Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (November 2010)
66 slides from Air New Zealand's investor day presentation, Nov 26, 2010
Slide 1: Air New Zealand Investor Day
For personal use only Air New Zealand Investor Day 26 November 2010 1 2010 Investor Day FIRST IN, BEST DRESSED
Slide 2: Welcome
For personal use only Welcome Rob McDonald Chief Financial Officer 2 2010 Investor Day FIRST IN, BEST DRESSED
Slide 3: For personal use only
For personal use only 3 2010 Investor Day
Slide 4: Business Update & Loyalty Programme
For personal use only Business Update & Loyalty Programme Rob McDonald Chief Financial Officer David Mackrell Deputy Chief Financial Officer 4 2010 Investor Day FIRST IN, BEST DRESSED
Slide 5: Line Up
Line Up For personal use only • Business Update • Domestic • Tasman/Pacific Islands • Long Haul • Lining up the Initiatives • Financial Management • Hedging Strategy • Fleet Management • Loyalty Programme 5 2010 Investor Day
Slide 6: Business Update
Business Update For personal use only • Revenue momentum continues to build • Increased fuel prices – Move in both crude and crack spread from September • Favourable currency movement – But hedging delays benefit • Enjoying recovery across most markets 6 2010 Investor Day
Slide 7: Industry Comparison
Industry Comparison For personal use only 7 2010 Investor Day
Slide 8: Domestic
Domestic For personal use only • New competitive environment • Adding capacity as demand improves • Fleet replacement programme starts January 2011 – A320 delivers lower per seat costs and increased capacity – Configuration (171 seats) delivers a platform which allows a cost base competitive with lo
Slide 9: Tasman/Pacific Islands
Tasman/Pacific Islands For personal use only • New product offering “Seats to Suit” – New A320 configuration adds capacity – Delivers a cost base that allows us to compete across all customer segments – IFE allows flexibility of product mix configuration for every flight • Increased penetration in A
Slide 10: Long Haul
Long Haul For personal use only • Launch new product on 777-300 ER April 2011 once three aircraft are in fleet – First Long Haul operational flight mid January 2011 • Adding capacity back to match improving demand • Focus on improving depth of current routes • Strong loads across network • 777-300ER
Slide 11: Financial Management
Financial Management For personal use only • Cash balance remains strong at more than 20% of revenue despite recent debt repayment • Gearing stable and healthy at 47% • Moody raised rating to Investment Grade Baa3 • Dividends maintained through Financial Crisis, increased in 2010 • Growing pool of u
Slide 12: Lining up the Initiatives
Lining up the Initiatives For personal use only • Seats to Suit • New Long Haul product • Enhanced Loyalty programme • Proposed Alliance • Leveraging RWC2011 • Layering in capacity will improve cost efficiency 12 2010 Investor Day
Slide 13: Hedging Strategy
Hedging Strategy For personal use only • Objective of Hedging Strategy is to protect business from short term volatility • Hedging provides time to adjust accordingly – Hedging profile reflects speed of adjustment • Continuously monitor and adapt hedging strategy • Recent independent review reaffirm
Slide 14: Fuel Hedging Profile
Fuel Hedging Profile For personal use only Percentage Hedged by Month 100% Current Maximum Minimum Target 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 10 11 1 1 0 1 11 1 1 11 1 10 11 -1 l- 1 -1 -1 -1 -1 r-1 n- - b- g- - p- ov ar n ct ct ay ec Ju Ap Ju Au Ja Fe Se O O M N M D 14 2010 Investor Day
Slide 15: Fuel Hedge Position
Fuel Hedge Position* For personal use only • The first half of FY11 is 89% hedged Volume bbls Ceiling US$ Floor $us Singapore Jet collars 1.9m 91 81 WTI collars 1.5m 81 71 • The second half of FY11 is 75% hedged Volume bbls Ceiling US$ Floor $us Singapore Jet collars 0.6m 93 84 WTI collars 2.1m 82 7
Slide 16: Currency Composition
Currency Composition For personal use only 2010 Currency Composition 400 200 0 U G U AU JP EU C C SD BP SD N AD Y (200) D R NZD (m) Y ot Fu h el er (400) (600) (800) (1,000) 16 2010 Investor Day
Slide 17: Currency Hedging
Currency Hedging For personal use only • 2011 US dollar operating cash flow exposure is approx. 91% hedged at an average NZ$/US$ rate of 0.66 • US$373m of future capex commitments are hedged at NZ$/US$ rate of 0.73 (spot) 17 2010 Investor Day
Slide 18: Currency Hedging Profile
