Air New Zealand Limited

Welcome to the Air New Zealand 2025 Interim Results Call. During the presentation, your 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 now turn the call over to Air New Zealand's Head of Investor Relations, Kim Coutts.

Thank you and good morning, everyone. Today's call is being recorded and will be accessible for future playback on our Investor Centre website, which you can find at www.airnz.co.nz forward slash Investor Centre. Also on the website, you can find our interim results presentation, the interim financial report and media release, as well as other relevant disclosures. Speaking on the call today will be Chief Executive Officer Greg Foran and Chief Financial Officer Richard Thompson. Leila Peters, our GM of Corporate Finance, will also join us for the Q&A session. I would like to take a moment to remind you that our comments today will include certain forward-looking statements regarding our future expectations and which may differ from actual performance. We ask you read through the disclaimer, and in particular, the forward-looking cautionary statement provided on slide two of the presentation. With that, I'll pass the call over to Greg.

Thank you, Kim. Kia ora and good morning, everyone, and thanks for joining us on today's call. The first half of the 2025 financial year has been a period marked by some notable successes, but also a heck of a lot of challenges. And like I mentioned on the annual results call last year, those things are often happening simultaneously. Let's start with some of the wins. Late last year, we were once again voted the world's best airline by Condé Nast. Now this isn't a survey run by us. They polled 30,000 customers independently. Receiving this kind of recognition is no small feat, especially when you consider the disruptions we've been managing. primarily around elevated levels of grounded aircraft from extended engine maintenance requirements on the engines that power our NEO and 787 Dreamliner fleets. I believe it's a testament to the outstanding work of our 11,600-strong Air New Zealand whānau, who've been working tirelessly to put proactive mitigations in place and limit disruptions for our customers. I'll talk more about that shortly. On the fleet front, we have our first Boeing 787 Dreamliner up at the Sasko facility in Singapore, undergoing the world's first end-to-end interior retrofit. We'll have that aircraft back in about a month or two, and by this time next year, we expect more than half of our existing Dreamliner fleet to be retrofitted with our new interior products, including the business premier Lux seats. We also anticipate receiving two additional leased engines, as well as the two previously disclosed leased Airbus A321 aircraft to further strengthen our network resilience in the coming months. We'll be introducing digital bag tags, trialling onboard domestic Wi-Fi, and one of our projects I'm most excited about, bringing in an all-electric demonstrator aircraft around the middle of this year. We're also on track to unveil our new uniform in the coming months. Now, I could keep listing these things all day long, but in short, this is all a result of the hard work that's been happening in the background this year. We're not waiting around for the domestic economy to bounce back or for engine disruptions to stabilise. We're making moves now to future-proof our airline. And at the heart of this ongoing effort is our incredible team. I've often said that our people are the secret to our success, and I'll keep saying it because it's true. In tougher times, it can be tempting to look for quick, short-term fixes, maybe delay an investment or pull back on commitments. But that's not how we operate. We're investing in new hangars that will serve us for decades to come, expanding our Christchurch Engine Centre because it's an excellent long-term business opportunity, and steadily rolling out aircraft retrofits because we know it's the right thing to do for our customers and our brand. We also believe in tackling multiple challenges head on, all at once. Around here, we often say we need to be able to walk and chew gum at the same time. So while we might have a Trent engine that didn't return on schedule or end up with one more A321 on the ground than planned, we don't let that stop us from making the hundred small improvements that add up. whether it's streamlining check-in, cutting down the clicks in our mobile app, or giving our engineers and frontline teams the tools and the data they need to solve problems on the spot. That's not to say the past six months haven't been incredibly tough. Today, we announced earnings before taxation of $155 million for the period. which we consider a strong result in the light of the engine availability issues. It also lands us at the upper end of the guidance range we issued at our investor day in November. Yet these engine delays continue to have a significant impact. Overall capacity was down about 4%, reflecting up to eight of our newest jets being grounded at various times. While we did receive $94 million in compensation from the engine manufacturers, it doesn't come close to offsetting the full operational and financial burden. We estimate about $40 million in adverse impacts for the half that we can directly measure, including an assumption of the other knock-on inefficiencies and productivity losses. Richard will discuss these numbers in more depth shortly. Despite this, I'm incredibly proud of our people. They've stayed focused, both on serving our customers and setting Air New Zealand up for long-term success. Beyond the challenges, we're also seeing bright spots. Cargo, for instance, has continued to perform well, buoyed by strong demand for transshipments out of Asia and Europe. Our loyalty programme remains robust, and our Tasman and Asian routes have been doing really well. For our shareholders, we announced a buyback program this morning, a clear signal of our confidence in the airline's ability to weather these short-term disruptions, continue to innovate and invest while returning value to shareholders. The board also approved an unimputed interim ordinary dividend of 1.25 cents per share, supported by the result announced today and our solid balance sheet. We believe these actions underscore the fact that we're managing current pressures effectively while staying true to our long-term ambitions. We've already discussed many of these points, so I won't spend too long