Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (May 2016)
53 slides from Air New Zealand's investor day presentation, May 3, 2016
Slide 1: Air New Zealand Investor Day 2016
= AIR NEW ZEALAND %o_ = e ) @ a) S @ c e) 2 a) a. — ) LL A STAR ALLIANCE MEMBER ur
Slide 2: Forward looking statements
For personal use only INVESTOR DAY 2016 Forward looking statements ap This presentation contains forward-looking statements. Forward-looking statements often include words such as “anticipate”, “expect”, “intend”, “plan”, “believe”, “continue” or similar words in connection with discussions of futur
Slide 3: Agenda
Agenda For personal use only 9am Welcome Leila Peters, Head of Investor Relations Driving returns through disciplined growth Christopher Luxon, Chief Executive Officer Stephen Jones, Chief Strategy, Networks & Network growth opportunities Alliances Officer 10:45am Morning tea break Financial priorit
Slide 4: Business Review & Strategic Update
For personal use only Business Review & Strategic Update Christopher Luxon CEO
Slide 5: Key messages
Key messages For personal use only We are well-positioned to compete and win in a dynamic marketplace We have built the best platform to capture and leverage profitable growth Significant opportunity ahead to continue generating sustainable shareholder returns 5
Slide 6: Our strategy has been successful
Our strategy has been successful For personal use only Customer Experience Commercial Engaged Results Culture Our business is built upon a strong foundation of what really matters 6
Slide 7: Performance driven by good planning, sharper execution and a supportive environment
Performance driven by good planning, sharper execution and a supportive environment For personal use only Investment in our Customer focus Strong tourism demand Strategy- network driven Historical & committed aircraft capex Overseas visitors to New Zealand* Overall Customer Satisfaction ($ millions)
Slide 8: We see further opportunity for growth, but recognise the environment will be different
We see further opportunity for growth, but recognise the environment will be different For personal use only Key factors support sustainable …with some near-term 2017 profitability through the cycle… challenges ahead Impact Continued inbound tourism strength Increased competition Unknown Fuel pr
Slide 9: Flexibility to address the current competitive environment
Flexibility to address the current competitive environment while executing the long-term strategy For personal use only Short-term dynamics (< 18 months) • Increased capacity driving significant growth of seats across the network Revenue management • Expect headwind to overall yield as market adjust
Slide 10: A look ahead…driving returns through disciplined growth
A look ahead…driving returns through disciplined growth For personal use only 1 Demand growth 2 Scale economies 3 Value growth Disciplined network growth from new Invest in a simplified and fuel efficient Leverage our data and our brand to and existing markets supported by fleet that can competitive
Slide 11: The Pacific Rim will continue to support tourism growth to New Zealand
The Pacific Rim will continue to support tourism growth to New Zealand For personal use only 11
Slide 12: We have built up our network and are well positioned to capture tourism growth
We have built up our network and are well positioned to capture tourism growth For personal use only • Diversified profitability across the network • Growth underpinned by strong alliance partnerships in key markets • Leveraging our geography to maximise traffic through and into New Zealand – Touris
Slide 13: Inbound tourism will continue to fuel domestic growth
Inbound tourism will continue to fuel domestic growth For personal use only • Domestic dispersal of inbound international tourism through Auckland • Strong domestic market share to leverage growth from inbound tourists • Network strength, product and lounges to drive further stimulation • Full netwo
Slide 14: We play an instrumental role in converting the potential tourism pool into visitors
We play an instrumental role in converting the potential tourism pool into actual visitors For personal use only Thought process for holiday travel Estimated size of New Zealand “active considerer” target market* (in millions) 26.4 Dreaming 15.4 5.0 4.1 3.7 China United States United Japan Australia
Slide 15: Market development example: Shanghai
Market development example: Shanghai For personal use only 2012 Today • Wealthier independent travellers Positioning • Primarily low value group travel • “Romance” and “family” marketing platforms Revenue • Visit multiple cities throughout NZ mix • No partnership for local sales • The right travel
Slide 16: It starts with having the best fleet for the New Zealand market
It starts with having the best fleet for the New Zealand market For personal use only Flying west Flying east to Asia to North America Market preference towards lower Market preference towards higher proportion premium product proportion premium product Aircraft: Aircraft: B787-9 (302 seats) B777-30
Slide 17: Consistency throughout the customer experience journey is vital
Consistency throughout the customer experience journey is vital to our success For personal use only • Significant data analysis on all aspects related to customer experience • Tool for determining return on investment and payback on customer experience investments • Evolution of future customer exp