Currency Hedging Profile For personal use only Hedge Rates and Hedging Percentages 100% 0.8500 90% 0.8000 80% 0.7500 Indicative hedge percentage Exchange rate versus NZD 70% 0.7000 Indic Hedge % 60% AUD 0.6500 CAD 50% EUR 0.6000 GBP 40% USD 0.5500 30% 0.5000 20% 0.4500 10% 0.4000 0% 0.3500 Dec FY11
Slide 19: Hedging Activity Reduces Earnings Volatility
Hedging Activity Reduces Earnings Volatility For personal use only 400 350 300 250 $m 200 150 100 50 0 FY06 FY07 FY08 FY09 FY10 (Year ended 30 June) Normalised earnings before tax Earnings before tax excluding any derivative related operating gains/losses 19 2010 Investor Day
Slide 20: Fleet Management
Fleet Management For personal use only • Significant fleet replacement preparation and activity • 737 replacement programme on track • 777-300 introduction on track • Flexibility of fleet proving valuable given 787 delays – 777-200 leases extended – 767’s to remain in fleet – 747 purchased 20 2010 I
Slide 21: Fleet Activity
Fleet Activity For personal use only FY11 FY13 FY12 FY14 FY15 Boeing 777-300ER 3* 2 - - - Airbus A320 2** 2** 1 3 4 Boeing 787-9 - - - ? ? Boeing 777-200ER - 2 6 - - Reconfiguration 747 Exits (2) (3) - ? ? 737 Exits - (3) (2) (2) (1, ?) *1 x owned, 2 x operating lease ** Operating Leases 21 2010 Inv
Slide 22: Loyalty Programme
Loyalty Programme For personal use only • Creates loyalty to Air New Zealand • Significant sales channel • Growing membership (10% in last 6 months) • Core part of our business but not a separate business/profit centre • Stimulates travel as well as rewards travel behaviour “earn to fly” and “fly to
Slide 23: Loyalty Programme
Loyalty Programme For personal use only • Enhancements to Loyalty Programme – Expanded financial partners • Added ANZ National, Kiwi Bank & American Express • BNZ Global Plus Relationship continues to grow – Enabled Airpoints earning through retail spend • Partnership with Loyalty New Zealand (Flybu
Slide 24: For personal use only
For personal use only 24 2010 Investor Day
Slide 25: Trans-Tasman and the Alliance
For personal use only Trans-Tasman and the Alliance Stephen Jones GM Strategy 25 2010 Investor Day FIRST IN, BEST DRESSED
Slide 26: Content
Content For personal use only 1. Regulatory structure 2. Tasman Market 3. Virgin Blue Alliance 4. Authorisation 26 2010 Investor Day
Slide 27: Regulatory Structure
1. Regulatory Structure For personal use only • Single Aviation Market with Australia • Open Skies Arrangements with other countries • Fifth Freedom flying a permanent feature 27 2010 Investor Day
Slide 28: Emirates Exercises its 5th Freedom Rights
Emirates Exercises its 5th Freedom Rights For personal use only • Emirates have fifth freedom rights allowing them to carry passengers point-to-point on the Tasman • Emirates flight banks in Dubai encourage a morning arrival into, and evening departure from, Australian ports • Tasman flight times al
Slide 29: Tasman Market is well Served
2. Tasman Market is well Served For personal use only 29 2010 Investor Day
Slide 30: Tasman Market Relative Size
Tasman Market Relative Size For personal use only Australian, New Zealand and Trans-Tasman Capacity Presence by ASKS for the 12 months to April 2010 100% Other Other Tiger Emirates 80% Virgin Blue Air NZ Air NZ 60% Capacity Share Jetstar 40% Pacific Blue Jetstar Qantas 20% Pacific Blue Qantas Jetsta
Slide 31: Total Market Capacity in FY11 is Significantly Higher than FY08
Total Market Capacity in FY11 is Significantly Higher (10%) than FY08 For personal use only Capacity Share by Carrier – Tasman Market 4.0m 3.5m Other 3.0m BI AR 2.5m LA Seats Per Year TG 2.0m DJ 1.5m EK JQ 1.0m QF SJ 0.5m NZ 0.0m 2005 2006 2007 2008 2009 2010 2011 # of carriers 10 10 9 9 8 7 7 Yoy %
Slide 32: Tasman is Predominantly Leisure Market
Tasman is Predominantly Leisure Market For personal use only 32 2010 Investor Day
Slide 33: Tasman Capacity Growth over Longer Term
Tasman Capacity Growth over Longer Term For personal use only Trans-Tasman Passengers, Seats and Load Factor 700,000 90% 80% 600,000 70% 500,000 Seats and Passengers 60% Load Factor 400,000 50% 40% 300,000 Passengers 30% 200,000 Seats Load Factor 20% Passengers Trend Seats Trend 100,000 LF Trend 10%
Slide 34: Virgin Blue Alliance
3. Virgin Blue Alliance For personal use only 34 2010 Investor Day
Slide 35: Hierarchy of Co-operation
Hierarchy of Co-operation For personal use only Interline Code Share Revenue Share Profit Share Equity 35 2010 Investor Day
Slide 36: Where does the Value come from?
