• Operating Revenue: $3.4 billion, down 2% from the prior period.
• Passenger Revenue: Decreased 5% to $2.9 billion.
• Cargo Revenue: Increased 6% to $257 million.
• Earnings Before Taxation: $155 million.
• Liquidity: $1.8 billion.
• Net Debt to Ratio: 0.9 times.
• Interim Dividend: $1.25 per share.
• Compensation Received: $94 million related to engine issues.
• Estimated Adverse Impact: Approximately $40 million net of compensation.
• Fuel Hedging: 90% hedged for the second half of FY25.
• Share Buyback Program: Up to $100 million announced.
• Aircraft CapEx: Approximately $3.5 billion through to 2029.

• Warning! GuruFocus has detected 6 Warning Signs with ANZFF.

Release Date: February 19, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Air New Zealand Ltd (ANZFF) was voted the world's best airline by Conde Nast, highlighting strong customer satisfaction.
• The company announced a buyback program and an interim dividend, signaling confidence in its financial stability and commitment to returning value to shareholders.
• Cargo revenue increased by 6% due to strong demand for transshipments, particularly between Asia and Europe.
• The company is actively investing in fleet upgrades, including retrofitting Boeing 787 Dreamliners and introducing new aircraft, to enhance customer experience and operational efficiency.
• Air New Zealand Ltd (ANZFF) is implementing strategic initiatives that contributed approximately $40 million in EBITDA benefits in the first half, with further gains expected.

Negative Points

• Engine maintenance issues have led to significant disruptions, with up to 11 aircraft grounded at times, impacting operational capacity.
• The company received $94 million in compensation for engine issues, but this does not fully offset the operational and financial burdens incurred.
• Passenger revenue decreased by 5% due to a 4.4% reduction in capacity, reflecting the challenges faced by the airline.
• The domestic market remains mixed, with subdued corporate and government segments contributing to overall softness in demand.
• The company faces ongoing cost inflation, particularly in landing charges, labor, and maintenance, which are impacting profitability.

Q & A Highlights

Q: Can you provide an outlook on when the engine maintenance issues will be resolved and when the worst will be over? A: Gregory Foran, CEO: The situation is expected to remain challenging for the next 6 months, with up to 11 aircraft grounded. We anticipate gradual improvement over the next 2 to 3 years as OEMs like Rolls-Royce and Pratt & Whitney work through their backlogs. We are more conservative in our estimates than the OEMs, who tend to be optimistic. New aircraft deliveries from Boeing are expected in the middle of next year, which should help alleviate some of the pressure.

Q: How is the domestic demand outlook, and have you seen any changes in the demand profile recently? A: Gregory Foran, CEO: We believe the worst is over for domestic demand, with some green shoots appearing. Leisure travel remains strong, but government travel is still down by 25%. Corporate travel is slightly improving, moving from a 12% decline to around 9-10%.

Q: What is the yield outlook for international routes over the next 6 months? A: Richard Thomson, CFO: Yields are holding up well, particularly in premium cabins. The Tasman and Pacific Islands routes are stable, while the US market is benefiting from strong inbound demand due to favorable currency. Asia, especially Singapore and Japan, continues to perform strongly.

Q: Can you provide more details on the credit breakage and its impact on financials? A: Richard Thomson, CFO: We have about $170 million in unused credits, with $100 million already taken to breakage. We expect the rate of consumption to increase over the next 12 months, with breakage likely higher in the second half compared to the first half.

Q: Is the share buyback a one-off initiative, or do you see it as an ongoing program? A: Richard Thomson, CFO: The buyback is part of our capital management framework and will be evaluated annually. The government will participate through an off-market mechanism to maintain its 51% shareholding.

Q: How is the compensation from Rolls-Royce structured, and will it continue until the issue is resolved? A: Richard Thomson, CFO: Compensation is somewhat linear, based on the number of engines below the spare level. We expect to receive compensation each 6 months until the issue is resolved, but the amount will vary based on engine availability.

Q: What are the expectations for profitability in the second half, excluding engine compensation? A: Richard Thomson, CFO: We expect the business to remain profitable in the second half, even without engine compensation. However, factors like a strong US dollar, higher maintenance costs, and more aircraft grounded will impact performance.

Q: How are the transformation benefits tracking, and are there any significant overs or unders? A: Gregory Foran, CEO: The transformation benefits are tracking as expected, with some minor overs and unders. We are seeing good progress in areas like ancillary revenue and cost reduction, and larger transformation projects are proceeding well.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.