Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (November 2011)
85 slides from Air New Zealand's investor day presentation, Nov 25, 2011
Slide 1: Investor Day
Air New Zealand For personal use only Investor Day 25th November 2011
Slide 2: Airpoints
Air New Zealand For personal use only Investor Day 25th November 2011 Airpoints David Mackrell (Deputy CFO) Simon Pomeroy (Head of Loyalty)
Slide 3: Strategic Objectives
Strategic Objectives For personal use only • Drive Customer loyalty to Air New Zealand – Grow and engage membership • Ensure Airpoints always relevant – Increase Airpoints earning – Increase redemption opportunities • Leverage the value of membership base 3
Slide 4: Loyalty Drivers
Loyalty Drivers For personal use only Price Status Product Customers Air New Zealand Incentive Rewards Service Recognition Engagement Air New Zealand • Connection to the brand • Feeling of value and worth 4
Slide 5: Growing Membership
Growing Membership For personal use only • Membership growth more than 10% p.a. to over 1 million • Membership drive on customers that fly with us • Regular earning means Airpoints almost always relevant • Premium tiers 3.5% of the base but earn 20% of the points • 80% of Airpoints held by lower tie
Slide 6: Member Engagement
Member Engagement For personal use only • Introduced fortnightly communication targeted at entry membership not just premium tiers • Communications readership grown by 25% • “Earn to fly” message has broader appeal than “fly to earn” 6
Slide 7: Ensure Airpoints Always Relevant
Ensure Airpoints Always Relevant For personal use only • Loyalty comes from the loyalty program always being relevant to the transaction either earning or redeeming • If customers have a lot of opportunities to earn and redeem their points, Air New Zealand will always be at the top of the preference
Slide 8: Increase Earning Potential
Increase Earning Potential For personal use only 1. Earn flying: – on more than 80% of flights across the network 2. Earn on everyday spend: – more than half the Airpoints are earned from non flying – Credit Card spend expanded to four direct earn credit card partners each with a broad range of card
Slide 9: Increased Redemption Opportunities
Increased Redemption Opportunities For personal use only More than 4% of Passenger Revenue is from Airpoints Redemptions • Redeem: – on any seat, any time – on other travel related products e.g. Hotels, Rental cars – at the Airpoints gift store – combine balances amongst your family • Don’t have eno
Slide 10: OneSmart Airpoints Card
For personal use only OneSmart Airpoints Card The Ultimate Travel Companion
Slide 11: For personal use only
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Slide 12: OneSmart Features
OneSmart Features For personal use only • Take foreign currency easily and securely overseas and spend like a local • Easy access to cash overseas with no ATM fees • Debit card that earns Airpoints on everyday spend • Easily and securely send money to others – online or via mobile • “Top up” Airpoin
Slide 13: OneSmart Travel Companion
OneSmart Travel Companion For personal use only • Load money onto the card online • Move money online into up to four of eight foreign currency wallets • Exchange money online with no commission and competitive exchange rates • Instant access to cash at ATMs with no ATM fee • Globally accepted payme
Slide 14: OneSmart Getting Started
OneSmart Getting Started For personal use only • New Airpoints card to all NZ resident Airpoints members • Members activate optional OneSmart features online • Simple and transparent fee structure • Partners – Card issuer - BNZ – Prepaid platform provider - Rev Worldwide – Payments scheme - Masterca
Slide 15: Questions?
For personal use only Questions?
Slide 16: For personal use only
Ajuo esn jeuosied Jo, *'
Slide 17: Funding
Air New Zealand For personal use only Investor Day 25th November 2011 Funding Rob McDonald (CFO) David Mackrell (Deputy CFO)
Slide 18: Funding Strategy
Funding Strategy For personal use only • Access the most effective and appropriate sources of financing having consideration for: – Operational flexibility – Residual value risk – Diversified funding sources – Tax risk – Matching funding term to asset life – Currency risk • In practice often depends
Slide 19: Funding Summary
Funding Summary For personal use only • Airline funding predominately secured against aircraft through a mix of: – Debt secured over Aircraft – Finance Lease of Aircraft – Operating Leases of Aircraft • We recently diversified funding sources with the issue of a retail bond • Funding is generally in
Slide 20: Aviation Market
Aviation Market For personal use only • Aircraft are expensive and mobile assets • Due to their size and relatively unique nature there is a specialist global Aviation Financing market previously dominated by European banks • Many financing structures available • Rates are competitive and below dome
Slide 21: Types of Aircraft Financing
Types of Aircraft Financing For personal use only • Commercial debt – commercial bank loan secured against the aircraft • Finance Lease - a lease where legal title is held by lessor however title is transferable to lessee after full pay-out. Accounted for as owned • Export Credit - OECD sanctioned e
Slide 22: Buy vs. Lease?