Where does the Value come from? For personal use only • Better Connections • Better Frequency • Better Distribution • Market Stimulation • Cost Savings 36 2010 Investor Day
Slide 37: Revenue Allocation Alliance with Virgin
Revenue Allocation Alliance with Virgin For personal use only Revenue Pooling on Trans Tasman Sectors Code-share on “Network Alliance Routes” Australia Tasman New Zealand 37 2010 Investor Day
Slide 38: What the Alliance is not
What the Alliance is not…. For personal use only • Not a replay of Ansett • Not a replay of the Qantas TNA – No capacity reductions and joint market share is only ~50% • Not a profit share – carriers bear their own costs • Doesn’t include stand-alone domestic sectors • Doesn’t include Pacific Island
Slide 39: Previous Alliance Proposals were quite Different
Previous Alliance Proposals were quite Different For personal use only Feature QF1 QF2 39 2010 Investor Day
Slide 40: Governance…How are Decisions Made?
Governance…How are Decisions Made? For personal use only Air New Zealand Virgin Blue CEO CEO Alliance Board Alliance Revenue Team Joint Sales Team Responsible for agreeing: Responsible for agreeing: • Network • Marketing • Schedule • Sales • Pricing 40 2010 Investor Day
Slide 41: Authorisation
4. Authorisation For personal use only • Approval sought from ACCC and Ministry of Transport • Draft Determination received from ACCC proposing to deny authorisation • Capacity Conditions offered to allay DD competition concerns • Subsequent ACCC Pre-Decision Conference held • Final Determination ex
Slide 42: Conditions Offered
Conditions Offered For personal use only • Six Sectors of concern identified by ACCC – AKL-BNE, WLG-SYD, WLG-BNE, WLG-MEL, DUD-BNE, ZQN-SYD • Maintain Minimum of Aggregate Base Capacity • Increase Aggregate Base Capacity by 10% by Year 3 • Increase Aggregate Base Capacity by 15% by Year 5 • Maintain
Slide 43: Process Options if Regulators Deny Authorisation
What are the Process Options if Regulators Deny Authorisation? For personal use only • Option for ACT appeal if ACCC negative – Full rehearing of case – Same tests for authorisation as ACCC apply – Courtroom style • Judicial appeal possible if MOT negative 43 2010 Investor Day
Slide 44: For personal use only
For personal use only 44 2010 Investor Day
Slide 45: Tourism & Rugby Festival 2011
For personal use only Tourism & Rugby Festival 2011 Norm Thompson Deputy CEO 45 2010 Investor Day FIRST IN, BEST DRESSED
Slide 46: 61% of Air NZ's International Revenue is from Offshore
61% of Air NZ’s Revenue on our International Routes is from Offshore For personal use only % of Air Capacity Air New Zealand Revenue by Air New Zealand Inbound v's Outbound (international routes) 100 90 80 70 60 39% 50 40 30 61% 20 10 0 International New Zealand In te D rn om at es io na tic l 46 20
Slide 47: International and Domestic Tourism contribute $22.4 billion
International and Domestic Tourism contribute $22.4 billion to the Economy For personal use only Tourism Expenditure (billions) 9.5 12.9 International Domestic 47 2010 Investor Day
Slide 48: Tourism is NZ's Largest Export Earner
Tourism is NZ’s Largest Export Earner For personal use only Value of Primary Exports (Year ended 31 March 2010) 10 9 8 7 6 $ billions 5 4 3 2 1 0 To Da ur M iry is ea W m Se oo t af d oo Source is Tourism Satellite Account 2010 d 48 2010 Investor Day
Slide 49: 70% of Visitor Arrivals come from Key Markets
70% of our Visitor Arrivals come from 5 Key Markets For personal use only Rest of World 30% (750k) Australia 45% (1.1m) TNZ research shows that Japan there is a market of 4.9 3% China million Australians for (85k) 4% USA whom NZ is one of their UK preferred destinations for (110k) 8% 10% their next
