Air New Zealand Limited · NZX:AIR
Air New Zealand — H1 2003 Earnings Presentation
35 slides from Air New Zealand's earnings presentation, Mar 5, 2003
Slide 1: Half Year Review Financial Year 2003
Half Year Review Financial Year 2003 Investor Briefing - Sydney 5 March 2003 Le. & AIR NEW ZEALAND
Slide 2: Presentation Outline
Presentation Outline * A Brief Recent History Recapitalisation Reorganisation Restructuring * Strategic Positioning * Current Trading and Outlook
Slide 3: A brief recent history
A brief recent history * Purchase of Ansett completed in June 2000 * Trans-Tasman network * Two-way feed * Dual destination offering « Ansett into Voluntary Administration September 2001 ° “Perfect Storm” of competition, fuel price, dollar, old model operation * September 11 * October 01 Air New Zea
Slide 4: Recapitalisation
Recapitalisation * New Zealand Government recapitalised Air New Zealand * October 2001 temporary loan facility * January 2002 equity investment *$585m Ordinary and $300m Convertible Preference Shares *NZ Government buys 82% of Air NZ * Cash applied to debt reduction * Unsecured lenders fully repaid
Slide 5: Reorganisation
Reorganisation « Board numbers reduced *13to8 * Senior Management team halved °13to7 * New CEO * New Management structure * New CFO, CIO and SVP Operations & Technical
Slide 6: Restructuring - Fleet
Restructuring - Fleet * Operating leases on existing aircraft renegotiated * Substantial reductions in lease rates ¢ Order for 15 A320 aircraft signed 4 July 2002 * Options on a further 20 aircraft * Deployed to short haul Pacific and Tasman routes * Operating cost benefits of approximately 15 perce
Slide 7: Presentation Outline
Presentation Outline * A Brief Recent History Recapitalisation Reorganisation Restructuring ¢ Strategic Positioning ¢ Current Trading and Outlook
Slide 8: The Strategic Dilemma
The Strategic Dilemma Value Creating Defend and Grow NZ Regional Profitability oO Long Haui Value Destroying Vv Improve Performance or Reduce Exposure ) Size of bubble approximates revenue of business
Slide 9: Offence as Defence
Offence as Defence * NZ Domestic markets provide core profitability * Open regulatory regime « Best defence is low cost production « Match costs to customer value * Break model before competitors do
Slide 10: A segmented product offering
A segmented product offering Full Service Value Based Plus Value Based “2. 2. oO cml AIR NEW ZEALAND EXPRESSCLASS 38K freedom air
Slide 11: Air NZ Express Class
Le. Air NZ Express Class EXPRETSCLASS * Launched 1 November 2002 * Customer value driven * Designed to stimulate market * Product offering matching customer value - no business class, no meals - direct sales channels have cheapest fares
Slide 12: Express Class a SUCCESS
2. Express Class a SUCCESS _ yon eciass 20% savings in fares for customers Internet bookings averaging 35% (pre-launch 4%) PAX numbers up 30% on trunk routes 7% of customers using Kiosks - target is 50% Auckland Koru lounge upgrade completed
Slide 13: Freedom Air
Freedom Air _ true VBA S& freedom air « Absolute low-cost carrier «No meals * No connectivity * Direct sales only *No GDS * Deployed on trans-Tasman leisure routes * Profitable on otherwise unprofitable sectors « Fleet of four 737-300 Jets
Slide 14: Freedom Air Grows
Freedom Air Grows S& freedom air * International Capacity up 52% « International Load factor up 3 percentage points to 73% * Domestic services replaced by Air New Zealand’s Express Class * EBIT positive on Tasman Sector
Slide 15: Tasman & Long Haul
Tasman & Long Haul * Weak pricing power due to fierce competition * Qantas, Singapore, Thai, Malaysia (9 in total) * NZ geographic position offers few “hub” benefits * Long distances = expensive aircraft, fewer frequencies « Customers primarily low yield * Holiday * Visiting friends or relatives
Slide 16: Strategic partnership with Qantas
Strategic partnership with Qantas « Air New Zealand’s objectives * Establish sustainable profitable model * Regain feed from Australia * Must build a business model that warrants investment * Convert market position into margin
Slide 17: The bottom line for Air NZ in the alliance
The bottom line for Air NZ in the alliance * Two-way arrangement « Controlling our own destiny « Major national benefits to offset decrease in competition * Remaining strong * Domestically ¢ On the trans-Tasman route * Chosen international routes « A practical cancellation mechanism * Making air tra
Slide 18: What do we Gain?
