Air New Zealand Limited · NZX:AIR
Air New Zealand — Investor Day (November 2007)
40 slides from Air New Zealand's investor day presentation, Nov 30, 2007
Slide 1: Analyst Day November 2007
For personal use only Analyst Day November 2007 Rob Fyfe CEO
Slide 2: Air New Zealand – our ethos
Air New Zealand – our ethos For personal use only • Who are we? • What do we do? • How do we do it?
Slide 3: Benchmarking – operating margin
Benchmarking – operating margin For personal use only Operating Margin % 10 9 Operating margin* % 8 7 6 5 4 3 2 1 0 Air New Zealand Qantas British Airways Lufthansa 10 9 EBITDA Margin % 25 8 20 7 15 6 10 5 5 4 0 Air New Zealand Qantas British Airways Lufthansa 3 2 Fleet Age 14 1 12 10 0 Average Age
Slide 4: Benchmarking - EBITDRA
Benchmarking - EBITDRA For personal use only Operating Margin % 10 9 8 EBITDRA* margin % 7 6 5 4 3 2 1 25 0 Air New Zealand Qantas British Airways Lufthansa EBITDA Margin % 20 25 20 15 15 10 5 0 10 Air New Zealand Qantas British Airways Lufthansa 5 Fleet Age 14 12 10 Average Age (Years) 8 0 6 Air Ne
Slide 5: Benchmarking – fleet age
Benchmarking – fleet age For personal use only Operating Margin % 10 9 8 7 6 Fleet age 5 4 3 2 14 1 0 Air New Zealand Qantas British Airways Lufthansa 12 EBITDA Margin % 25 10 Average Age (Years) 20 15 8 10 5 6 0 Air New Zealand Qantas British Airways Lufthansa 4 Fleet Age 14 2 12 10 Average Age (Ye
Slide 6: Operating environment
Operating environment For personal use only • Highly volatile • Strong economic growth – but for how long? • Record fuel prices • Increased domestic competition • Pressure in global markets for skilled employees – engineers and pilots • Large amount of global capacity on order
Slide 7: Flexibility – one example
Flexibility – one example For personal use only • Flexibility is the key to Air NZ widebody seat count allowing an airline to balance +5% capacity with demand 10,000 9,000 • Air New Zealand now has a 8,000 favourable profile of aircraft Seat Count 7,000 purchase options and lease 6,000 -5% maturitie
Slide 8: A sustainable future
A sustainable future For personal use only • Protecting and growing the customer relationship • Protecting our environment • Growing our network • Remaining fast and flexible
Slide 9: FY08 Outlook
FY08 Outlook For personal use only • Fuel hedges currently lock-in approximately 70% of our fuel requirement for FY 2008 • Still expect to better 2007 PBUT in 2008 – even in the current challenging operating environment
Slide 10: Update: International Operations
For personal use only Update: International Operations Ed Sims GGM International Airline
Slide 11: Highlights
Highlights For personal use only • Leading player on all Air NZ routes ex Auckland • Vancouver launch • Increase frequency into China • International Grabaseat • Premium Economy
Slide 12: Network – Depth over breadth
Network – Depth over breadth For personal use only • New routes selling strongly • No dead wood in route structure • Overall passenger growth well ahead of tourism growth • Flexible scheduling to take tactical opportunities • Balanced network focussing on UK/US/JPN/ASI
Slide 13: Year-on-year load factor
For personal use only -4% -2% 0% 2% 4% 6% 8% 10% Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 Year-on-year load factor May-07 Jun-07 Load factor % pt movement Jul-07 Aug-07 Sep-07 Oct-07
Slide 14: Fleet – Eco friendly and fit for the route
Fleet – Eco friendly and fit for the route For personal use only • Good flexibility to change gauges • Boeing 777-300/787 new generation of inflight product • Great maintenance record • Limited exposure on potential delays to Boeing 787-9 • Phased withdrawal of 767-300 and 747-400
Slide 15: Product – World class and differentiated
Product – World class and differentiated For personal use only • PPE/lie flat bed • Load factors in Premium class up from 66% in 2006 to 80% MAT Oct 07 • Heavy loads across Asia and Northern Hemisphere • Doubled IFE content, improved food/amenity spec • Awards - Conde Nast US/UK, Cellar in Sky, and
Slide 16: Opportunities…
Opportunities… For personal use only • Renewed investment in ground product • Network review within existing fleet • New product concepts for 787/777-300 • Star Alliance • Cargo growth opportunities • Cabin crew service levels
Slide 17: Update: Short Haul Airline
For personal use only Update: Short Haul Airline Bruce Parton GGM Short Haul Airline
Slide 18: Background
Background For personal use only • Short Haul airline comprises three businesses Regional Turbo Prop (Mt Cook – ATR72, Air Nelson – Q300, Eagle Air – Beech 1900D) Domestic Jet (Boeing 737) Tasman/Pacific Islands (A320) • Strong market position Large regional air services network 80%+ market share do
Slide 19: Recent performance
Recent performance For personal use only • Financial performance continues to improve • Short haul passenger load factors up 5.8 percentage points YTD • Regional turboprop capacity up 12% year-on-year with the new Q300s • Domestic Jet loads have largely kept pace with increased capacity • Domestic J
Slide 20: Network
Network For personal use only • Recently introduced regional turbo prop routes IVC-WLG TRG-CHC NPL-CHC WAG-WLG • Integration of Freedom Air last flight in March 2008 PMR international discontinued Seasonal capacity adjustments on AKL-SYD, WLG-SYD and WLG-MEL • Paraparaumu under consideration in shor
Slide 21: Fleet