Slide 50: Japan Market has Moved Back into Growth
Japan Market has Moved Back into Growth For personal use only % change in arrivals, Top 12 markets, y/e Oct 2010 Total Australia UK USA China Japan Germ any Korea Canada Singapore India France Hong Kong -10 -5 0 5 10 15 20 Source: International Visitor Arrivals, September 2010 50 2010 Investor Day
Slide 51: Highest Growth in Visitor Arrivals Forecast from China
The Highest Growth in Visitor Arrivals to NZ is Forecast to come from China For personal use only Forecast average annual change in arrivals, 2010-2016 Total Australia UK USA China Japan Germany Korea Canada Singapore India France Hong Kong 0 1 2 3 4 5 6 7 8 9 10 51 2010 Investor Day
Slide 52: Cruise Market
Cruise Market For personal use only • Globally, cruise market has Cruise Passengers grown by 7.2% pa over the last decade 200000 • The total value added to the NZ 180000 economy from the cruise sector is forecast to reach $346 million 160000 in the 2011/12 season (up from 140000 Passengers $190 mill
Slide 53: Convention market
Convention market For personal use only • Multi-day conventions contributed $398 million to GDP (yr ended June 2010) of which $112 million was from international delegate expenditure • Average spend by international delegates was $4,049* versus $1419 for domestic delegates • Currently not competitiv
Slide 54: The Opportunity
The Opportunity For personal use only • Tourism in New Zealand will be boosted in 2011 from RWC2011 • Air New Zealand is crazy about rugby • We are a not a sponsor of the tournament • Preliminary forecasts predict 85,000 international visitors to NZ over the duration of the tournament, with 43,000 b
Slide 55: Tournament v's Peak
Tournament v’s Peak For personal use only 55 2010 Investor Day
Slide 56: The Game Plan
The Game Plan For personal use only 56 2010 Investor Day
Slide 57: Operational Excellence: Making it Fly
Operational Making it FlyExcellence For personal use only • All aircraft available & building capacity to meet demand • Creating off-site check-in – Managing customers and bags from any location at any time • Facilitating cruise ship movements around the five cruise ships that will be in New Zealand
Slide 58: Making Winners on the Day
We are all Making Winners on the Day it Fly For personal use only • Commercially beneficial – Not putting up the ‘full’ sign until the entire country is full • Brand Advocacy – Air NZ award winning service – NZ ambassadors – Creative marketing • Stakeholder relationships – NZ Inc – Tournament respon
Slide 59: For personal use only
For personal use only 59 2010 Investor Day
Slide 60: Overview & Conclusion
For personal use only Overview & Conclusion Rob Fyfe Chief Executive Officer 60 2010 Investor Day FIRST IN, BEST DRESSED
Slide 61: The Journey
The Journey For personal use only ‘ATW Phoenix Award’ to … ATW ‘Airline of the Year Award’ in just five years 61 2010 Investor Day
Slide 62: Deliberate Investment in Culture
Deliberate Investment in Culture For personal use only 62 2010 Investor Day
Slide 63: Great leaps forward in innovation
Great leaps forward in innovation For personal use only 63 2010 Investor Day
Slide 64: Industry Developments
Industry Developments For personal use only • Consolidation • Growth of low cost in region • We need to be bigger to be relevant 64 2010 Investor Day
Slide 65: Transition from Rebuild to Growth
Transition from Rebuild to Growth For personal use only • Platform established • Leverage for growth 65 2010 Investor Day
Slide 66: For personal use only
For personal use only 66 2010 Investor Day