What do we Gain? * Manage all Air NZ, Qantas and Freedom Air flights within, to and from NZ * Manage 15% of Qantas flights * Code share with Qantas on linking Air NZ flights « Feeder traffic from Australia * Enable an additional 200 highly skilled jobs * Work with largest competitor * Improved finan
Slide 19: What do we forego?
What do we forego? ¢ Flying Australians around Australia ¢ Fly new international routes originating in Australia
Slide 20: Alliance - Approval Progress
Alliance - Approval Progress Kiwi Shareholder Approval VM ACCC and NZ Commerce Commission In Progress Shareholder Approval [|
Slide 21: Presentation Outline
Presentation Outline * A Brief Recent History Recapitalisation Reorganisation Restructuring * Strategic Positioning * Current Trading and Outlook
Slide 22: Return to profitability
Return to profitability Six months to Profit before unusuals & tax Unusual Items Profit before tax Taxation Net profit after tax *continuing businesses only
Slide 23: Operating Cashflow turnaround of $514m
Operating Cashflow turnaround of $514m
Slide 24: Overview - Profitability
Overview - Profitability « Earnings before Interest and Tax of $150 million « Net Profit before Tax and Unusuals of $138 million ° Net Earnings After Tax (before Unusuals) $98 million « Net Operating Cash Flow $326 million
Slide 25: Traffic up 7.3 percent
Traffic up 7.3 percent 2,600 5 2002 2,400 + 2,200 | 2001 2,000 + 1,800 + 1,600 - 1,400 5 1,200 5 4,000 Jul Aug Sept Oct Nov Dec RPK (millions)
Slide 26: Load Factors up 6.9 percent
Load Factors up 6.9 percent 82 5 80 _ 2002 78 4 “ 76 4 74 5 72 5 70 5 68 + 66 + 64 + 62 + 60 2001 Percent
Slide 27: Lower yields offset by more RPKs
Lower yields offset by more RPKs Passenger Revenue $1.43bn 2 Less Plus FY03 Yield Pax
Slide 28: Operating Expenses down $121m
Operating Expenses down $121 m $1.44bn| FY02 Lab Fuel M&O A/C Pax S&M Other FY03 Ops Sves
Slide 29: Fuel costs down $61 million
Fuel costs down $61 million FYO2 Higher Less FX Hedge Price use
Slide 30: Maintenance Costs Down
Maintenance Costs Down * Determined by cyclical maintenance programmes * Less internal work required during period « Prior period included major engine modification project * Current period work mainly airframes
Slide 31: From EBITDRA to NPAT-further savings
From EBITDRA to NPAT-further savings Six months to Dec 02 Dec 01* Change $m $m $m EBITDRA 405 248 157 Depreciation (112) (93) (19) Rental & Lease (143) (206) 63 interest (11) (39) 27 Unusual Items (4) (330) 326 Taxation (41) 44 (85) Net profit after tax 94 (375) 469 *continuing businesses only
Slide 32: ANZES Grows - EBIT up
ANZES Grows - EBIT up 17 percent Dec02 Dec01 ($m) ($m) Revenue 247 284 Costs 212 252 EBIT 25 22 Assets 541 518 Investor Day planned for April 1 2 Se AIR NEW ZEALAND ENGINEERING SERVICES
Slide 33: Balance Sheet improved
Balance Sheet improved 100% 4 «3% * Gearing reduced to 90% | 69.6 percent 80% 7 * 70% * Includes Operating Leases at 7 times and R C Notes in liabilities 70% 74 60% J 56% 50% 7 40% 30% 4 « Interest Cover 12.9 times 20% 4 10% 4 0% 1999 2000 2001 2002 *31 December 2002
Slide 34: Outlook
Outlook * Forward bookings softening - but loads remain high * Easter effect * War threat actively monitored and contingency plans in place ¢ Full year profit forecast unchanged - PBUT $230 million
Slide 35: Half Year Review
Half Year Review Financial Year 2003 Investor Briefing - Sydney 5 March 2003 Le. & AIR NEW ZEALAND