Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (June 2018)
68 slides from Air New Zealand's investor day presentation, Jun 14, 2018
Slide 1: Air New Zealand Investor Day 2018
For personal use only 14 June poe AIR NEW ZEALAND ‘o_ INVESTOR DAY 2018
Slide 2: Forward-looking statements
Forward-looking statements For personal use only 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 future operating or financ
Slide 3: Presenters
Christopher Luxon Jodie King Jeff McDowall Chief Executive Officer Chief People Officer Chief Financial Officer (7s az is Nick Judd Leila Peters Chief Strategy, Networks Head of Investor Relations & Alliances Officer € Investor Day
Slide 4: Agenda
For personal use only Agenda 4
Slide 5: Christopher Luxon, Chief Executive Officer
Christopher Luxon Chief Executive Officer € | Investor Day
Slide 6: Key messages you should take away from today
Key messages you should take away from today For personal use only 6
Slide 7: This year we have proven our resilience in the face of external challenges
This year we have proven our resilience in the face of several external challenges… For personal use only 7
Slide 8: Dedication from our people and trust of our customers
…thanks to extraordinary dedication from our people, and supported by the continued trust and loyalty of our customers For personal use only • Highly engaged and committed people − Driven to go above and beyond to get our customers where they need to go • #1 corporate reputation in New Zealand and A
Slide 9: 2018 will be another strong year despite higher fuel expense
2018 will be another strong year, despite absorbing over $100 million in higher fuel expense For personal use only 1 Assumed average jet fuel price for the 2018 financial year. 2 2017 Annual Shareholder Review. 3 2018 Interim Financial Report. 9
Slide 10: Competition in some markets starting to rationalise
We are seeing competition in some of our markets start to rationalise For personal use only 10
Slide 11: Too early to predict impact of fuel on 2019
Too early to predict impact of fuel on 2019, but we are deploying multiple levers to adjust our business For personal use only 11
Slide 12: We will continue to perform well due to strategic investments
We will continue to perform well due to the strategic investments we have made over the long-term For personal use only 12
Slide 13: Earnings stability has outperformed APAC peers
Those structural investments have resulted in earnings stability that has significantly outperformed our APAC peers… For personal use only 13
Slide 14: Strong returns for our shareholders through the cycle
…and have achieved strong returns for our shareholders through the cycle For personal use only 14
Slide 15: Megatrends are informing how we shape our business
Megatrends are informing how we shape our business for the future For personal use only 15
Slide 16: Focus on the mission aligning people, customers and shareholders
While maintaining focus on the mission that aligns our people, our customers and our shareholders For personal use only 16
Slide 17: Macro environment supportive of strong New Zealand tourism demand
Macro environment is supportive of continued strong demand for New Zealand tourism… For personal use only Millions of visitors 17
Slide 18: Our business model is tailored to win the New Zealand market
…and our business model is tailored to win the New Zealand market while driving strong profitability For personal use only Domestic Tasman & Pacific Islands International Long-haul • ~80% market share; unmatched network • Routes utilise A320/321 jets and wide- • ~40% market share of inbound travel o
Slide 19: Sustaining Air New Zealand's success for the long-term
Sustaining Air New Zealand’s success for the long-term For personal use only Our current success is the result of alignment and execution of a Where we are today number of strategic initiatives made 5 to 10 years ago 19
Slide 20: Jodie King, Chief People Officer
Jodie King Chief People Officer € | Investor Day
Slide 21: Award-winning organisation with 12,000 people
An award-winning organisation with 12,000 people aligned to execute our strategic priorities For personal use only 21
Slide 22: A world-class culture is the foundation of our business
A world-class culture is the foundation of our business For personal use only 22
Slide 23: Our strategy starts with knowing our people
Our strategy starts with knowing our people and what drives them For personal use only Employee data as at 31 December 2017. 23
Slide 24: Attracting and developing top talent
Attracting and developing top talent is core to our performance For personal use only 24
Slide 25: Investments in talent development have paid off
Investments in talent development have paid off in key areas For personal use only 25
