Announcement

HALFYR: AIR: Air NZ reports interim profit, maintains interim dividend 08:33a.m. 
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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