Air New Zealand Limited

Welcome to the Air New Zealand 2023 Annual Results Call. During the presentation, your phone lines will be placed on listen only until the question and answer session. Please refrain from asking questions until that time. And with that, I will turn the call over to Air New Zealand's General Manager of Corporate Finance, Layla Peters.

Thank you and good morning, everyone. Today's call is being recorded and will be accessible for future playback on our Investor Center website, which you can find at www.airnewzealand.co.nz forward slash Investor Center. Also on the website, you can find our annual results presentation, the annual report, and media release, as well as other relevant disclosures. This year, we've also released our 2023 sustainability report alongside the annual results. and I would encourage investors to review these materials too. Speaking on the call today will be Chief Executive Officer Greg Foran and Chief Financial Officer Richard Thompson. I would like to take a moment to remind you our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual results. We ask you read through the disclaimer and, in particular, the forward-looking cautionary statement provided on slide two of the presentation. I will now hand the call over to Greg.

Thank you, Leila, Kiora, and good morning, everyone, and thanks for joining us on today's call. I think it's safe to say that the aviation industry continues to keep us on our toes. Reflecting back over the past year, it's remarkable to think that we've gone from reporting one of our worst financial performances ever in 2022, and today we are announcing the second highest profit in our history. In between times, we've ramped up our international network at pace, hired and trained over 3,000 staff, launched direct flights to New York and developed a roadmap to guide our progress on decarbonisation through to the end of the decade. We've announced a new cabin layout for our widebody aircraft coming in late 2024, including the world's first Skynest and dealt with two of New Zealand's most severe weather events this century, with the Auckland floods, which caused extensive damage to our head office and our hub at Auckland International Airport, and Cyclone Gabriel, which upended entire communities across some of the regions we serve. To say it's been a busy 12 months would frankly be an understatement. The financial result announced today, earnings before other significant items in taxation of $585 million was delivered in the context of what can only be described as an extraordinary operating environment. If we look first at the demand side of things, Demand rebounded far quicker and stronger than anticipated, and we welcomed almost 16 million customers on our network compared to just 8 million in the prior year. It's been incredibly rewarding to get back to doing what we love to do, but it has certainly stretched us operationally at times. The surge in demand coincided with market-wide supply constraints. And I'm talking here about supply of aircraft, supply of labour, supply of spare parts, and supply of all the infrastructure that supports our operations. We are only now starting to see more capacity come online, but it's taken everyone, ourselves included, time to rank back up to scale. Significant delays with OEMs remain difficult to navigate, with long and uncertain lead times in some cases, as well as significant pricing increases. This is making it even more difficult for us to add much needed supply back into parts of the network. From an operational perspective, these bottlenecks are frustrating, but they also mean that global aviation is less likely to return to the levels of oversupply seen in pre-pandemic days anytime soon. These dynamics and constraints have driven the environment you see today, both here in New Zealand and globally across the aviation sector. tight supply and high inflation driving higher prices for customers and a high yield environment for operators. A real focus has been on controlling what we can and delivering brilliant basics for our customers. That means getting our customers to and from their destinations on time and we've lifted on-time performance back to pre-COVID levels from 68% in July 2022 when the first international ports reopened to 84% in June and 82% in July this year. It means increasing employee levels in key areas such as refunds and in the contact center to work through backlogs, and it means investing in digital tools that have seen us embed greater self-service capabilities for customers, helping us remove five weeks' worth of core volumes out of the contact center. Richard will take you through more details of the financial performance in a few minutes, But I did want to note that the board is pleased to declare a special dividend of just over $200 million, or six cents per share, an acknowledgement of the extraordinary performance achieved this year. We've also revised our capital management framework, which is effective from FY24 onwards. And Richard will touch on that as well, including how we are thinking of future shareholder distributions. At the interim results, we spoke candidly about the challenges we faced with the contacts into wait times, the on-time arrival and departure of our flights, mishandled baggage, and the wait time taken to process refunds. Alleviating these constraints has been our key focus for the second half of the financial year. I've already touched on most of these points in my earlier remarks, but these charts show you the very real progress that has been made in each of these areas. We did see a small uptick in baggage in July with the school holiday volumes, but performance has much improved compared to December 2022 and better than the industry averages. Despite all the change in operational challenges, as the second half of FY23 came to a close a month or so ago, there was a real sense that we started to get our groove back and we are working hard to keep that momentum going. Turning to slide six now, we continue to see resilient levels of customer demand across our network, which is encouraging. Domestic demand is largely at pre-COVID levels, with our capacity back at around 94%. We've been pleased to see corporate bookings remain strong at around 85% of pre-COVID numbers, with revenue at around 10% above pre-COVID levels. We know this is a little different to what some of our global peers are seeing. and we think that is largely due to the high volume of SME customers we have flying on our network. Leisure and visiting friends and relatives continues to underpin demand, most recently supported by the FIFA Women's World Cup event hosted in a number of cities around the country. We have increased marketing activity in recent months, and customers have been responding well to those sales campaigns, which has helped maintain our booking levels. International bookings continued to strengthen in the past six months since interim results, increasing to around 85% of pre-COVID levels, and we returned our remaining 777-300s to service. All markets are performing well, with North America continuing to show strong demand, both inbound and outbound. Within Asia, Singapore remains extremely popular, serving as a great hub for onward travel to Europe, Southeast Asia, and India. We have also seen good momentum on our Shanghai services in recent months as China slowly ramps up. Short-haul international markets also continue to see good levels of demand, with leisure-based destinations throughout the Pacific Islands performing very well. Although you've heard me talk today about a trading environment that is as constructive as any the aviation industry has seen, we do know that these conditions are unlikely to persist long-term. Even if supply constraints remain as they do today, and it's likely they will for some time yet, there are some very real headwinds on the horizon. Market capacity from New Zealand to the US will increase over 120% this summer, with American carriers adding new services, as well as our competitor across the ditch. Turning to Asia, we're starting to see the Chinese carriers re-engage with New Zealand, with additional services also planned from various ports. And while greater levels of capacity are a good thing for markets that are currently undersupplied, the increasing cost of living may start to impact discretionary spend and, with it, people's travel plans. Fuel prices are currently elevated and may be for some time, and we will see the annualisation of some costs across the business in the coming 12 months. At the same time, inflation continues to have a widespread impact. We also know this year that we have a significant increase in airport costs to factor into our plans, particularly at our airport hub in Auckland. As we navigate our way through these challenges, I'm confident we are well positioned as an airline. We have a core set of enduring competitive advantages that we have spent years cultivating and fortifying. These advantages will support us through both difficult periods and when times are good, and they really help power up our performance. I will now hand over to Richard to go through the financial results.