Buy vs. Lease ? For personal use only • Fleet availability • Expected operating timeline (% of asset life) • Residual Value risk appetite • Cost of funding (lease cost vs alternatives) Nature of Market • Plentiful supply of narrowbody lease options with transition cost between operators relatively l
Slide 23: Air NZ Funding Mix
Air NZ Funding Mix For personal use only Narrowbody Aircraft Funding Sources Widebody 5% (by value) 6% 8% 12% Total Fleet 12% 35% 14% 81% 41% 39% 16% Turbo Props KEY 22% 31% 32% Operating Leased Owned Finance Leased Debt Financed 46% 23
Slide 24: Accounting Implications
Accounting Implications For personal use only • On balance sheet or off balance sheet is not a factor in the choice of funding • We include off balance sheet funding in gearing calculation using 7 x operating lease annual rentals as a proxy for value 24
Slide 25: Currency Risk Management
Currency Risk Management For personal use only • Economic - US$ asset and predominantly US$ debt • Hedge foreign currency debt to protect reported earnings – As much as possible debt is hedged against foreign currency assets or future foreign currency inflows rather than using derivatives • IFRS Sta
Slide 26: Value of Credit Rating
Value of Credit Rating For personal use only • One of a handful of Investment Grade Airlines • Allows us a greater choice of funding sources at competitive rates 26
Slide 27: Changing Market
Changing Market For personal use only • Debt availability for aviation shrinking • Increasing margins • Pool of lenders and lessors, products – changing particularly since GFC; – Regional changes – e.g. contraction of French banks’ participation – Changing Export Credit Agency rules - politics – Inc
Slide 28: Questions?
For personal use only Questions?
Slide 29: Business Update
Air New Zealand For personal use only Investor Day 25th November 2011 Business Update Rob Fyfe (CEO) Rob McDonald (CFO)
Slide 30: Agenda
Agenda For personal use only • Domestic • Tasman / Pacific Islands • Virgin Alliance • Long Haul • Airpoints Programme • Financial Management • Hedging Strategy • Fleet Management • Trading Environment 30
Slide 31: Domestic
Domestic For personal use only • High performing domestic network • Very competitive product position • Very competitive fares • Superior frequency • Superior network footprint • Strong corporate reputation • Delivering strong home market advantage to support international network 31
Slide 32: Domestic
Domestic For personal use only • It has been an unusual year with one off events; – Christchurch earthquake, Ash cloud, rescheduled school holidays, RWC and the election • One year since the exit of Pacific Blue in domestic NZ • Adding capacity as demand improves • Fleet replacement programme contin
Slide 33: Tasman & Pacific Islands
Tasman & Pacific Islands For personal use only • Sustainable profitability with good momentum • Seats to Suit successfully implemented a year ago – Trialling on Auckland / Perth • Online sales in Australia continue to grow • Trans-Tasman alliance with Virgin Australia has been live for four months 3
Slide 34: Virgin Alliance: Key Objectives
Virgin Alliance Key Objectives For personal use only • Creation of number one Australasian network • Improve financial performance of trans-Tasman routes for both airlines to sustain and encourage capacity growth • Provide seamless experience • Sales without preference for either carrier • Network g
Slide 35: Virgin Alliance: Performance
Virgin Alliance Performance For personal use only • Connections in Australia have more than doubled since the Alliance began (8th July)* • Effective co-ordination of sales and marketing activities • Market share premium growth on the Tasman • Supports Virgin Australia’s corporate aspirations in Aust
Slide 36: Virgin Alliance: Further Evolution
Virgin Alliance Further Evolution For personal use only • Change of schedule to reduce wingtip flying • Complete check-in between domestic ports • Streamline disrupt management • Virgin Australia to improve service specifications • Pacific Blue rebranded to Virgin Australia 36
Slide 37: Long Haul
Long Haul For personal use only • Long haul review well under way • Fourth B777-300ER arrived this month and fifth one arrives in January 2012 • Adjusting capacity to match demand – Direct services between Christchurch and Japan recommenced at the start of November – Japan traffic slowly recovering
Slide 38: Airpoints Programme
Airpoints Programme For personal use only In the last year …. • Significant membership growth • Increased focus on “Earn to fly” versus “fly to earn” • Increased engagement • Expanded direct earn credit card partners • Launched new relationship with Fly Buys • Launch of Airpoints card with OneSmart
Slide 39: Financial Management
