 36: Key Business Objectives
KEY BUSINESS OBJECTIVES For personal use only • Improve net cost of maintenance for Air NZ fleet • Grow 3rd party revenue • Maximising aircraft availability • Maximise operational performance • Optimal management of fleet transitions • Prepared for industry changes 36 2009 Investor Day
Slide 37: For personal use only
For personal use only 37 2009 Investor Day
Slide 38: Investor Day 2009 - Altitude
For personal use only Investor Day 2009 Michael Pervan General Manager Altitude
Slide 39: Altitude
Altitude For personal use only “Help operators to achieve differentiation through their aircraft interior experience” ¾ Altitude Aerospace Interiors Limited corporatised August 2008 ¾ Altitude previously operated as ANZES Design Engineering, a division of Air New Zealand, with 20+ years experience a
Slide 40: Key Products & Services
Key Products & Services For personal use only ¾ Integrating & reconfiguring airline interiors ¾ Design & supply of customised interior furniture for airlines ¾ Large jet VIP aircraft interior refurbishment & completion 3
Slide 41: Market
Market For personal use only ¾ Airline market for customised interior furniture based on long lead times ¾ Competition are conservative suppliers constrained by regulatory compliance ¾ Boeing business jet market robust with significant short fall in new aircraft interior fit-out capacity ¾ Competiti
Slide 42: Strategy
Strategy For personal use only ¾ Cabin innovator airlines with new generation Boeings ¾ Asia Pacific Boeing business jet operators ¾ Maintain engineering competitive advantage 5
Slide 43: Financial Management
INVESTOR DAY OCTOBER 2009 For personal use only FINANCIAL MA NAGEMENT ROB MCDONAL D & DAVE MAC CFO & DEPUTY K RELL CFO 38 2009 Investor Day
Slide 44: Areas We Will Cover
AREAS WE WILL COVER For personal use only • FINANCIAL FITNESS • FUEL AND CURRENCY EXPOSURE AND HEDGING • NORMALISED EARNINGS ADJUSTMENTS • ETS • AIRPORTS • LOYALTY PROGRAMME UPDATE • CAPEX PROFILE AND FLEET • SUMMARY 39 2009 Investor Day
Slide 45: Relative Cash Position
RELATIVE CASH POSITION For personal use only Cash / Revenue at 30 June 2009 40% 37% 35% 30% 28% 25% 25% 21% 20% 18% 17% 15% 14% 15% 10% 5% 0% Ai Si Em Ca Q So Vi Br an rN ng rg itis th ut ir a in ap ta ay hw Z h te s Bl or Ai es s* Pa ue e rw t cif Ai ay i rli c s ne * As at March 2009 s • Air NZ es
Slide 46: Cash Balance
CASH BALANCE For personal use only • Expect cash balance to reduce through: – Aircraft and aircraft progress payments approx $250m – Debt maturity profile approx $180m – Foreign exchange swaps outflows with strengthening NZD approx $250m* (principally debt hedge) • Growing unencumbered aircraft pool
Slide 47: Gearing Comparison
GEARING COMPARISON For personal use only Net Adj Gearing at 30 June 100% 100% 90% 79% 80% 70% 56% 53% 60% 49% 50% 45% 40% 30% 20% 7% 10% 0% Br Ca Ai Si US Vi Q an rN ng itis rg th Ai in ap ta ay h Z r li s Bl Ai or n Pa ue rw e es cif Ai ay Av i rli c s er ne (3 ag s 1 e M * ar ch ) * Average equity
Slide 48: FY10 Fuel Exposure
FY10 FUEL EXPOSURE For personal use only FY 10 FUEL COST HEDGED VS UNHEDGED 1100 1000 FUEL COST NZD$M 900 UNHEDGED HEDGED 800 700 600 30 50 70 90 WTI REST OF THE YEAR • Assumes: NZD/USD 0.70 Refining Margin US$8.5 and into plane cost included 43 2009 Investor Day
Slide 49: Currency Composition
CURRENCY COMPOSITION For personal use only 2009 Currency Composition 500 335 Average 2009 FX 240 250 145 120 115 80 Rate 0 USD 0.61 AUD 0.82 US US AU G JP EU CN CA (250) BP Y D D D R D Y GBP 0.38 ot fu (350) he el NZD (m) (500) CAD 0.71 r (750) JPY 61.51 CNY 7.47 (1,000) EUR 0.44 (1,250) (1,500) (1,
Slide 50: Normalised Earnings Adjustments
NORMALISED EARNINGS ADJUSTMENTS For personal use only • Timing differences – not adjustments for one offs • Adjustments generally reverse in following year • For example fuel hedge gains in FY08 relating to FY09 fuel delivery were excluded from FY08 normalised earnings and included in FY09 • Large a
Slide 51: Emission Trading Scheme
