Air New Zealand Limited

Welcome to the Air New Zealand 2026 interim results call. During the presentation, your phone lines will be placed on a listen-only mode until the Q&A session. Please refrain from asking questions until that time. And with that, I will turn the call over to Air New Zealand's Head of Investor Relations, Kim Coutts. Please go ahead.

Kia ora 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.enewzealand.co.nz forward slash Investor Centre. Also on the website, you can find our results presentation, interim report and market release, as well as other relevant disclosures. I would like to take a moment to remind you that our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual performance. We ask that you read through the disclaimer and in particular the forward-looking cautionary statement provided on slide two of the presentation. I would also like to draw your attention to the fact that some of the 2025 comparative figures have been restated throughout the presentation to reflect the recognition of additional end-of-lease provisions. There is a reference to those changes in the supplementary section of the presentation. Within that section, we have also included slides that we will not specifically address during the webcast. These slides provide key financial and operational details, and we recommend that you take the time to review that information. Joining me on the call today are Chief Executive Officer Nicole Ravishankar and Chief Financial Officer Richard Thompson. We'll also be joined by Leila Peters, our General Manager of Corporate Finance, for the Q&A session at the end. Before I hand things over to Nicol, I would like to take this opportunity to welcome him to his first Air New Zealand Investor Call. I know he is looking forward to meeting our investors and the analyst community in the coming weeks. With that, I will now turn the call over to Nicol.