Financial Management For personal use only • Cash balance remains strong at just under $1 billion • June 2011 gearing 46.7%, a 0.6 percentage point improvement • Successful Bond Issue • Continued good access to aviation funding • After January deliveries, there are no new Jet aircraft for 18 months
Slide 40: Hedging Update
Hedging Update For personal use only • Fuel and FX hedging aligned; “same speed of adjustment” – 12 month declining wedge – Target 80% hedged for next six months • Fuel hedge to be a mix of WTI and Brent priced crude • “Unruly markets” minimum 40
Slide 41: Current Fuel Hedge Position
Current Fuel Hedge Position* For personal use only • Currently unruly market minimum • Current position has FY12 first half 89% hedged Volume bbls Ceiling USD Floor USD WTI collars 3.3m $100.84 $88.45 • The second half of FY12 is 32% hedged Volume bbls Ceiling USD Floor USD WTI collars 1.1m $104.26
Slide 42: Currency Composition
Currency Composition For personal use only Currency Composition Guide 600 400 200 NZD (m) 0 (200) (400) (600) (800) (1,000) (1,200) (1,400) 42
Slide 43: Currency Hedging
Currency Hedging For personal use only • 2012 US dollar operating cash flow exposure is approximately 84% hedged at an average NZ$/US$ rate of 0.75 • US$61m of future capital commitments are hedged at NZ$/US$ rate of 0.73 (spot) 43
Slide 44: Trading Environment
Trading Environment For personal use only • Challenging operating conditions – Forward bookings impacted by economic uncertainty in a number of Air New Zealand markets – Persistent high fuel prices – Japan recovery slow • Overall, still expect some improvement in the result over the previous year bu
Slide 45: Questions?
For personal use only Questions?
Slide 46: For personal use only
Ajuo esn jeuosied Jo, *'
Slide 47: Alliances
Air New Zealand For personal use only Investor Day 25th November 2011 Alliances John Whittaker (GM Alliances and Government Relations)
Slide 48: Objectives
Objectives For personal use only • Help establish a common understanding of interline, code-share and alliance models • How these concepts deliver value to airlines 48
Slide 49: Why Pursue Partnerships?
Why Pursue Partnerships? For personal use only Distribution Network Loyalty Customer Benefit 49
Slide 50: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 50
Slide 51: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 51
Slide 52: Interline Agreement
Interline Agreement For personal use only • Simplest form of a partnership with another airline • Carriers to sell on each other • Passenger gets boarding passes and bag through check from first check-in • Revenue sharing between airlines is collectively agreed and based on industry formula Itinerar
Slide 53: Air New Zealand's Global Reach via Interline
Air New Zealand’s Global Reach via Interline For personal use only NZ has 76 interline agreements 53
Slide 54: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 54
Slide 55: Code Share
Code Share For personal use only • Involves placing one carrier’s code (marketing carrier) onto another carrier’s flight (operating carrier) • Originally to get prominent position on GDS displays – Priority display to “own airline” code for an itinerary involving a connection 55
Slide 56: Code Share Benefits
Code Share Benefits For personal use only • Easier for travel agents to ticket airline fares • Some airline web booking engines can only book own code flights • Signals relationship depth to customers • Access to new markets without committing capital • Improved aircraft utilisation 56
Slide 57: Two Basic Forms of Code Shares
Two Basic Forms of Code Shares For personal use only Free Sell Seat Block or Code Share “Air Share” 57
Slide 58: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 58
Slide 59: Global Alliances
Global Alliances For personal use only • Harmonise benefits over a wide range of carriers • Simple communication to customers • Cost savings through standardisation and scale • Three main global alliances; Star Alliance One World Sky Team 59
Slide 60: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 60
Slide 61: JVs – Purpose Designed
JV’s– Purpose Designed For personal use only • Most common joint venture is Total Revenue JV • Joint Venture’s are negotiated to suit specific circumstances • Several general models are emerging • Air New Zealand has experience in each Incremental Network Total Profit Share Revenue Revenue Revenue 6
Slide 62: Authorisation is Key Hurdle
Authorisation is Key Hurdle For personal use only • Regulatory approval looks at potential benefits and detriments Seeking Benefits Detriments • Price • Connections • Loss of Competition • Capacity • Frequency • Scheduling • Distribution • Commissions • Cost savings • Stimulation 62
Slide 63: Making it Work
