AIR air new zealand limited (ns)

Ann: ADDRESS: AIR: ASM Address

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    AIR
    28/09/2012 14:02
    ADDRESS
    
    REL: 1402 HRS Air New Zealand Limited (NS)
    
    ADDRESS: AIR: ASM Address
    
    AIR NEW ZEALAND
    ANNUAL SHAREHOLDER MEETING
    FRIDAY 28 SEPTEMBER 2012
    
    CHAIRMAN'S ADDRESS
    The 2012 financial year saw an improvement in the company's performance
    relative to the previous year. Normalised earnings before taxation were $91
    million, 21 percent ahead of last year's result. Statutory net profit after
    taxation was $71 million, down 12 percent on 2011. Taken on its own this
    result is somewhat disappointing, but it needs to be viewed in a broader
    context.
    
    I wrote in the annual report that ongoing challenges in the global economy
    have continued to suppress demand, escalate oil prices and destabilise
    financial markets. As the financial crisis has evolved, it has become clear
    that we cannot expect a return to what could be considered normal operating
    conditions anytime soon.
    
    With this in mind, management have worked hard to adapt to this business
    environment. Significant investments have been made in upgrading to a more
    modern, fuel efficient and less maintenance intensive fleet. Costs are being
    aggressively managed, and the company has a strong financial position with
    over $1 billion cash on hand and a relatively low gearing of 46.1 percent as
    at 30 June.
    
    As a Board we are committed to providing our shareholders with a consistent
    dividend stream where possible. After reviewing the company's financial
    performance and financial commitments, we declared a final dividend of 3.5
    cents per share, taking the total dividends for the 2012 financial year to
    5.5 cents per share.
    
    It is worth highlighting our dividend history, which compares very favourably
    against our industry peers in this part of the world. We are the only airline
    in Australasia to have consistently paid a dividend during the past seven
    years - this is a reflection of our high performing management team, who have
    been able to achieve consistent profitability through one of the toughest
    periods the airline industry has ever experienced.
    
    At the annual result announcement last month we gave an outlook statement on
    the 2013 financial year as we see it. We said that, assuming our current
    forecast of market demand and fuel prices at current elevated levels, we
    expect to deliver a more than double Normalised Earnings before Taxation.
    Clearly we operate in a volatile industry with certain variables beyond our
    control. However three months into the 2013 financial year, we believe we are
    well placed to deliver that result.
    
    As a consequence, we believe that the current share price does not fairly
    reflect the underlying value of the company's shares. The Board has therefore
    decided to undertake a share buyback programme. We will do so through an
    on-market share buyback on the NZX and the ASX to acquire up to 3% of the
    company's shares. The Crown, which holds 73 percent of the Company's ordinary
    shares, has advised Air New Zealand that it will not participate as a seller
    into the share buyback.
    
    The programme may commence from 4 October 2012 and may continue until 27
    September 2013. Air New Zealand will not purchase shares under the buyback at
    a price which is more than 5 percent above the five day volume weighted
    average market price for Air New Zealand shares. This pricing restriction is
    required under the ASX Listing Rules. It is currently intended that shares
    acquired under the share buyback will be held as treasury stock and may be
    used for the purposes of fulfilling Air New Zealand's possible future
    obligations under employee share-based compensation plans.
    
    This is the last Shareholder Meeting before our CEO, Rob Fyfe, departs at the
    end of the year. As I have noted previously, Rob started his tenure seven
    years ago with an immediate
    and very difficult challenge confronting the company - a restructure of the
    engineering business. That process set the tone of his leadership - well
    reasoned and researched initiatives, well communicated ideas and vision,
    determination to improve outcomes, and above all, trusting and encouraging
    people to go above and beyond in their daily activities.
    Rob's legacy will be the strong business he leaves behind, and the special
    culture he has instilled throughout all levels of the organisation. He has
    been an outstanding leader both within the business and in the wider
    international aviation sector.
    This week, Vanessa Stoddart, one of the long serving members of Rob's team
    has also announced her decision to leave the company at the end of the year.
    Vanessa has been an important part of the senior leadership of the company
    through this period and I want to publicly acknowledge her contribution.
    
    Shareholders should appreciate the enormous contribution both Rob and Vanessa
    have made to the company.
    
    We announced in June the appointment of Christopher Luxon as CEO designate.
    Christopher joined us 18 months ago from the global conglomerate Unilever,
    where he was most recently President and CEO of their Canadian operation.
    Christopher will take over on the 1st of January next year, and the Board has
    every confidence in his ability to lead Air New Zealand into the future.
    
    I will now hand over to Rob Fyfe.
    
    CEO ADDRESS
    Thanks John. It's always great be back home in Christchurch. As one of the
    largest employers in the region, with close to 2,000 employees here in
    Christchurch, we are keenly aware of the difficulties that are still
    affecting many in the city. We have continued to prioritise our response to
    the earthquakes, by putting community interest ahead of short term commercial
    objectives, maintaining capacity ahead of demand and continuing with standby
    fares and a range of other promotional and pricing strategies to stimulate
    demand. The road to recovery for Christchurch is going to be long, and we
    will continue to play our part in assisting and contributing to the economy
    where possible.
    