here, but it's important to note that our fleet situation will not improve in the near term. In fact, it's likely to become more challenging through the end of this financial year and into the first half of FY2026. At first glance, having 10 or 11 aircraft grounded may not sound that dramatic, but in reality, it represents roughly 20% of each affected fleet. The operational ripple effects are substantial, and I cannot overplay this enough. Our teams are constantly in the market trying to source spare engines, readjusting network schedules and then adjusting them again, accelerating maintenance timelines, sometimes more than doubling our normal engine swap-out rate. And that's before you even think about some of the more difficult decisions we've had to make, like pausing our direct sole service to preserve a more reliable overall schedule. So what are we doing about it? Quite simply, everything we can. We continue to engage closely with our OEM partners. And I've been on the phone and meeting in person with the CEOs and senior leaders of all of those key partners on a regular basis over the past 12 to 18 months. Why? Because managing these relationships is hugely important as we fight for our share of parts, compensation and service across an aviation ecosystem that continues to be tested. We are actively searching the market for more spares where it makes commercial sense to do so. We are defending our market share on core routes and we are exploring every possible avenue to keep delivering for our customers. Not every partner is struggling with the same issues, and each of them are at different phases of solving their own production issues. This creates nuance and complexity in how we engage with each of them, and that can also be frustrating at times. What I would say, though, is that it pays to remember that these challenges are temporary. They're temporary. And while they may not resolve this year or even next, they will abate, and we're determined to be in an excellent position when that happens. Turning to our market performance, I'm generally encouraged by what we're seeing, especially considering the fleet constraints we've managed for more than a year now. If not for the ongoing engine-related disruptions, I would be feeling even more optimistic about our current momentum. Demand in our domestic market remains mixed, but we believe we've seen the bottom. The corporate and government segments continue to be subdued, which has contributed to overall softness. However, SME and leisure travel are holding up reasonably well. We are constantly monitoring and experimenting with ways to stimulate demand. For example, our recent New Year's sale included domestic markets for the first time in history and was hugely successful in generating demand across the traditionally softer periods. And as I've said many times, domestic is our citadel and we will do everything we can to support this market for the long term. To put a finer point on it, we'll look to add capacity on some of the domestic routes to maintain the level of market share that supports our customer needs. Looking to North America, capacity across the industry has expanded by over 50% in the past year or so. well ahead of demand in some cases. While our growth has been limited by fleet availability, we're pleased to see solid underlying demand, particularly in premium cabins. This bodes well for when aircraft constraints ease and we can restore more capacity. Asia continues to stand out as a bright spot in both passenger and cargo segments. Markets like Japan, Bali, Singapore are performing strongly. Then last, but certainly not least, we are really pleased with the demand for our Tasman and Pacific markets and continue to focus our efforts here. The balance of wide-body and narrow-body deployment on these routes is a valuable tool in managing demand here, as well as enhancements in our seats-to-suit offering, which have really seen positive feedback from customers, including our food, beverage and IFE offering. Overall, we're feeling good about most areas of demand, but are clearly attuned to the macro environment and increased volatility the whole world is experiencing currently. We know things can change and change rapidly, but as we discussed at our Investor Day, we have a plan that guides us and we're sticking to it and delivering on it. We remain focused on maintaining our momentum across all markets, ensuring we're well positioned to capitalise on opportunities as fleet constraints gradually subside. Now turning to slide seven and touching briefly on our progress on the strategic initiatives we outlined at our Investor Day in November. The key message is that we're on track to deliver the target we set out for the 2025 financial year. In fact, about $40 million of our first half EBITDA can be directly attributed to these initiatives, which is just under half of what we're aiming for over the full financial year. As expected, the benefits the second half waited, so we anticipate further gains as we move through the remainder of FY25. You'll see a few standout examples on the right of the slide, and I'd like to touch on two in particular. Live chat is one example that's proven crucial for driving operational and labour efficiencies in our contact centres. Beyond that, it's earned positive feedback from customers who appreciate real-time support and quicker resolution of issues. Some of you may recall that over a decade ago, we introduced Seats to Suit to more effectively segment our short-haul cabins and compete with low-cost and fifth-freedom carriers. In June, we responded to customer feedback for more inclusive offerings by adding in-flight entertainment, snacks and beverages, while retaining a competitive fare. To date, this repositioning has driven around a 30% increase in customers upgrading to the Works product. I want to stress that these are just a few examples. Overall, we're seeing solid traction on our transformation initiatives and I'm pleased with the momentum so far. We remain confident in achieving our overall FY25 targets and look forward to updating you on our progress over time. It also pays to note that these initiatives are helping to partly offset inflationary pressures through enhanced efficiencies. While it's not a complete offset just yet, we expect these measures to close the gap within a year or so and provide additional upside thereafter. Now I'll turn it over to Richard to take you through more financial details.