Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Air New Zealand Ltd (ANZFF, Financial) transported over 16 million passengers, a 4% increase from the previous year.
- Customer satisfaction levels have returned to pre-COVID levels due to various service improvements.
- The company introduced new digital features like baggage tracing and live chat, enhancing customer experience.
- Air New Zealand Ltd (ANZFF) was awarded New Zealand's most attractive employer, highlighting strong team morale.
- The balance sheet remains strong with a net debt to EBITDA ratio of 0.8 times and liquidity of $1.5 billion.
Negative Points
- Aircraft availability issues with A321neos and Boeing 787 Dreamliners significantly impacted operations and financial performance.
- Earnings before taxation were $222 million, a notable decline from the previous year's strong results.
- The economic slowdown in New Zealand has led to reduced business travel and lower yields on domestic routes.
- Inflationary cost pressures, including increased labour and maintenance costs, have negatively affected profitability.
- The company faces ongoing supply chain and labour constraints, further complicating operational efficiency.
Q & A Highlights
Highlights of Air New Zealand Ltd (ANZFF) Earnings Call
Q: Can you provide insights on the RASK (Revenue per Available Seat Kilometer) backdrop for the next six months?
A: Richard Thomson, CFO: Domestic yields are stabilizing, with mid-single digit declines year-on-year until September-October. The Tasman market is flat, while Pacific Islands are slightly down. North America shows mixed results with softer New Zealand outbound demand but improved North American demand. Asia and Japan are performing well with increased yields. Overall, RASK is expected to be flat to down 5% in the first half of FY25.
Q: Will Air New Zealand be profitable in the first half of FY25 given the cost pressures?
A: Richard Thomson, CFO: We expect challenging trading conditions to continue into the first half of FY25. While we anticipate some relief from fuel prices, the overall outlook remains cautious with potential profitability improvements in the second half as economic conditions and aircraft availability improve.
Q: What is the outlook for non-passenger revenue, including cargo and ancillary revenues?
A: Richard Thomson, CFO: Cargo revenue is expected to decline by 10% due to yield pressures despite good volumes. Ancillary revenue is projected to increase due to price adjustments and improved conversion rates. Third-party engineering revenue is likely to remain stable.
Q: Can you explain the impact of elevated into-plane fuel costs and whether relief is expected?
A: Richard Thomson, CFO: Elevated into-plane costs are driven by supply chain pressures and increased sea freight costs. These costs are unlikely to decrease significantly as contracts are renegotiated every few years and tend to stay flat or increase.
Q: How is the dividend policy calculated, and why does it appear above the 40%-70% payout range?
A: Leila Peters, GM of Corporate Finance: The dividend is calculated on a rolling 12-month basis to smooth peaks and troughs. The final ordinary dividend of $0.015 per share reflects a 69% payout ratio based on the rolling 12-month PAT, aligning with the policy to provide consistent returns to shareholders.
Q: What are the expectations for non-aircraft CapEx, particularly in property and cargo investments?
A: Richard Thomson, CFO: Significant property CapEx includes a new hangar at Auckland and a new international lounge. The cargo facility project has been delayed to 2029. Digital investments continue, focusing on improving efficiencies and customer experience.
Q: What are the sustainability targets, particularly regarding SAF (Sustainable Aviation Fuel) usage by 2030?
A: Richard Thomson, CFO: Air New Zealand aims to achieve 10% SAF usage by 2030, aligning with the World Economic Forum's Clean Skies policy. This target is considered realistic and supports the airline's commitment to net-zero emissions by 2050.
Q: How are the aircraft availability issues impacting financial performance and future capacity?
A: Greg Foran, CEO: Aircraft availability issues, particularly with A321neos and 787s, have significantly impacted financial performance, reducing earnings by approximately $100 million. These issues are expected to persist into FY25, constraining capacity growth and affecting revenue and cost structures.
Q: What measures are being taken to mitigate the impact of aircraft availability challenges?
A: Greg Foran, CEO: Actions include leasing additional aircraft, securing engine spares, and holding extra inventory. Difficult decisions, such as suspending the direct route to Chicago, have been made to ensure a more reliable schedule for customers.
Q: How is Air New Zealand addressing the economic slowdown in New Zealand and its impact on demand?
A: Greg Foran, CEO: The airline has made targeted schedule reductions, reviewed revenue management settings, and focused on improving ancillary revenue offerings. Leisure demand remains relatively strong, and marketing campaigns are being intensified to stimulate travel.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
