Competitive environment Pricing to stimulate market Acceleration of A320s bringing down cost base Unparalleled network
17
Tasman & Pacific Islands Strong market performance Virgin Australia alliance working well Seats to Suit meeting the market Improved network offering
18
China
Focus on Shanghai improving efficiency Likely launch market for 787 Refocused sales function Better in-market execution
19
Japan
A slowly recovering market Some recent headwinds, primarily weak Yen We are adjusting our marketing accordingly ANA alliance
20
North America
Capacity growth to meet demand New competition with Hawaiian growth New LAX terminal, better transit experience
21
Europe
Exit Hong Kong-London route Focus now on Los Angeles-London market Making excellent progress
22
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
25
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
27
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
28
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
30
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
31
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
33
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
34
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
36
Customers at the core Mike Tod Chief Marketing & Customer Officer
37
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40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
A winning team Lorraine Murphy Chief People Officer
65
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
No stone unturned… Project Choice IBM call centres Ongoing initiatives
76
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
77
Tech Ops 2600 staff 3 subsidiary companies
1.8 million
productive man hours
40% for third party contracts
78
Changing maintenance requirements
Modern aircraft with longer maintenance intervals Legacy fleet maintenance simplified Significantly less man hours required going forward
79
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
81
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
83
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
84
Financial management Rob McDonald Chief Financial Officer
85
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
200
Benign maturity profile
100
150
50
Share buyback in progress
Jun 13
Jun-14
Jun-15
Jun-16
87
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
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
92
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