Making it Work For personal use only Design • Sales without preference • Customer metal neutrality • Alignment of partner interests Implementation • IT Systems • Customer proposition • Sales and revenue management 63
Slide 64: Total Market Revenue Share
Total Market Revenue Share For personal use only • Share total market revenue with upside/downside revenue risk but without exposure to the costs of the other partner(s) • All revenue earned on venture routes goes into pool Carrier B Going-in Combined • Revenue pool split by Revenue revenue on actua
Slide 65: Joint Ventures Today
Joint Ventures Today For personal use only Trans Atlantic USA Japan EUROPE Australasia Intra Europe TASMAN AUSTRALIA - UK 65
Slide 66: Alliance Building Blocks
Alliance Building Blocks For personal use only Increasing commitment Equity Joint Venture Global Alliances Code Share Interline and Prorate Agreement 66
Slide 67: Equity
Equity For personal use only • Minority interest is less direct than a Joint Venture • Aligns to other carrier’s entire business performance • Is enduring – as opposed to time limited authorisation • Provides defensive protection against others • Involves legal and labour impediments Acquisitions Sh
Slide 68: Summary
Summary For personal use only • Airline consolidation is increasing – Intra-border M & A – Trans-border immunised alliances • Alliances allow scale and scope • Specific form designed to suit situation • Improves long-term performance • Air NZ is experienced and participating 68
Slide 69: Questions?
For personal use only Questions?
Slide 70: For personal use only
Ajuo esn jeuosied Jo, *'
Slide 71: Long Haul Update
Air New Zealand For personal use only Investor Day 25th November 2011 Long Haul Update Christopher Luxon (Group General Manager International)
Slide 72: Where we are…
Where we are… For personal use only The Foundation • Award winning customer experience and service • Respected brand • Superior and innovative product • Star Alliance membership • But financial underperformance… 72
Slide 73: Challenge = Opportunity
Challenge = Opportunity For personal use only Natural Disasters New Type of Competition Global Economy Fuel 73
Slide 74: Sustainable, Profitable Growth Pillars
Sustainable, Profitable Growth Pillars For personal use only Target of $110m profit improvement by FY15 Lean, productive Align product to cost base what customers value Simplified, flexible, more efficient fleet Drive ancillary revenue Market sales execution Develop strong Grow Pacific Rim alliances
Slide 75: Product Alignment
Product Alignment For personal use only • Focus on points of difference in in-flight product and service Relative to Competition Business Premier Premium Economy Economy Customer Service and Brand Characteristics World Class • Space & • Superior Sleep • Value Separation • Own Space • Choice • Food &
Slide 76: Product Alignment
Product Alignment For personal use only Deployment of B787-9 • Expect to launch into North Asia/Japan • Configuration to match leisure nature of those markets – Seats – IFE – Food 76
Slide 77: Drive Ancillary Revenue
Drive Ancillary Revenue For personal use only • Improve ancillary revenue via direct and indirect channels “Airfares account on average for 35% of trip expenditure” Clear Opportunity 77
Slide 78: Alliances to Support and Strengthen Core Business
Alliances to Support and Strengthen Core Business For personal use only • Alliances formed with strong home market carriers in each key inbound market to create distribution access • Maximise feed onto respective networks • Offer our outbound customers better connectivity and frequency • Good progre
Slide 79: Grow Pacific Rim Business
Grow Pacific Rim Business For personal use only • Deepen and grow China network • Recover and grow Japan • Explore new markets in South America, Asia and North America 79
Slide 80: Market Sales Execution
Market Sales Execution For personal use only • Resources aligned to the growth channels in each market • Build online revenue to a larger share • Optimise channel profitability 80
Slide 81: Fleet Efficiency
Fleet Efficiency For personal use only • Growth options in 789s, Today Tomorrow and opportunity to • B747-400 • B777-200/300 replace all B772s with • B767-300 • B787-9 incremental B789s • B777-200/300 • Common crewing • High fuel efficiency • Flexibility 81
Slide 82: Lean, Productive Cost Base
Lean, Productive Cost Base For personal use only Overhead Review Supply Chain Savings Lean, Productive Cost Base Optimised Specifications Continuous Improvement Programme 82 82
Slide 83: Summary
Summary For personal use only • Must respond to financial underperformance and economic realities • No silver bullets • Preparing to meet new competition head on • Key areas: – Product alignment – Network positioning – Lean cost base 83
Slide 84: Questions?
For personal use only Questions?
Slide 85: For personal use only
Ajuo esn jeuosied Jo, *'