Slide 18: Customer experience scores and corporate reputation have never been better
And our customer experience scores and corporate reputation have never been better For personal use only Most No. 6 in reputable Australia Corporate +8% Company in New Corporate reputation Zealand 2016 reputation 2016 +6% Long-haul: Short-haul: Star 2015: #1 2015: #3 Alliance 2012: #5 2012: #5 ratin
Slide 19: Utilise data to increase personalisation and commercialisation
Our end goal is to utilise data to increase personalisation and commercialisation of the customer journey For personal use only 19
Slide 20: Airpoints is our platform for customer relationship data
Airpoints™ is our platform for customer relationship data For personal use only Loyalty data 70% of Air New Zealand sales occurring domestically are with an Airpoints™ member Sales channel Airline program Profit from the Leverage our Loyalty effect customer data Increasing Own the loyalty customer d
Slide 21: Our people deliver our value proposition to every customer
Our people deliver our value proposition to every customer, every day For personal use only Our philosophy Our results • Top quartile of companies in Asia Pacific for employee engagement* • Inducted into the Randstad Hall of Fame as “New Zealand’s Most Attractive Employer” (2014-2016) 21 * As demons
Slide 22: Continued execution of strategy with more opportunity ahead
Continued execution of strategy with more opportunity ahead For personal use only 22
Slide 23: Continued execution of strategy with more opportunity ahead
Continued execution of strategy with more opportunity ahead For personal use only Grow revenue & control costs Grow profit Profit Before Tax (in millions) $474 Passenger revenue/ASK Costs/ASK (in cents) (in cents) +72% 11.6 11.6 11.1 +4.5% +9.2% 3 year 10.5 $94 CAGR 2012 2015 2012 2015 2012 2015 Sus
Slide 24: Stephen Jones, Chief Strategy, Networks & Alliances Officer
2. AIR NEW ZEALAND ‘o_ Stephen Jones Chief Strategy, Networks
Slide 25: The Pacific Rim continues to be a core source of global traffic growth
The Pacific Rim continues to be a core source of global traffic growth For personal use only Air New Zealand 2016 estimated capacity growth ~11% Growth from 64% new routes Growth from existing routes 36% FY2016 25
Slide 26: We are highly methodical in evaluating new route opportunities
We are highly methodical in evaluating new route opportunities For personal use only Sample application of framework: Market size to support Market volume, Buenos Aires a minimum of quality and growth 2-3 services Sizeable local market of ~43 million in Conduct per week Higher advantage- Argentina /
Slide 27: International growth de-risked by strong alliance partnerships
Our international growth has been de-risked by strong alliance partnerships For personal use only * Why it works for Air New Zealand Partners have “skin in the game” to sell the route Strength of sales & distribution in local markets Access to frequent flyer databases * Indicates a revenue sha
Slide 28: The fundamentals of a revenue share alliance
The fundamentals of a revenue share alliance For personal use only 1 Revenues from all routes that are under 3 Additional adjustments as negotiated for alliance are pooled together each revenue share alliance 2 A simple revenue share model might 4 Revenue share is compared to actual calculate Air Ne
Slide 29: The newest revenue share alliance partner: United
The newest revenue share alliance partner: United For personal use only What’s the benefit for us? What’s the benefit for United? • Leveraging United’s • Leveraging Air New extensive sales and Zealand’s sales capabilities distribution channels in New Zealand • Access to United’s • More convenient fl
Slide 30: Focusing medium-term capacity growth on increasing depth
Focusing our medium-term capacity growth on increasing depth For personal use only New markets Depth of existing markets Rationale: • Increased frequency can strengthen competitive position • Fixed launch costs associated with new markets not applicable • Potential for increased utilisation dependin
Slide 31: Americas: Leveraging Auckland's geographic advantage
Americas: Leveraging Auckland’s geographic advantage For personal use only • North American growth will continue to feed trans- Tasman flows – Strong collaboration with Tourism Australia North • Australia traffic helping to feed North & South America American growth via Auckland • Outbound flows dri
Slide 32: Asia: Most efficient long-haul growth opportunity
Asia: Most efficient long-haul growth opportunity For personal use only Today Future • Ability to grow Asia efficiently with day- night schedule rotations that increase Asia frequency Daily service to Asia Double-daily service to • Scale growth expected to result in requires two aircraft Asia would
Slide 33: A network strategy firmly aligned with long term value creation
A network strategy firmly aligned with long term value creation For personal use only • Fundamental re-shaping of Air New Zealand’s network strategy largely complete • Network firmly in sustainable growth phase • Alliance partnerships underpin the growth opportunity 33
Slide 34: Business Review & Strategic Update
For personal use only Business Review & Strategic Update Christopher Luxon CEO
Slide 35: Focused financial priorities over the medium-term
Focused financial priorities over the medium-term For personal use only Virgin Fleet Financial Australia simplification framework investment 35
