NZX, New Zealand's Exchange (2024)

22/02/2024, 08:30 NZDT, HALFYR

Key pointso Earnings before taxation of $185 milliono Passenger revenue of $3.1 billion driven by a significant ramp-up incapacity across the international networko Airline is currently reviewing pricing and capacity to reflect ongoinginflation pressureso Unimputed ordinary interim dividend of 2.0 cents per share declaredo Significant improvement in onboard experience, reliability and customerresponse timeso Tougher forward trading environment. Earnings before taxation for the 2024financial year now expected to be in the range of $200 million to $240million, including $20 million of currently assumed additional Covid-relatedcredit breakage Air New Zealand has today announced earnings before taxation of $185 millionfor the first half of the 2024 financial year. Net profit after taxation was$129 million. This is an expected reduction on the comparable period lastyear when the airline recorded one of its highest-ever results following therapid return of air travel as New Zealand's borders reopened. Based on the airline's balance sheet strength and the result announced today,Air New Zealand shareholders will receive an unimputed interim dividend of2.0 cents per share. The dividend will be paid on 21 March, to shareholderson record as at 8 March. This equates to a payout ratio of 41 percent. Passenger revenue of $3.1 billion was up 21 percent, driven by a significantramp-up in capacity across the international network. Demand was stable inmost markets, but signs of softness in domestic corporate and Governmentdemand was experienced from September. Overall capacity was up 29 percent onthe comparative six-month period. Operating costs, including fuel, increased21 percent due to a substantial increase in long-haul flying this year. Inflationary pressures also continue to be felt. Non-fuel operating costshave increased around 5 percent or $100 million due to price inflation, whichis on top of an increase totalling 15 to 20 percent across the last fouryears. The cumulative effect of these increases is having a significantimpact on the cost of providing air services, including on the domesticnetwork, and the airline is currently reviewing fares and capacity to betterreflect ongoing cost pressure. Chair Dame Therese Walsh says the half year result represents the hard mahiof the Air New Zealand whanau, who rallied together in the face ofunavoidable challenges. "We knew this year would be tougher than the last, when pent up levels ofdemand and industry-wide capacity constraints drove one of the strongestfinancial results in our history. "And while we have reported a solid first half result, it is against thebackdrop of significant ongoing supply chain issues, particularly theadditional Pratt & Whitney engine maintenance requirements on our A321neofleet, which will see up to five of our newest and most efficient aircraftout of service at any one time across the next 18 months at least. "On top of these operational challenges, we are now leaning into the realityof a worsening revenue and cost environment, which is expected to have asignificant adverse impact on performance in the second half. "Earlier this week the airline provided a full year profit outlook, notingamong other things, a deterioration in the forward bookings profile. Intenseinternational competition features heavily in the current environment,particularly for North America where our US competitors have not yet returnedto China at scale, and for now have directed some of that additional capacityto the New Zealand market, putting pressure on yields. "The business is pulling multiple levers to mitigate the impact of theseheadwinds, and this is a key focus for the team. "Despite these short-term challenges, the airline is in a fundamentallystrong position. Our balance sheet is robust, and the Board is committed tothe airline's Capital Management Framework as announced last August,including its ordinary dividend policy. Accordingly, the Board was pleased toannounce a dividend of 2.0 cents per share for the first half." Chief Executive Officer Greg Foran says doing the basics brilliantly withoutever compromising on safety has positioned the airline well to compete. "Our on-time performance and contact centre wait times have improved. Foodand beverage offerings have been enhanced. Inflight entertainment options andWi-Fi have also been improved. An additional 400,000 people have joined ourloyalty programme over the past year, lifting membership to 4.4 million. Allthese things, along with the manaaki shown by staff - taking care furtherthan any other airline - have seen our customer satisfaction score return topre-pandemic levels. "The engine maintenance requirements for both Pratt & Whitney and Rolls Roycehave seen our aircraft spend more time on the ground. While this is beyondour control, we are managing these issues with changes to our schedule andadditional leased aircraft. "Boeing has now confirmed that the first of the new 787 Dreamliners isunlikely to arrive until at least mid-2025, which will delay delivery of ourinnovative new Skynest. The interior retrofit of our current 787 fleetremains on track. "To mitigate these challenges, we introduced a dry lease 777-300ER inNovember. A second dry lease 777-300ER will enter the fleet mid-year and weare well advanced on negotiations for a third. "While the global aviation ecosystem remains under immense pressure, Air NewZealand is committed to providing the best experience possible to our loyalcustomers while we navigate these issues." 2H 2024 Trading updateAs noted in the airline's market update on 19 February 2024, a number ofcontinuing economic and operational conditions have deteriorated and are nowexpected to have a significant adverse impact on performance in the secondhalf. These include the impact of additional competition on forward revenueperformance, ongoing weakness in domestic corporate and government demand,temporary cost headwinds of $35 million in the second half to alleviatecustomer impacts and operational pressures, as well as ongoing costinflation. OutlookIn light of these conditions, the airline considers that performance for thesecond half of the 2024 financial year will be markedly lower than the firsthalf. In this context, and assuming an average jet fuel price of USD$105/bbl forthe second half, the airline currently expects earnings before taxation forthe 2024 financial year to be in the range of $200 million to $240 million.This range includes $20 million of currently assumed additional Covid-relatedcredit breakage over the second half. Future redemptions of Covid-relatedcredits remain uncertain and subject to further actions. This announcement is authorised for release on the NZX and ASX by JenniferPage, General Counsel & Company Secretary. Kim CootesHead of Investor Relationskim.cootes@airnz.co.nz Phone: +64 27 297 0244End CA:00426613 For:AIR Type:HALFYR Time:2024-02-22 08:30:26