Going beyond. Christopher Luxon Chief Executive Officer

Investor Day 2013 1 Going beyond Christopher Luxon Chief Executive Officer 2 New Executive structure Chief Executive Officer Christopher Luxon ...
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Investor Day 2013

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Going beyond Christopher Luxon Chief Executive Officer

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New Executive structure

Chief Executive Officer Christopher Luxon

Chief Strategy & Networks Officer

Chief Marketing & Customer Officer

Stephen Jones

Mike Tod

Chief Sales Officer

Norm Thompson

Chief Financial Officer

Chief Operations Officer

Rob McDonald

Bruce Parton

Chief Flight Ops & Safety Officer

Chief People Officer

David Morgan

Lorraine Murphy

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Focusing on the controllables

Culture

Fuel price Natural disasters

Weather

Global recessions Exchange rates

Fleet

Product

Brand

Safety Network

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We want to be successful and significant Our success is linked to New Zealand’s success Go Beyond is our guide to what really matters

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What success looks like to us

An aspiration to sustainably double our 10 year earnings average*

*This is not a forecast

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Our Aspiration Normalised earnings before taxation

10 year average 10 year average

Aspiration to10 year sustainably double average 10 year earningsPBT average*

Sustainably double Sustainably double

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Who we are A customer-centric and commercially savvy airline focused on the Pacific Rim

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Our Air New Zealand We are…

We are not…

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A seamless transition New management team in place January 1, 2013

New functional structure

A team of globally experienced leaders with deep institutional knowledge

Management information and performance systems aligned to new

structure

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New Sales leadership…

Chief Sales Officer

GGM New Zealand & Pacific Islands

GM Australia

GM Americas & Europe

GM Asia

GM Cargo

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..with a focus on channels & customers ILLUSTRATIVE ONLY

Our Japanese customers

Business Families Yuma Yuma girls Skiers Honeymooners School kids Channels

Leisure

Online

Group

Corporate 14

…and market development 1) Market Development Objectives Product People 9) Establish Sales & Market Development resource

3) Identify product & product benefits for target segments

Brand

Price 4) Develop Pricing Plan

Customers

2) Define market segments & identify target segments

Partnerships 8) Leverage partners

Promotion

Place 5) Establish distribution channels

6) Build brand visibility 7) Integrated consumer & trade promotions

10) Review Route Performance

An overview of our markets…

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Domestic New Zealand

Competitive environment Pricing to stimulate market Acceleration of A320s bringing down cost base Unparalleled network

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Tasman & Pacific Islands Strong market performance Virgin Australia alliance working well Seats to Suit meeting the market Improved network offering

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China

Focus on Shanghai improving efficiency Likely launch market for 787 Refocused sales function Better in-market execution

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Japan

A slowly recovering market Some recent headwinds, primarily weak Yen We are adjusting our marketing accordingly ANA alliance

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North America

Capacity growth to meet demand New competition with Hawaiian growth New LAX terminal, better transit experience

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Europe

Exit Hong Kong-London route Focus now on Los Angeles-London market Making excellent progress

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A virtuous circle grow profit

grow

revenue

control

sustainable returns

costs

to shareholders

invest

in our business 23

Becoming fit to win energised management team

renewed focus on market sales execution

relentless cost control and resource optimisation

proactive pursuit of growth opportunities

We are firing on all cylinders 24

Executing the plan Stephen Jones Chief Strategy & Networks Officer

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Our Domestic core Strong and growing…

Deep network and schedule

Modern fleet

Simple end-to-end journey

Detailed yield management 26

The Tasman Structurally better and growing…

Seats to Suit

Growing market

Virgin alliance

Virgin investment

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Air New Zealand & Virgin Australia A powerful partnership… Returning the Tasman to growth Trans-Tasman alliance is a compelling customer proposition Results are now clear Lower fares More passengers More connecting journeys New city pairs Growth Re-authorisation process now underway (5 year term sought) Decision likely September 2013

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We are now 1.2 airlines The Virgin investment by the numbers…

516m

shares held

$300m

NZD value @ 48 cps

27 cps

to Air NZ investors

18%

of Air NZ market cap

In addition to our improved core business, the investment provides: An economic exposure to the faster growing Australian market A position in any Australasian regional consolidation A liquid and readily valued investment 29

International Steadily improving… Network portfolio upgraded

Ancillary revenue

Costs reducing

Fleet efficiency

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Reshaping International Creating structural advantage through partnerships Focus on Pacific Rim markets Direct flights Strong economic growth

Exiting markets where no competitive advantage exists e.g. Hong Kong–London

Growing the network around deep partnerships Leveraging home market strength for better customer proposition

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Alliances A quickly changing landscape… Immunised revenue share arrangements emerging as preferred consolidator Global alliances remain very important – but don’t meet all needs Deeper cooperation on specific markets required Partner choice within global alliance may be limited Bilateral relationships outside of global alliance required Air New Zealand at forefront of this evolution Virgin Australia Cathay Pacific 32

Cathay Pacific A strong Hong Kong partner Deep local distribution and brand strength Product and brand aligned with Air New Zealand proposition Alliance authorisation for Auckland-Hong Kong sector only Early results encouraging Exit Hong Kong-London without compromising Auckland-Hong Kong

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Ideal new market characteristics

7. Conduct advantage network, cost or product

competitive advantage

6. Structural advantage, mostly outbound

demand flow characteristics

1. Market size to support 2-3 weekly services

2. Higher yielding traffic mix > Bus/VFR

Ideal new market

5. Focused markets (1-2 main cities)

market volume, quality and growth

3. Strong historical and projected growth

4. Strong point-topoint market

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New market focus on Pacific Rim