Slide 26: Talent development approach for a diverse workforce
Our talent development approach and programmes reflect the varying needs of our diverse workforce For personal use only 26
Slide 27: Our people are actively engaged and motivated
As a result, our people are actively engaged and motivated to provide an excellent service for our customers For personal use only 27
Slide 28: High Performance Engagement with union partners
High Performance Engagement was introduced to drive stronger relationships with our union partners For personal use only High Performance Engagement (HPE) aspires to ensure: • Employees have direct and substantive involvement in problem solving, initiating improvements and the decision making proces
Slide 29: HPE has driven significant benefits
HPE has driven significant benefits since its inception For personal use only 29
Slide 30: Ratification of 9-year pilot agreement
Strategic employee relationships at work: ratification of 9-year pilot agreement For personal use only • In May 2018 Air New Zealand and NZALPA (the union that represents the majority of our pilots) entered a nine-year strategic partnership – Structured as three tranches of three-year Collective Emp
Slide 31: Improving the employee experience
We are continuously working to improve the employee experience for current and future Air New Zealanders For personal use only 31
Slide 32: Best customer experiences start with best employee experiences
A culture that believes the best customer experiences start with the best employee experiences For personal use only 32
Slide 33: Network Evolution
NETWORK EVOLUTION For personal use only a2 € Investor Day 2018
Slide 34: Evolution of our network 2010
Evolution of our network For personal use only 2010 34
Slide 35: Evolution of our network 2014
Evolution of our network For personal use only 2014 Revenue share alliance partner Routes operated by Air New Zealand 35
Slide 36: Evolution of our network 2018
Evolution of our network For personal use only 2018 Revenue share alliance partner Indicates a code share partner Routes operated by Air New Zealand Routes operated solely by alliance partners Chicago and Taipei services will commence Nov 2018 36
Slide 37: Disciplined route assessment in network planning
Disciplined route assessment is an integral part of our network planning For personal use only • Regular evaluation of route performance against strategic objectives and profitability targets • Market development plans form a critical component of route assessment • Routes in the “review” quadrant a
Slide 38: Medium-term outlook for network growth of 5% to 7%
Medium-term outlook for network growth of 5% to 7% For personal use only 38
Slide 39: A compelling domestic business with strong demand fundamentals
A compelling domestic business with strong demand fundamentals For personal use only 39
Slide 40: Larger gauge aircraft to support domestic jet growth
Looking at larger gauge aircraft to support future domestic jet growth For personal use only Current jet aircraft servicing domestic trunk routes Benefits of deploying larger aircraft on select domestic jet routes: • More efficient growth of premium domestic traffic during peak demand • Cost advanta
Slide 41: Investment in Australian sales infrastructure and marketing
Investment in our Australian sales infrastructure and marketing has strengthened our Tasman business For personal use only Point-to-point Connecting via Auckland Routes currently serviced by Air New Zealand Chicago service will commence Nov 2018 • Invested in Australian sales teams with focus on • I
Slide 42: Opportunity to independently grow the Tasman market
Opportunity to independently grow Tasman market further and deliver a consistent premium customer experience For personal use only • Exit from Virgin Australia Alliance effective 27 October 2018 New routes from December 2018: – Queenstown – Brisbane – Wellington – Brisbane Additional capacity growth
Slide 43: International network strategy driving profitable growth
An international network strategy focused on driving profitable growth between New Zealand and the Pacific Rim For personal use only 43
Slide 44: Alliance partnerships support long-haul growth
Strong alliance partnerships provide meaningful support to long-haul growth For personal use only 44
Slide 45: New Auckland–Chicago route
New Auckland – Chicago route will stimulate new demand from the US For personal use only Why Chicago? • Stimulate new and significant catchment areas of demand in the US east coast • Help drive increased connecting flows to United’s domestic network • Accelerate growth by leveraging traffic to/from
Slide 46: Taking our alliance relationship further – growing Singapore