Thank you, Kim. Kia ora and good morning, everyone, and thanks for joining us on today's call. I'm both humbled and excited to lead Air New Zealand into the next chapter. This is an airline with an extraordinary history and an outsized role for our country, and I feel that responsibility very deeply. Before I talk about the numbers, I want to start where the airline starts, with our people. Thank you to all Air New Zealanders across the airline for the way you've kept showing up for our customers and for each other in very tough conditions. I also want to make a special mention of our cabin crew. I know this has been a difficult period, and I want to be clear, we are one team. How we work through challenging moments matters, and I'm committed to doing that with respect and fairness. As I've stepped into the role, I've spent a lot of time listening on the ramp, in cabins, at airports with engineers and planners, and with former CEOs of the airline. Two things have really stood out for me in those conversations. The strength of the foundations we have and the standard this airline has set over decades. And you can see those foundations on this slide. a strong safety culture, a loyal customer base supported by our Cora loyalty program, and a diverse global network and modern fleet. We also have a team of brilliant people who embrace innovation daily. And of course, we value the role of our strong balance sheet in providing resilience and giving us strategic flexibility. Those foundations give us real levers as we lift performance, and they also show up in the metrics. We carried 8.1 million passengers in the half. Customer satisfaction has held strong, and we were ranked second in the APAC region for on-time performance in 2025. At the same time, we're operating in an environment with some significant challenges. Capacity constraints, cost escalation, and a slower-than-expected recovery in domestic demand have created real pressures on financial performance. And our response can't be to wait and hope that conditions improve. We have to act, decisively and with discipline, on the things within our control. That's how I approached my first 100 days, and I've set five clear priorities for the team. First is safe, punctual, and world-class service for our customers. Reliability is not just a service metric, it's a cost metric and a revenue metric. A standout early outcome has been improved punctuality in our regional operations from the development of what we call our clean sheet schedule. This has led to a dramatic improvement in regional on-time performance, improving to 83.9% from 73.3%, up over 10 points. My second priority has been driving profit improvement while cutting non-essential costs. That's particularly important when you consider the high inflationary environment we're currently in, and I'll speak more about that shortly. The third is getting grounded aircraft back faster. Restoring scale is critical. It improves utilization, reduces the need for higher cost substitutes, and strengthens network economics. We're pleased with recent progress and now expect four grounded Airbus Neo and Boeing 787 aircraft to return to service throughout 2026. We also take delivery of two of ten new 787 aircraft later in the year, providing wide-body capacity growth of around 20% to 25% over the next two years. Fourth is sharpening our strategy and operating model. This includes the strategy review now underway. And fifth is strengthening our advocacy for a fair, affordable aviation system for New Zealand. A meaningful element of the cost pressure we're seeing is structural within the domestic system and we'll continue to engage constructively with airports and regulators because connectivity and affordability matter. Work is underway across all five priorities and we're starting to see momentum. Turning to the result, we reported a loss before tax of $59 million and a net loss after tax of $40 million. That is not where we want to be and reflects a very challenging operating environment. The drivers of this are relatively straightforward and I don't think will come as a huge surprise to anyone here. Global engine maintenance disruptions continue to constrain our fleet. While capacity was broadly flat in the half, we are still only operating at around 90% of pre-COVID capacity, almost four years on, and have up to eight aircraft grounded at times. As you've heard before, when you run a subscale network, the economics deteriorate quickly. You lose utilization, you carry more disruption costs, and you end up doing things you wouldn't choose to do in a normal operating environment. We did receive 55 million of compensation in the half related to the engine issues. Even after taking that into account, our internal estimate is that we missed at least 90 million of earnings, net of compensation, that the business would have made if our fleet had operated as intended. We've also seen meaningful cost inflation across the aviation system this half alone, especially in mandated domestic passenger levies and landing charges, as well as engineering materials. This has been amplified by a weaker New Zealand dollar. Domestic demand has recovered more slowly than we expected, particularly across business purpose travel, which has weighed on mix and yield. Given the result, the board has made the prudent decision not to declare an interim dividend consistent with our capital management framework. Now, alongside managing the near term, we've also been progressing a company-wide strategy review since last year because the environment has changed. We're operating with less scale, higher aviation system costs, and more disruption risk. And we all know this isn't a business where you pull one lever and everything moves. It's a complex system, more like steering a supertanker than a speedboat, and profit improvement comes from coordinated changes across reliability, scale, and cost discipline. At the same time, there are areas of real traction, and those matter because they show what this airline can deliver when constraints ease and when we execute the basics well. Customer satisfaction is at 84, reflecting investments we have made in the HART product, including the 787 retrofit program, as well as food and beverage, in-flight entertainment, and operational reliability, which I've touched on already. Near and dear to me is the refresh of our loyalty program, including the launch of Coral Black. This is the beginning of a series of benefits that we will be rolling out to our loyalty members. With over 5.2 million Coral members, our loyalty program is a strategic platform for future growth and value. Turning to slide 7 on revenue, the story is nuanced. International demand continues to hold up well, particularly offshore and bound. Premium cabins continue to be a genuine bright spot, with premium cabin revenue growing 10% compared to economy cabin growth at 2%. Ancillary revenues continue to perform well, growing 10% compared to last year. That's encouraging because we see premium as a structural opportunity for us. It's where we can differentiate and where customers will pay for value if we get the proposition right. At the same time, domestic demand has recovered more slowly than we expected, but we are starting to see early signs that it is recovering. A weaker New Zealand dollar continues to have an impact on New Zealand outbound travel to the US. Conversely, it is helpful for US inbound demand. We continue to see good outbound demand for travel into Southeast Asia and Japan, which is pleasing. Slide 8 speaks to the operational constraint that sits underneath a lot of what you're seeing in the numbers. At times... Up to eight aircraft were grounded, and as I've noted, when that happens, you don't just lose capacity, you also lose efficiency. You end up carrying costs you wouldn't normally carry, and the network becomes harder to run with consistency and reliability. Looking forward, our aircraft availability assumptions remain fluid. At present, we expect a slight improvement in the second half versus the first half, but we still anticipate up to three A321neos and up to four 787s may be grounded at times. We've taken a pragmatic approach. We've used wet leases to protect schedule integrity. We've carried significantly more spare engines than normal, around 20 when we would only typically need four. And we've redesigned the schedule to prioritize reliability, even where that means temporarily stepping back from some growth we had planned. We've also invested heavily in resiliency measures, such as our automatic passenger rebooking toolbox, to ensure that when things go wrong, we can address them quickly and efficiently. These actions keep our customers moving, but they come at a significant but temporary cost. But I want to be transparent about the recovery curve here. We are starting to see signs of progress, improved engine shop capacity and throughput, as well as new fan blade certification that extends time on wing. Compared to what we noted in August, I would say we are cautiously optimistic, but the improvement will be patchy and non-linear. Improvements in aircraft availability are unlikely to translate immediately into earnings uplift, as capacity, particularly wide-body capacity, cannot be operationalized into the schedule and sold at short notice. The primary constraint is uncertainty in aircraft and engine return timing, which limits our ability to plan and sell additional flying with confidence. On top of this, once the engines are returned, their ability to get compensation from the OEMs declines, even though we can't operationalize or commercialize that capacity immediately. Disruption-related costs and inefficiencies also take time to unwind, including the return of leased aircraft and engines. And importantly, we don't plan on hope. We will plan on what we can observe and what we can deliver reliably for our customers. As we get aircraft back into service, we'll accelerate where the evidence supports it. Again, I want to acknowledge our people here. This kind of operating environment is tough, and the effort required to keep the airline running reliably under these constraints is significant. Alongside engines, the other dominant theme is non-fuel cost inflation. And importantly, it's not just a first-half issue. In the first half, we saw around 75 million or around 3.5% of non-fuel cost inflation, driven mainly by mandated passenger levies, engineering and maintenance, and landing charges. On its own, that number might not look out of line. The problem is the compounding effect. These costs have been stepping up for several years, and the base we're carrying today is materially higher than it was pre-COVID. Since 2019, the increases are significant. Landing charges, as an example, are up 64% across all airports and around 85% across domestic airports. Engineering materials are up 45% and you can see a few other examples on the slide. Over the same period, New Zealand CPI is up around 29%. So aviation system inflation is running significantly ahead of the broader economy in categories that are fundamental to running an airline. That's why we view a meaningful portion of this as structural, not temporary. And in a domestic market that has been slower to recover, our ability to pass on these increases through fares is constrained. So our response has three parts. First, we have to keep pushing transformation and productivity because controllable cost per passenger matters more than ever in this environment. Second, we need sharper commercial execution to lift yields where the market will bear it, and we're continuing to build the proposition in places like premium and loyalty. And third, we will actively advocate for settings that support a fair and affordable aviation system. Despite the headwinds, we've made meaningful progress operationally for our customers. The clearest example of these improvements is regional on-time performance, which I've already spoken to. That matters because reliability reduces disruption costs, improves customer confidence, and supports demand. We're applying the same discipline to the JET network. Schedule integrity first, then capacity growth when we can do it reliably. What I will touch on here is our transformation program. We've delivered around $45 million in benefits for the half, $145 million since the program started. But I want to be candid. Much of that is being absorbed by the rate of cost inflation. That doesn't mean the program isn't working. It means we need more of it, faster, and we need the aviation system settings to be fit for purpose. Finally, on resilience, liquidity at the end of the half was $1.3 billion within our target liquidity range. Net debt to EBITDA is 2.6 times. We're focused on executing earnings recovery while prudently managing capital investment as aircraft return to service. So my message is this. We're executing on the basics, we're being realistic about the near term, and we're taking the steps needed to restore profitability and build resilience. With that, I will hand over to Richard to discuss the financials in more depth.