Strong existing traffic flows High growth Direct flights Partnerships 35

Conclusion Playing in the right markets Working with the right partners Australasian business portfolio Pacific Rim network focus

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Customers at the core Mike Tod Chief Marketing & Customer Officer

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A winning team Lorraine Murphy Chief People Officer

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What we are known for New Zealand Employer of Choice Excellent reputation Strong and proud culture Talented, hard working people Depth of experience Constructive partner relationships 66

Core HR priorities Engagement & culture Diversity Leadership Performance Sales capability Succession planning Employee relations Talent Our efficiency and effectiveness Workforce planning

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Leadership Brand…

“That’s an Air New Zealander”

What is ours Management foundation and leadership is additive A Leadership Development framework Join Companies Leave Leaders

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Leadership Leadership Culture Engagement Performance

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Talent strategies Leaders are talent managers Talent identification and development framework Attraction of talent Emerging leaders

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Performance Differentiated Consequential Supported by core processes Driving a culture… of high performers

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Fighting fit Bruce Parton Chief Operations Officer

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New Operations structure

Chief Operations Officer

Technical Operations

Airline Operations

Airports

Regional Airlines

Supply Chain

Cabin Crew

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Without operational integrity, we don’t have an airline…

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Simplifying our fleet

today B737 A320

B747 B767 B777

tomorrow A320

= B777 B787

Fuel efficiency Operational savings Better customer experience

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Investing in continuous improvement

No stone unturned… Project Choice IBM call centres Ongoing initiatives

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A new approach to airports New structure under experienced GGM Airports John Whittaker

Next wave of technology improving customer ground experience

New ground handling contracts

Investment in mobile technology

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Tech Ops 2600 staff 3 subsidiary companies

1.8 million

productive man hours

40% for third party contracts

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Changing maintenance requirements

Modern aircraft with longer maintenance intervals Legacy fleet maintenance simplified Significantly less man hours required going forward

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Focusing on what the customer values B787 entry into service B777-200 upgrade Lounge upgrades (CHC, AKL, LAX) New ATR72-600s on regional + upgraded existing -500s Improved check-in experience Seamless journeys through our integrated network 80

Delivering a superior customer experience

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Consistency is important smooth arrival

great

flight

efficient

Leave on time

simple

How late can I leave it?

Get what I expect

Choose my seat

Space for my carry-on?

boarding

check-in

Arrive on time Bags out quickly

Friendly service

Drop my bag Quick and easy 82

Regional airlines An integral part of our wider network Superior servicing of small towns and regional centres Regional economy remains challenging Fleet flexibility (ATR72  Q300  B1900D) Agile business equipped to respond quickly to market

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Fighting fit Our tempo as a business has increased New, more efficient organisation structure Simplifying, less maintenance intensive fleet Focusing on what the customer values Relentless focus on effective cost management

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Financial management Rob McDonald Chief Financial Officer

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Agenda Capital Management Hedging Fleet Loyalty IT at Air New Zealand 86

Capital management Fleet activity in next 3 years will shift leverage from lower end of targeted leverage range of 45% -55% Fleet funding will be supported by: Cash generating at operating level Strong liquidity Excellent access to funding market

$NZm

Debt Maturity Profile as at 30 June 2012

350

300 250

Credit rating Baa3

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Benign maturity profile

100

150

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Share buyback in progress

Jun 13

Jun-14

Jun-15

Jun-16

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Hedging Air NZ undertakes hedging programmes to give the business time to adjust to material changes in: Jet fuel Foreign exchange rates

Moving to all Brent hedging Fuel hedge Position 78% hedged to 30 June 2013 The first half of FY14 is 54% hedged

FX hedging programme progressing unadjusted Significant depreciation of Yen necessitated review of Japan capacity 88

Fleet Fleet inductions in 2013 3 x A320 2 x ATR72

Fleet inductions in the next 3 years Calendar Year

2014

2015

2016 2

B777-300ER

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B787-9

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3

A320

3

4

ATR72

1

1

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Fleet Fleet exits B747 – 2014 B737 – 2015 B767 – 2015 (under review)

By 2016 Longhaul fleet – 777/787 Short haul jet fleet – A320

Average Jet age (seat weighted) will fall to 6.5 years by Dec 2016 90

Loyalty Significant upgrading of leadership capability Appointed General Manager with external loyalty programme experience New leadership team to drive: Engagement Commercial potential

Focus in coming year: Increased engagement with partners to grow airpoints earning Gold/Gold Elite review for value and relevance Onesmart – fee simplification 91

Loyalty Membership grown to 1.36m, up 18% YOY Over $1b NZD in Airpoints rewards have been redeemed by Airpoints members since 2004 Airpoints direct earn credit card accounts up 6% (industry average growth 0.7%) Total card spend up 10% YTD YOY (industry average 3.5%) March 2013 v 2012 Airpoints spend up 11% (industry average -0.3%) OneSmart activations up 45% YOY Awarded the 2013 PayBefore Best General Purpose Reloadable Card Program International category 20% more customers now earning with our retail partners Retail Airpoints issuance up 37% YTD YOY Non air earn now exceeds air earn

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IT at Air New Zealand Major enabler of change A leading IT department in New Zealand – 255 people, flex with contractors Resilient, highly available infrastructure footprint across two Tier III sites Reservation System In-house Low cost Flexible – speed to market

Focus in coming year Data analytics Mobility Operational system refresh

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Questions?

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