Taking our alliance relationship even further – growing Singapore For personal use only Alliances help us grow certain 2006 2018 markets faster and more efficiently • Advancing our partnership with Singapore Airlines to seasonalise a new service • Growing with a third daily service commencing Nov 20
Slide 47: Our approach to new market development – Taipei
Our approach to new market development –Taipei For personal use only Auckland – Taipei service will launch November 2018 with up to 5 services/week Taipei aligns with key market principles used in determining new route opportunities: • Established demand via Australia • Relatively wealthy population
Slide 48: Innovation will reshape how we grow our network
Innovation will reshape how we grow our network in the future For personal use only 48
Slide 49: Jeff McDowall, Chief Financial Officer
Jeff McDowall Chief Financial Officer € | Investor Day 49
Slide 50: Fleet planning approach
Fleet planning approach considers short, medium and long term operational and financial impact For personal use only 50
Slide 51: New A321/320 NEOs operational from late 2018
Our new A321/320 NEOs will be operational from late 2018* For personal use only Single cabin Single cabin 214 seats 165 seats 7 aircraft 6 aircraft 4 purchase / 3 lease 4 purchase / 2 lease Large markets across Smaller markets Tasman & Pacific across Tasman & Island network Pacific Island network (e
Slide 52: Phased plan to grow our Domestic jet network
A phased and efficient plan to grow our Domestic jet network For personal use only Step 1 • Existing leased A320 aircraft currently on Trans-Tasman will be re-deployed to service Domestic jet network – Resulting in capacity growth through additional 3 aircraft Step 2 • Arrival of three A321NEO aircr
Slide 53: Strategic choices for widebody fleet selection
Making strategic choices to guide our widebody fleet selection For personal use only • Will replace eight B777-200 aircraft between 2023 and 2025 financial years • Candidate aircraft: – B787 Family – B777X Family – A350 Family • Balancing cost efficiency vs fleet flexibility 53
Slide 54: Wide-body replacement discussions with OEMs underway
Wide-body replacement discussions with OEMs are underway For personal use only 54
Slide 55: Aircraft capex forecast to be adjusted
Over the next 9 months we expect to adjust the aircraft capex forecast to reflect our growth priorities For personal use only 55
Slide 56: Cost management has demonstrated impressive results
Our approach to cost management has demonstrated impressive results For personal use only Improving CASK* (ex fuel and FX) trend 56
Slide 57: Runway for continued cost improvement 2018 to 2020
Runway for continued cost improvement in the 2018 to 2020 period For personal use only Targeting low-single digit nominal CASK improvement 57
Slide 58: 2019 fuel costs a headwind managed through several levers
2019 fuel costs will be a headwind which we are managing through several levers – including hedging For personal use only Fuel hedge position* • Our hedging philosophy is focused on (Hedged volume as a proportion of estimated consumption) providing the business with time to 76% 75% adjust − Maximum
Slide 59: Internal alignment of ROIC as performance metric
Internal alignment of ROIC as a short-term financial performance metric For personal use only 59
Slide 60: Capital allocation priorities
Our capital allocation priorities are balanced to support sustainable earnings and shareholder returns For personal use only 60
Slide 61: Key messages we would like to leave with you
Key messages we would like to leave with you For personal use only 61
Slide 62: Thank you
For personal use only Thank you
Slide 63: For personal use only
For personal use only
Slide 64: Appendix
APPENDIX Ajuo esn feuosied 10-)
Slide 65: Presenter biographies
For personal use only Christopher has been Chief Executive Officer since Jodie joined Air New Zealand in 2012 and was Jeff joined Air New Zealand in 2000 and was January 2013 having previously held the role of Group appointed Chief People Officer in February 2016. appointed Chief Financial Officer i
Slide 66: Glossary of terms
Glossary of terms For personal use only 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 Interest-bearing liabilities and bank overdrafts, less bank and short-term deposits
Slide 67: Where to find more information about Air New Zealand
Where to find more information about Air New Zealand For personal use only Resources Investor website: www.airnewzealand.co.nz/investor-centre Monthly traffic updates: www.airnewzealand.co.nz/monthly-operating-data Quarterly fuel hedging disclosure: www.airnewzealand.co.nz/fuel-hedging-announcements
Slide 68: For personal use only
For personal use only L2. AIR NEW ZEALAND \o_ A A STAR ALLIANCE MEMBER YS"