Air New Zealand Limited

Welcome to Air New Zealand 2026 Annual Results Investor Briefing. During the presentation, your phone lines will be placed on a listen-only mode until the question and answer session. Please refrain from asking questions until then. And with that, I will turn the call over to Andrew Flenton, General Manager, Corporate Finance. Please go ahead.

Good morning everyone, and thank you for joining us for Air New Zealand's 2026 Annual Results presentation. Today's presentation is being webcast and recorded, and a copy of the presentation and associated materials are available on our Investor Centre website. Just a reminder that our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual results. We ask that you read through the disclaimer, and in particular, the forward-looking cautionary statement provided on slide two of the presentation. Joining us today are our Chief Executive Officer, Nicola Rabushanka, our outgoing CFO, Richard Thompson, and our new CFO, Chris Cadmore. We'll begin with an overview of the year and the progress we've made since outlining our strategy recess in June. We'll then take you through the financial performance in more detail, before finishing with the outlook for 2027. Following the presentation, we'll open the line for questions.

With that, I'll hand over to Nicol. Kia ora everyone, and thank you for joining us. When I took on the Chief Executive role late last year, I set five immediate priorities for the business. First, improving operational reliability and punctuality. getting grounded aircraft and engines back into service as quickly as possible. Third, accelerating the cost improvement the business needed alongside resetting our executive portfolios and organisational structure. Fourth, developing a new strategy and aligning our operating model behind it. And fifth, stepping up our advocacy for a fair, affordable and future-focused aviation system for New Zealanders. We have made significant progress against each of those priorities, but recognise that progress needs to translate into stronger financial performance. Financially, FY26 was a very difficult year. Our financial performance was significantly and adversely impacted by high fuel prices. This came on top of the ongoing impact of engine availability issues and maintenance and aviation system cost pressures. We're not satisfied with that outcome, and our attention is firmly on improving it. First, the operational performance of the airline in terms of reliability and punctuality improved significantly throughout the year, with on-time performance in the top decile amongst global comparable airlines. This is the result of an extraordinary effort from Air New Zealanders across the business. Second, our team has worked relentlessly with Rolls-Royce and Pratt & Whitney to return grounded aircraft to service earlier than expected, and aircraft availability improved by the end of the financial year. There are still residual risks and costs to work through, but we enter 2027 in a considerably more reliable fleet position than we had in the last two to three years. Third, we continue to make progress on the things we can control and are accelerating the cost improvement at pace. We have delivered 94 million of incremental transformation benefits during the year and we now have identified an additional 135 million of annualised savings, including both direct and indirect costs, which will accrue from the 2027 financial year to improve our overall cost base and offset expected inflation. This is an increase from the 100 million identified annualised cost savings previously announced in May and this work is ongoing. And fourth, we reset our strategy around three strategic pillars. Customer first, targeted growth, and resilient and future fit. To deliver sustainable returns to shareholders over time. The fifth will be a longer journey, but we continue to advocate for an affordable aviation system for all New Zealanders. New Zealand aviation costs have risen at more than twice the rate of inflation since 2019. Air New Zealand and our customers' share of these aviation system costs across New Zealand and the offshore ports we fly to was $1.2 billion in 2026, a price increase of $142 million on 2025. 2026 was difficult financially, but it was also a year in which we rebuilt our fleet, materially improved our operations and reset our strategy. Moving to slide six, and I'll provide a financial year 2026 review across key categories. Our financial performance, the key impact on the result and our revenue drivers, operational improvements and loyalty and safety. We recorded a loss before tax of $336 million compared with earnings before tax of $164 million in the prior year and slightly better than the guidance range provided to the market in May 2026. Approximately $468 5 million of the profit before tax impact came from three areas. Namely, the ongoing global engine availability issues, which had an impact net of compensation of approximately 190 million. Fuel price, which had an adverse impact of 135 million in the year. From an initial fuel price impact of 328 million, our hedging protection recovered 123 million of this cost increase. and through adjusting capacity and fares in response, we've been able to mitigate about a third of this post-hedged fuel impact. And an increase of $139 million in maintenance costs excluding FX, driven by additional lifecycle maintenance and maintenance costs on leased engines. Richard will go through each of these in more detail shortly. We carried around the same number of passengers as last year at 16 million passengers. while passenger revenue increased 4.8% to 6.1 billion. While RASC increased 3.4%, it was not enough to cover the significant increase in fuel cost, with about 30% of increased fuel price recovered through mitigating capacity and fare activities from March through to June. Given the price sensitivity of air travel, airlines globally have not been able to recover the full increase in fuel costs. We took quick and decisive action through fair adjustments and capacity reductions to balance affordability for customers and maximise recovery and will continue to do so. Capacity increased 1.3% and while above prior year, second half capacity was about 5% below our original plan as we adjusted to the sharp increase in the jet fuel price from March. Thanks to a range of initiatives we're putting in place and our team's dedication, our customer and operational metrics continue to move in the right direction. Our on-time performance increased to 84% in the second half of the year, up from 77.5% in 2025, and in the global top decile amongst comparable airlines. Our rebranded Coro loyalty program and the new multi-tier membership are resonating well with our customers, with 5.4 million loyalty members, up 8.3% on 2025. Safety will always be our utmost priority. We are proud to be awarded AirlineRatings.com 7 star plus safety rating in 2026. Moving to slide 7 and the step change of what the return of grounded aircraft means to the airline. At the peak of the engine disruption, 5 of our 14 Boeing 787s and 6 of our Airbus A320 and A321neo aircraft were grounded. almost 20% of our total jet fleet. This created disruptions for our customers, operational complexity and significant financial cost. We carried the fixed cost of aircraft, people, infrastructure