Announcement

HALFYR: AIR: Air NZ reports interim profit, maintains interim dividend 08:33am 
AIR
27/02/2020 08:33
HALFYR
PRICE SENSITIVE
REL: 0833 HRS Air New Zealand Limited (NS)

HALFYR: AIR: Air NZ reports interim profit, maintains interim dividend

Air New Zealand has today announced earnings before other significant items
and taxation of $198 million for the six-month period ended 31 December 2019,
compared to $217 million in the prior period, reflecting the slower demand
growth environment, weakness in the global cargo market and the ongoing
unrest in Hong Kong. Earnings before taxation were $139 million and net
profit after taxation was $101 million.

Operating revenue growth of 3 percent was driven by solid demand across the
airline's Domestic and Pacific Islands networks, as well as recently launched
services into Asia and North America. This helped to mitigate weaker cargo
demand, increased competition on the Tasman and the impact of disruptions in
Hong Kong.

Operating costs increased 3.5 percent in the period, impacted by significant
price increases in domestic air navigation and landing charges, as well as a
weaker New Zealand dollar. Maintenance costs for third party contracts also
increased, however this was more than offset by the related revenues. Fuel
costs increased 1.1 percent, as an improvement in the underlying fuel price
was offset by foreign exchange and fuel volumes resulting from growth in the
International network.

Ownership costs increased by 7.1 percent, driven by the arrival of new,
efficient aircraft including the airline's 14th Boeing 787-9 Dreamliner in a
premium-heavy configuration.

Chairman Dame Therese Walsh says she is proud that management continues to
execute the strategy that was first communicated to the market in March 2019,
whilst quickly adapting the business to the evolving situation surrounding
the Covid-19 outbreak.

"Our capacity discipline on existing routes, stimulation of leisure traffic
with the domestic fare restructure and entrance into attractive new
international markets has driven good revenue performance in the first half.
Alongside our focus on profitable top-line growth, we are on track to deliver
the long-term sustainable cost savings target from our business review
initiatives.

"While the Covid-19 situation is dynamic, we have taken immediate steps to
mitigate the impact of softer demand and I am confident that we have the
ability to manage the expected short-term impacts
effectively," she says.

The Board has declared a fully imputed interim dividend of 11.0 cents per
share, in-line with the prior period. The dividend will be paid on 25 March,
to shareholders on record as at 13 March.

Chief Executive Officer Greg Foran acknowledged the Air New Zealand team and
thanked them for their contribution to the interim financial result.

"As I travel around the various parts of the business, it is clear that what
makes Air New Zealand stand out from its global competitors is the enthusiasm
and dedication of our people. Their focus on providing our customers with the
best service will continue to be a key differentiator as we look to set the
airline up for future success."

During his first 100 days, Mr Foran will undertake a diagnostic of the
airline's opportunities and risks. This will provide the basis for
determining potential changes to the future strategic direction of the
airline.

"Air New Zealand holds a special place in the hearts of New Zealanders and we
take that responsibility very seriously. As such, the diagnostic of the
airline will look at how we can drive long-term sustainable outcomes for our
customers, our staff, the broader community and our shareholders," says Mr
Foran.

Impact from the Covid-19 outbreak
As disclosed in its market announcement on 24 February, Air New Zealand has
taken immediate steps to mitigate the impact of demand weakness on some parts
of the airline's network following the recent Covid-19 outbreak.

In addition to the temporary suspension of services into Shanghai and Seoul,
the airline announced that it would make further capacity reductions on other
markets that are showing signs of weakness following the outbreak. This
includes services into Hong Kong and Japan, albeit to a lesser extent.

The reduction in services to Asia will result in approximately 17 percent
less capacity across the February to June period than the airline had
initially planned.

"By proactively reducing these services we are better able to manage the cost
implications of making late changes to our network and can redirect our most
efficient aircraft, the Boeing 787 Dreamliner, to other parts of the
network," says Mr Foran.

The airline has also noted signs of weaker demand on the Tasman, as well
parts of the Domestic network, such as Queenstown and Christchurch which are
primarily leisure-based destinations that are popular with international
visitors. As such, earlier this week the airline announced targeted capacity
reductions on certain Tasman and Domestic services to ensure the appropriate
level of capacity in this changing demand environment.

The airline will be increasing its market development investment to help
drive additional demand, specifically across its Domestic and Tasman markets.

Mr Foran says that the recent challenges presented by the Covid-19 outbreak
show the resiliency of the airline and its ability to respond quickly to
changing market conditions.

"Air New Zealanders from across the business have been working around the
clock to manage the impact of the Covid-19 outbreak on our operations. Our
business is resilient, and we have demonstrated the ability time and again to
respond quickly to changing market conditions. We have a highly capable and
experienced senior leadership team who have dealt with challenges such as
this before and I am confident that we will effectively navigate our way
through this," says Mr Foran.

Outlook

While the situation is uncertain, based on current assumptions of lower
demand as well as the benefit of the announced capacity reductions and lower
jet fuel prices, the airline currently expects a net negative impact to
earnings in the range of $35 million to $75 million as a result of Covid-19.

At the midpoint of the estimated range above, which is approximately $55
million, the airline is targeting earnings before other significant items and
taxation to be in a range of approximately $300 million to $350 million .

The airline will provide an update to this guidance should the current
assumptions materially change.

Interim Financial Highlights

o Operating revenue of $3.0 billion
o Earnings before other significant items and taxation of $198 million
o Earnings before taxation of $139 million
o Net profit after taxation of $101 million
o Reported operating cash flow of $534 million (or $423 million excluding the
impact of the new leasing standard, NZ IFRS 16)
o Fully imputed interim dividend of 11.0 cents per share, consistent with
prior period

Ends
Issued by Air New Zealand Public Affairs ph +64 21 747 320
End CA:00349043 For:AIR Type:HALFYR Time:2020-02-27 08:33:41

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