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Air New Zealand

Air New Zealand. CLSA Investors’ Forum 15 May 2001. Agenda. Overview Introduction to Air New Zealand Key Markets Fleet Capital Management Strategy. Strategy Networks Marketing. Sales & Distribution. Operations. Customer Services. Freedom. Kendall. Mt Cook. Nelson. Skywest.

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Air New Zealand

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  1. Air New Zealand CLSA Investors’ Forum 15 May 2001

  2. Agenda • Overview • Introduction to Air New Zealand • Key Markets • Fleet • Capital Management • Strategy

  3. Strategy Networks Marketing Sales & Distribution Operations Customer Services. Freedom Kendall Mt Cook Nelson Skywest Aeropel. Eagle AN Australia NZ National Hazelton NZ International AN International Terminal Services ANZES Ventures Mt Cook Ski-fields Traveland Cargo Jetset Corporate Units Alliance Partners Introduction to Air New Zealand • World top 20 scale • Most comprehensive network across Australia, NZ and South Pacific • First to operate in all sectors of the Australasian aviation market • Offering world’s widest range of destinations, flight options, loyalty rewards – via SIA and Star • Two powerful brands in our home markets • Home market leader in e-travel services

  4. Average Fuel Cost (NZ ¢/ASK) NZD : AUD NZD : USD Falling NZ$ 5 4 3 2.2 1.7 1.4 1.3 1.3 1.2 2 1 0 FY96 FY97 FY98 FY99 FY00 Dec 00 Australian New entrants: Share and Yield Decline • Ansett capacity share dropped from 46.2% to 42.5% • Ansett average domestic yield has fallen significantly Challenging Market Conditions

  5. 80% 70% 60% 50% 40% 30% 20% 10% NZ QF NZ Feb-98 Feb-99 Feb-00 Nov-98 Nov-99 Nov-00 May-98 May-99 May-00 Aug-98 Aug-99 Aug-00 New Zealand Domestic Market • Historically strong position in the NZ market • The NZ Domestic Airline provides strong contribution to Group earnings • Qantas NZ franchise closed in April 2001 • Air New Zealand moved by expanding “Freedom Air” into the domestic market • Other regional airlines have declared intentions to operate within NZ Market Share to Dec 2000 90%

  6. Market Share Versus Capacity Share (Australian Domestic Market) 58% QF RPK 56% QF ASK 54% 52% 50% 48% 46% 44% AN ASK AN RPK 42% 40% Jul 94 Jul 95 Jul 96 Jul 97 Jul 98 Jul 99 Jul 00 Mar 95 Mar 96 Mar 97 Mar 98 Mar 99 Mar 00 Nov 94 Nov 95 Nov 96 Nov 97 Nov 98 Nov 99 Australian Domestic Market The Tipping Point Capacity Share

  7. Lack of investment in fleet capacity New aircraft Grow at least at market rate • Low investment in product • Advertising • Airline relaunch • Product refresh • Tight schedules affecting reliability • Detailed punctuality study • Build flexibility into schedules • Phased Maintenance • Block maintenance • 7 day operation • Maintenance planning well within tolerance • Direct Sales • Price setter • Recapture lost share of agent and corporate markets • Improve overall offering Australian Domestic Market: Strategy Change

  8. Australian Domestic Market: 767-200 Grounding • 91% of all passengers booked were flown by Ansett or Air New Zealand aircraft. • Galvanised workforce • Improved on-time performance • Consumer intention to fly Ansett has improved • Limited impact on forward bookings • B767 operating fleet cleared - “fit to fly” • NZ$20m advertising campaign launched • Cost of grounding estimated to be NZ$8m

  9. Fleet Development • Overall Fleet & Network plan currently under review • Initial changes to fleet structure underway • Ansett additional capacity (4 x 767-300) • 767-200 sale and lease back agreement and subsequent replacement • Particular attention on Ansett fleet given lack of recent investment • Reduce aircraft types and manufacturers • maintenance & training synergies • Full purchase and funding decisions expected by December

  10. Capital Management • Limted balance sheet capacity • Gearing as at December 2000 = 76.5% • A/B share structure restricts ability to raise equity • All funding options being reviewed • Equity • Operating leases • Secured aircraft financing • sale/leaseback of other assets • Funding plan to be finalised as part of the strategic review

  11. Growth Options • Capitalise on strength of brands in home markets • Expansion of Ansett International • Regaining market share in Ansett Domestic • Growing New Zealand market via Freedom Air • Product investment • Futher growth and integration of Engineering businesses • ANNZES • Christchurch Engine Centre • Other Initiatives • Relaunch of brand • Frequent Flyer Program relaunch • Additional improvements to customer offerings

  12. Key Strategic Milestones • Additional 767 capacity in Australia from July 2001 • Strategic Review completed by the end of the year including: • Network initiatives • Funding plan • Fleet requirements • Aircraft orders placed shortly afterward • Airline relaunch early 2002

  13. Air New Zealand CLSA Investors’ Forum 15 May 2001

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