and systems, and we incurred additional costs through leased aircraft and engines to protect the network and schedule. We missed out on the cost per seat efficiency of these newer aircraft types, which are about 10 to 20% lower than the older generation aircraft described incurring the costs of owning these new aircraft. While we received some of the compensation from engine partners, this was not enough to offset the financial costs incurred. Today, the picture is very different. The last 787 was returned from long-term storage in June, an incredible milestone and a huge thank you to our teams around the business who persevered to make this happen sooner than expected. And on the narrow-body fleet, we expect the last of these to return to service during calendar year 2027. There are still residual risks to availability through 2027 and we're still carrying the cost of temporary leased aircraft and engines in the system. It takes time to bring returning aircraft fully into the selling and operating schedule. We are in continuous discussions with both Rolls-Royce and Pratt & Whitney on extending compensation. While risk remains, The fundamental point is that the fleet constraint which has shaped this airline over the last few years is materially reducing and the airline enters 2027 in a considerably more reliable fleet position. This gives us more options around capacity, network deployment and operating efficiency. When we announced our future in June, we set out three strategic priorities. First, customer first. providing safe, reliable and punctual service for our customers, delivering unique Kiwi service and innovative products, and increasing customer reach and sales with smarter, more relevant offers. We're expanding on our operational and resilience-driven review of clean sheet scheduling onto our trans-Tasman, Pacific and long-haul networks to further improve reliability and punctuality. We're investing in our service proposition and lounges grounded in our unique Kiwi hospitality, improving disruption management and continuing to modernise the way we market to customers and how they buy from and interact with Air New Zealand. Second, targeted growth. Targeting profitable network growth, transforming our loyalty programme in line with industry-leading practice and diversifying our revenue streams. This includes inbound premium leisure on our long-haul markets with new 787 and A321neo aircraft that are fit for mission, strengthening our hub and alliance network, growing our SME corporate and enterprise position, particularly on regional and domestic networks, transforming loyalty and expanding flight-adjacent revenue. And third, resilient and future fit. That means removing cost and complexity, improving labour productivity, transforming engineering and maintenance, developing a financially sustainable regional network, unwinding the temporary inefficiencies created by fleet disruption and delivering on our capital management metrics. We are well underway with our ongoing cost transformation program alongside work to build a financially sustainable regional network and deliver against our capital management metrics. On to slide nine, and pleasingly, the customer-first strategic initiatives we are putting in place are already delivering benefits for our customers. Before a customer experiences a new seat, a lounge or a digital feature, they need to trust us to get them where they need to be, safely, reliably and on time. Our on-time performance increased from 77.5% in 2025 to 84% in the second half of 2026. Customer satisfaction increased from 83.6% to 84.5% and controllable cancellations reduced from 2.2% to 1.3%. These are very significant improvements and have been the result of a detailed operational and resilience-driven review of our schedule that included a focused program of initiatives across our team and the rollout of new digital tooling in support of operational communication and decision-making. We continue to invest in this area with the goal of being one of the top five airlines in the world for reliable and punctual operations. We have retrofitted nine out of 14 of our Boeing 787 fleet and the new interior product is resonating very well with our customers. The remaining 787 fleet fit out will be completed by November this year, slightly ahead of schedule. Finally, our automated passenger re-booking technology is transforming how we re-accommodate passengers when disruptions do occur, taking most re-bookings from hours to under 20 minutes, even on our largest aircraft. get certainty and control over their journey much sooner, enabling our people to focus on complex journeys and those who need extra care. There is more to do, but the direction of travel is encouraging and our customers are noticing. The demand picture across the network was mixed, but we're seeing solid inbound volumes, continuing the trend of 2025 and the first half of 2026. Across Asia, overall passenger growth was flat but with higher inbound passenger volumes. Premium cabin mix and revenue growth was particularly strong in the fourth quarter. Passenger capacity and cargo volumes were impacted in the second half of the year, and we managed capacity and RASC to mitigate the surges in fuel price. North America also delivered flat inbound volumes, although outbound New Zealand sales remained softer, in part reflecting the weak New Zealand dollar. Capacity held flat during the year, up 1%, but was lower than planned for the second half and with softer yield and rasque recovery. Tasman and Pacific Island passenger volumes grew, mainly supported by strong inbound volumes out of Australia. Domestic demand remains challenging. Passenger demand was down and the New Zealand economy remained soft. We have been disciplined in matching capacity to demand and where appropriate using yields to respond to the higher fuel environment. More generally, we continue to see encouraging trends in product and cabin mix, with premium cabin revenue increasing by 14% and ancillary revenue by 12%. In 2026, we delivered transformation initiatives generating an incremental 94 million of EBITDA benefits in 2026 against 2025. That has come from a broad range of initiatives. Next Generation Revenue Management is now operating across the network and we've increased direct ancillary buy-ups. We've improved contact centre efficiency, including through AI-powered live chat. We've replatformed and rebranded our loyalty programme to Coral, renewing our successful long-standing strategic partnership with Westpac, continuing to deliver great value to our customers and providing ways to accelerate their Coral rewards through banking. and we have introduced automated disrupt rebooking and improved cargo revenue management. We're building on this programme of work under Our Future, which applies a sharper lens around customer-first, profitable growth, cost and capital. Before I hand over to Richard Thompson, who will run through the financials, I'd like to take a moment to thank him for his nearly six years at the helm as Chief Financial Officer. Richard was instrumental during the airline's post-COVID recovery, managing the recapitalisation of the airline, the response to the various fleet availability challenges, and most recently, the response to the fuel crisis. Richard, you are deeply respected across the company and will be truly missed.