Slide 36: Virgin Australia investment
Virgin Australia investment Virgin For personal use only Australia investment • Announced review of Virgin Australia • From 30 March 2016, our investment in investment including possible sale of all or Virgin Australia will be recognised as an part of our shareholding investment in quoted equity ins
Slide 37: The ideal fleet to deliver profitable network growth
The ideal fleet to deliver profitable network growth Fleet For personal use only simplification 2012 2018 Many fleet types Few fleet types Fleet complexity Wide-body Narrow-body Turboprops Wide-body Narrow-body Turboprops B747 B737 ATR72s B787 A320 family ATR72s B767 A320 Q300 B777 family Q300 B777
Slide 38: Halfway through significant capex programme
Halfway through significant capex programme For personal use only Historical & committed aircraft capex ($ millions) $1,000 • Committed investment of ~$2.2 billion $800 in aircraft from 2017 to 2020 $600 $400 • Declining fleet age driven by deliveries of 787s, A320 family and ATRs $200 $0 • Low aver
Slide 39: Modern aircraft driving improved variable cost efficiencies
Modern aircraft driving improved variable cost efficiencies For personal use only Wide-body Narrow-body Turbo-prop B787-9 A321 neo ATR72-600 Scale economies vs B767-300ER vs A320 ceo vs Bombardier Q300 Substantially lower ↑ 31% ↑ 23% ↑ 36%* operating costs and increased seat density Additional seats
Slide 40: Benefits from fleet programme are being realised
Benefits from fleet programme are being realised For personal use only Improving operating economics Scale Simplicity to ramp up growth economies Operational efficiencies Competitive product offering 40
Slide 41: Sound financial framework focused on delivering shareholder value
Sound financial framework focused on delivering shareholder value Financial For personal use only framework Profitable Capital Shareholder Growth + Discipline = Returns Capacity growth in-line with New Zealand tourism growth Maintain investment Targeting over medium term grade credit rating pre-tax
Slide 42: Capacity growth to track New Zealand tourism growth
Capacity growth to track New Zealand tourism growth over the medium term For personal use only New Zealand overseas visitor growth vs Air New Zealand international ASK growth 20% 15% Growth rate 10% 5% 0% -5% 2012 2013 2014 2015 Calendar year Overseas visitor growth AIR International capacity growth
Slide 43: Further improvements to CASK driven by fleet programme
Further improvements to CASK driven by fleet programme and operational efficiencies For personal use only • Underlying unit cost improvements Operational improvements in CASK* expected as fleet replacement (cents per ASK) continues 10.25 – Excluding benefit from fuel price 10.00 and foreign exchange
Slide 44: Maintaining a strong and flexible balance sheet
Maintaining a strong and flexible balance sheet For personal use only Historical gearing 65% • Rise of gearing reflects fleet investment and impact of US 55% 52.4% Target dollar appreciation range of 46.1% 45% to 45% 42.9% 55% 39.3% 35% 25% 2012 2013 2014 2015 Financial year 44
Slide 45: Stable investment grade rating provides financial flexibility
Stable investment grade rating provides financial flexibility For personal use only Gross debt / EBITDRA* Credit rating 3.8x 2.9x Moody’s Baa1 Baa2 Investment 2012 2015 grade Financial year Baa3 • Investment grade credit rating of Baa2 Ba1 with stable outlook Ba2 • Benign debt profile Ba3 – $150 mil
Slide 46: Effectively managing financial risks to support our strategic plan
Effectively managing financial risks to support our strategic plan For personal use only Hedging Liquidity Funding flexibility Fuel • Target liquidity ratio of 20% to 30% • Maximum tenor of 12 months • Well positioned to access financial • Historically have managed towards markets • Primarily utilis
Slide 47: Attractive return on invested capital
Attractive return on invested capital For personal use only • Disciplined approach to growth Pre-tax ROIC opportunities • Focus on driving cost efficiencies 16.2% • Contribution of lower fuel 7.1% 2012 2015 47
Slide 48: History of distributing dividends through the cycle
History of distributing dividends through the cycle For personal use only • Consistently returned capital to shareholders, • Ability to attach imputation credits for up to while at the same time: ~$750 million of cash dividends Investing for growth Changing the mix of owned vs. leased aircraft
Slide 49: Disciplined capital allocation leading to sustainable long-term returns
Disciplined capital allocation leading to sustainable long-term returns for our shareholders For personal use only Sources & uses of cash 2011-2015 ($ billions) $5.6 $3.8 $2.1 Debt draw-down $3.5 $1.0 Cumulative operating cash flow $0.2 $0.6 Operating cash flow Gross capex / Debt payments Retained c
Slide 50: Key messages
For personal use only Key messages 50
Slide 51: For personal use only
A STAR ALLIANCE MEMBER YF
Slide 52: Glossary of terms
Glossary of terms For personal use only Available seat kilometres (ASKs) Number of seats operated multiplied by the distance flown (capacity) EBIT Earnings before interest and taxation EBITDRA Earnings before interest, taxation, depreciation, rentals and amortisation Cost/ASK (CASK) Operating expens
Slide 53: For personal use only
For personal use only 2. AIR NEW ZEALAND ‘o_ A STAR ALLIANCE MEMBER a