Fleet For personal use only Regional Turbo Prop Growth • 19 of 23 new Q300s now delivered • Review of 70 seat to 90 seat regional aircraft requirement underway Domestic Jet Growth • Two leased B737-300s 1st aircraft arrives in Mar 2007 2nd aircraft arrives in Apr 2007 Tasman/Pacific Islands • 1 subl
Slide 22: Improving the airport experience
Improving the airport experience For personal use only “The focus is to improve the higher value product offering while maintaining everyday low fares”
Slide 23: ‘I’m automatically checked in’
‘I’m automatically checked in’ For personal use only
Slide 24: Boarding pass delivery options
‘I can pick how I want my boarding pass (mobile, email or For personal use only smart card) and my boarding pass gets sent to me’ MR.D. JOHNSON AKL NZ0559 CHCH SEAT GATE 9.15 12B 9.30 32 YOUR BOARDING PASS: CUT AND KEEP ETICKET MR.D. JOHNSON BOOKING: 123456 Eros nullan veratue con utet autet, quisl
Slide 25: Customer quote on boarding and bag drop
‘As a regular traveller it’s great to be able to go straight to the gate with my boarding pass, and if I’ve got bags to check, I can simply drop and run’ For personal use only
Slide 26: Summary
Summary For personal use only • Air NZ will vigorously defend its short haul “home” market • Well placed to compete: - broad revenue base - significant network advantages - fleet flexibility - competitive cost base - experienced management team - innovative culture - no complacency • The business is
Slide 27: Financial Update
For personal use only Financial Update Rob McDonald - CFO
Slide 28: Table of Contents
Table of Contents For personal use only • Hedging • Capital Expenditure & Fleet • IFRS • Carbon Emissions • Other Developments
Slide 29: Currency hedging – operating
Currency hedging – operating For personal use only • Objective – to protect operating margin from the impact of volatile FX in the short term • Buys time for the business to implement changes • Policy requires management to hedge up to 24 months net operating cash flows on a rolling basis
Slide 30: Currency hedging – operating
Currency hedging – operating For personal use only • Rest of FY08 USD exposure is 90% hedged • Average NZD/USD hedge rate for rest of 2008 is @ 0.6825 • FY09 USD exposure is 55% hedged • Average NZD/USD hedge rate for 2009 is @ 0.7315
Slide 31: Currency hedging – debt
Currency hedging – debt For personal use only • Operating leases included in debt • Long Haul’s diversified portfolio is less sensitive to FX volatility • Short Haul business substantially has NZD and AUD revenues but significant USD costs • Debt attributed to the short haul business is hedged into
Slide 32: Currency hedging – capital commitments
Currency hedging – capital commitments For personal use only • Hedged USD640m of future capex commitments @ spot rate of 0.7440 • Relevant issues – swap costs – liquidity impact
Slide 33: Fuel hedging
Fuel hedging For personal use only • World oil demand correlated to global economic conditions • Implies an element of natural hedge over the long term • Objective is to protect operating margin from adverse movements in fuel prices in the short term • Hedging profile is a declining wedge • Estimate
Slide 34: Fuel hedging
Fuel hedging For personal use only • Rest of FY08 approximately 70% hedged* • Predominantly WTI collars but some crack and product hedges • September quarter FY09 is hedged around 30% • If recent price levels persist in the long term it presents a renewed challenge *Refer to quarterly hedging disclo
Slide 35: Capital expenditure & fleet
Capital expenditure & fleet For personal use only • No wide body jet deliveries until November 2010 (FY11) 1000 • A320 and B767 IFE capitalised in 800 600 FY09 NZDm 400 • The two B737-300 narrow body 200 jets joining the fleet in FY09 are 0 2006 2007 2008F 2009F leased Latest Guidance Note: The $250
Slide 36: IFRS – key changes
IFRS – key changes For personal use only • IFRS impact described in note 24 to the financial statements • Aircraft maintenance Owned aircraft - engines a separate component - engine overhaul costs capitalised and depreciated - major airframe inspections capitalised and depreciated Leased aircraft -
Slide 37: IFRS – key changes
IFRS – key changes For personal use only • Reverse Jet Aircraft Residual Value Hedge - aircraft restated to NZD from inception - USD debt now hedged with derivatives • Certain aircraft and buildings restated to current value - 737, 767, 747 and certain buildings • Depreciation - reduced by restating
Slide 38: IFRS – key changes
IFRS – key changes For personal use only • Financial Instruments - all financial instruments recognised on balance sheet - strict effectiveness criteria in order to hedge account - some hedging may fail accounting effectiveness test • Loyalty Programme - provide for Airpoints dollars at value to cus
Slide 39: Carbon emissions
Carbon emissions For personal use only • International aviation is covered by ICAO not Kyoto • NZ ETS covers domestic only • Air NZ would have to offset approx. 500,000 tonnes of carbon annually • Air NZ likely to assume point of obligation approach • Air NZ ETS set to commence on 1Jan 2009 on liqui
Slide 40: Airport regulation
Airport regulation For personal use only • Acceptance that current regime is unsatisfactory and lacks credibility/robustness • Pillars of current regime discredited • AIAL, WIAL, CIAL to be regulated companies under new form of information disclosure regulatory control • Commerce Act to replace Airp