EMISSION TRADING SCHEME For personal use only • Parliamentary Select Committee has reported on ETS – Liability cap was set at $12.5/tonne CO2 for initial period – NZ ETS likely to cost Air New Zealand $6m per annum – Expect this to be reflected in ticket prices • European ETS will impact Air New Zea
Slide 52: Airports
AIRPORTS For personal use only • Airports now in the Commerce Amendment Act • Submissions process well underway on the information disclosure regime – Airline agreement with vast majority of draft proposal – Still could go further – Spirited resistance from airports – Final input methodologies due e
Slide 53: Loyalty Programme
LOYALTY PROGRAMME For personal use only • Expanding partnerships and redemption options • Kiwi Bank first new Airpoints Dollars™ banking partner in five years • More to be announced over coming months • One in five New Zealanders currently members of Airpoints • IT innovations across the programme w
Slide 54: Aircraft Capex Commitments
AIRCRAFT CAPEX COMMITMENTS For personal use only $NZm 700 • 787-9 delivery 600 date remains 500 uncertain 400 • Narrow body 300 replacement 200 options being 100 considered 0 FY09 FY10 FY11 FY12 1. Includes progress payments on aircraft and is net of sale and lease back agreements 2. Assumes NZD/USD
Slide 55: Summary
SUMMARY For personal use only • $1.6bn cash on balance sheet • Gearing 45% as at 30 June 2009 • Average fleet age 7.4 years • Culture of continuous cost improvement 50 2009 Investor Day
Slide 56: For personal use only
For personal use only 51 2009 Investor Day
Slide 57: Strategy
INVESTOR DAY OCTOBER 2009 For personal use only STRATEGY STEPHEN JONE S GM STRATEGY 52 2009 Investor Day
Slide 58: Strategy from a Strong Platform
STRATEGY FROM A STRONG PLATFORM For personal use only • Balance sheet strength • Profitable core • High customer satisfaction • Strong culture • Management strength 53 2009 Investor Day
Slide 59: Managing Extreme Events
MANAGING EXTREME EVENTS For personal use only • Oil price • Demand slumps – SARS – Recession – Swine flu • Foreign exchange volatility 54 2009 Investor Day
Slide 60: Strong Competitive Position: Domestic
STRONG COMPETITIVE POSITION For personal use only DOMESTIC – CLEAR LEADER 55 2009 Investor Day
Slide 61: Strong Competitive Position: Tasman
STRONG COMPETITIVE POSITION For personal use only TASMAN – MARKET SHARE LEADER 56 2009 Investor Day
Slide 62: Strong Competitive Position: Long Haul
STRONG COMPETITIVE POSITION For personal use only Long Haul - #1 or 2 on Gateway Markets 57 2009 Investor Day
Slide 63: Fleet Strategy – Four Keys
FLEET STRATEGY – FOUR KEYS For personal use only Match Buy Simplify Flexible to well fleet ownership mission Use aircraft with configuration and design range that match the market Buy counter-cyclically – you never recover from paying too much Have as few aircraft types as possible Mix owned and lea
Slide 64: Matching Aircraft to Mission
MATCHING AIRCRAFT TO MISSION For personal use only TRIP COSTS GROW QUICKLY ON LARGER AIRCRAFT Cost per ASK A320 B767 B777 B747 X X +15k X +30k X+50k Cost per one way AKL-SYD trip 59 2009 Investor Day
Slide 65: Matching Capacity to Demand
MATCHING CAPACITY TO DEMAND For personal use only 100% LF 75% LF Seats Extra Extra Cost / Cost / Seats Cost Seat Seat A320 152 - - B767 223 71 15k $281 $374 B777 304 151 30k $331 $441 B747 379 227 50k $264 $352 • Cargo can help make up the difference 60 2009 Investor Day
Slide 66: Growth on Two Dimensions
GROWTH ON TWO DIMENSIONS For personal use only New Risk Diversification Business Related TAE Gas Turbines V3 Altitude Airline New routes NZ AU ROW Geographic Diversification 61 2009 Investor Day
Slide 67: Culture Is a Deliberate Strategy
CULTURE IS A DELIBERATE STRATEGY For personal use only • Centered on our brand characteristics – Welcome as a Friend – Can Do – Be Yourself – Share Your New Zealand 62 2009 Investor Day
Slide 68: Opportunity Rich
OPPORTUNITY RICH For personal use only • Fleet • Online • Ancillary business • Airline partnerships • Innovation 63 2009 Investor Day
Slide 69: For personal use only
For personal use only 64 2009 Investor Day