Air NZ Remains Profitable In Tough Environment

Media Release
26 February 2009

Air New Zealand Remains Profitable In Tough Environment

Air New Zealand today announced normalised earnings* before taxation of $26 million for the six-month period ended 31 December 2008, a decrease of 84 percent on the same period last year. Net profit after tax was $24 million, down 79 percent.

Operating revenue increased by 3.7 percent or $87 million on the same period last year to $2.4 billion for the first half of the year. Foreign exchange movements contributed to $75 million of this improvement.

The Board has declared a fully imputed interim dividend of three cents per share. While this is lower than the 2008 interim dividend, it does reflect the Board’s confidence in the ability of the company to generate returns to shareholders despite tough conditions

Overview:

• Normalised earnings* $26m
• Operating revenue up 3.7%
• 6.3 million passengers carried, down 4.3%
• Capacity reduced by 3.6%
• Closing net cash was $1.4 billion
• Gearing 52.7%, from 45.5% as at June 2008

Air New Zealand Chairman John Palmer said the past six months has been one of the toughest periods airlines have faced.

“Fuel costs reached unprecedented levels in 2008, with the average spot price increasing 36% on the same financial period last year adding an extra $211 million to the fuel bill. This combined with the deterioration in both passenger and cargo demand, as the global credit crisis intensified, has seen the airline deliver an unsatisfactory financial result, despite the management team’s best efforts.”

Air New Zealand remains in a strong financial position.

“Even though the New Zealand dollar has weakened, our foreign exchange hedging programme has shielded us from the full effects, allowing us time to adapt our business. We continue to enjoy a modest gearing level, strong liquidity levels and low capital commitments for the next two years. We have been able to continue investing in the business in areas such as domestic airports, engineering and innovative distribution to make us even more competitive.”

Chief Executive Officer Rob Fyfe said the key priority remains closely matching supply to demand, while striving to be the market share leader in all our chosen markets.

“In the first half of 2009, we have taken a proactive approach to capacity management that has been more agile and disciplined than in past industry downturns. In these challenging times, it is not the largest airlines that will outperform, but the ones most responsive to change.

“In the last quarter of the financial year we aim to reduce long haul capacity by 14 percent compared with the same period last year.

“To address excess staff levels due to capacity reductions, we announced in November that we would disestablish up to 100 long haul cabin crew positions. We continue to work hard on a series of initiatives to minimise the need for further redundancies. These include pilots taking leave without pay, giving staff on individual contracts the opportunity to work fewer hours, introducing part-time hours for cabin crew, not replacing non-safety sensitive roles, not renewing temporary contracts and a freeze on executive salaries.”

Air New Zealand is also continuously reviewing all areas of expenditure and has established a team who are well underway identifying and reducing discretionary spend across all areas of the business.

Mr Fyfe said it remains critical for the airline to invest in product and service to retain and grow market share.

“Over the past seven months we have invested more than $60 million in fitting individual on-demand personal entertainment screens on the A320s and 767s that fly the Tasman and Pacific. These aircraft, along with our domestic 737 fleet, have been reconfigured to create a spacious new Space+ zone for our frequent travellers in the front half of the cabin. We have also invested more than $30 million in our new domestic airport experience, which uses new technologies to streamline and simplify our customers’journeys.”

_Mr Fyfe said Air New Zealand would continue to vigorously defend its position in the Tasman and domestic markets.

“We are the number one choice for customers and that is not a position we will cede. Our everyday low fares, frequency and uniquely Kiwi experience set us apart from the competition.

“I am confident that Air New Zealand is in one of the strongest positions to weather the current economic climate. We are nimble, have $1.4 billion cash in the bank, modest gearing and a team of 11,800 people committed to being world class. That combination mixed with a uniquely Kiwi attitude and innovation sets a strong foundation for further cementing our goal of being the number one choice for customers flying to, from and within New Zealand.”

Mr Fyfe also said that the company continued to actively seek out opportunities for small-to-medium-sized investments in the aviation and tourism sectors, particularly as the current economic crisis may yield some bargains.

It recently announced that Australian-based aerospace engineering services company TAE had purchased aviation service providers Tenix Aviation Pty Ltd and Masling Industries Pty Ltd, and the airline’s acquisition of a cornerstone shareholding in Australian online tourism specialists VCubed Pty Ltd.

Commenting on the outlook Chairman John Palmer said: “As we look to the end of the calendar year and beyond, we cannot accurately predict what the winds of economic change will bring; rather we must be prepared for a range of possible scenarios.”

Notwithstanding the soft demand outlook, the company is already benefiting from the fall in fuel prices, capacity reductions and cost initiatives. If current conditions and jet fuel prices continue, Air New Zealand expects to see financial performance significantly improve in the second half of the financial year.

“The Board is proud of the way Rob Fyfe and his team have managed very difficult business and people issues in the past few months. They have performed outstandingly in meeting huge operational and financial challenges,” Mr Palmer said.

*Normalised earnings before taxation after excluding net gains/losses on derivatives that hedge exposures in other financial periods.

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ENDS

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