    The 2012 financial year saw a marked improvement in our performance compared
    with the previous year, although as John noted, we still have some way to go
    before we are delivering the level of return that you, as our shareholders,
    can expect. The tough operating conditions of the past several years have
    clearly impacted earnings, but we have remained committed to our core
    strategy, continued to invest in the business and continued to innovate and
    adapt to changing market and competitive conditions. As a result we are now
    well positioned to deliver improved performance, even at these elevated fuel
    prices and despite many airlines projecting further deterioration in their
    performance.
    We now live in, and plan for, an environment where jet fuel prices remain
    elevated and we are confident we have the fleet strategy, the network
    strategy, the product strategy, the agility and the execution capability, to
    deliver far improved financial performance, notwithstanding these fuel
    prices. The days when we could count on steady growth in the world's
    developed economies may not return anytime soon.
    
    With that in mind we have been working to build a business that is lean and
    efficient, while retaining the elements that our customers know and love. To
    survive in today's environment, an airline needs to be able to move rapidly
    in responding to an ever changing operating environment. To truly succeed,
    you need to be ahead of the curve.
    
    Maintaining the most up to date, fuel efficient fleet - tailored to our route
    network has always been a priority for us. While buying new aircraft
    obviously involves significant capital expenditure and weighs on the
    company's balance sheet, our analysis shows that over the long run this
    creates a superior shareholder value outcome.  The alternative approach of
    operating an ageing fleet and interior product proposition results in
    increased fuel costs, increased maintenance cost, reduced reliability,
    inferior customer experience, and reduced yields, all while compromising
    competitiveness and customer loyalty.
    
    Our decision to sign up as launch customer for the new Boeing 787-9
    Dreamliner reflects our desire to be the first to benefit from this step
    change in technology, performance and economics. While we have been
    frustrated by the delivery delays, we remain confident that when these
    aircraft enter into service in 2014 they will be a game changer and the
    payoffs will be tangible.
    
    We are already benefiting from the performance improvements that our new
    fleet of Boeing 777-300s has brought - with 23 percent improved fuel
    efficiency over the 747s they replaced, 40 percent more Cargo capacity and
    far lower maintenance costs, they have materially improved our financial
    performance, particularly on the key North American routes.
    
    Our programme to replace the 737-300s with Airbus A320s on the Domestic
    network is on track and again delivering significant performance improvements
    and increased competitiveness against our budget competitor. Again we are
    achieving close to a 20 percent fuel efficiency gain against the Boeing 737s
    they replace and benefiting from longer maintenance intervals. We are also
    getting very positive passenger feedback on the seating, quieter cabin
    environment and interior configuration. Our regional network is being boosted
    with the introduction of new ATR72-600 turboprops as well, with the first
    aircraft arriving in the next few weeks.
    
    We are continuously reviewing our route network, optimising capacity and
    frequency to address underperforming routes and identifying new
    opportunities. In recent months we have seen the suspension of our Beijing
    route, with our Mainland China services consolidated onto Shanghai, where we
    intend to increase to daily services by early 2013. We have commenced a
    seasonal service to Bali and significantly increased services and capacity
    into Perth. We have increased services into Los Angeles following the
    withdrawal of Qantas and have been able to increase capacity into Japan as
    the market recovers following the disastrous earthquake and tsunami.
    
    Domestically we have significantly grown capacity into Queenstown as visitor
    numbers continue to soar and have added a Mount Cook service back into our
    network. The ability to adjust capacity quickly to changing market conditions
    is key to our competitiveness and to sustainable financial performance.
    
    We have seen a number of changes to our competitive landscape over the past
    year. On the international front, in addition to the Qantas withdrawal from
    the Auckland-Los Angeles route, Aerolineas Argentina have discontinued their
    direct service to South America from Auckland, and United Continental shelved
    plans for an Auckland-Houston service.
    
    That said, domestically we are seeing a renewed challenge from Qantas-owned
    Jetstar, who have recently announced plans to add another aircraft to their
    New Zealand fleet and concentrate services on the main trunk routes. We
    continue to adapt our business to compete strongly in this intensely
    competitive market.
    
    Our decision to make standby fares available on all domestic flights is
    paying great dividends as is the increased number of grabaseat deals that we
    are now offering.  As a result of these initiatives we expect to offer well
    in excess of 1 million fares under $100 during the course of this year. You
    will continue to see us act decisively to enhance and protect our market
    position.
    
    In April this year we announced a new environmental tourism partnership
    between Air New Zealand and the Department of Conservation (DOC). The
    partnership is our second largest sponsorship, and is based around New
    Zealand's nine Great Walks - Rakiura, Kepler, Milford, Routeburn, Heaphy,
    Abel Tasman Coastal, Whanganui River Journey, Tongariro Northern Circuit, and
    Lake Waikaremoana.
    
    Through the partnership Air New Zealand will deliver a promotional campaign
    aimed at encouraging people to Get Out & Walk the Great Walks, in doing so
    promoting domestic tourism. We are currently undertaking a global social
    media and PR driven campaign - the following short video clip is an example
    of this.
    
    On the Tasman and Pacific Islands network, our Seats to Suit offering has
    been a highly effective response to the diverse needs of those markets. We
    are giving our customers the option of a full service experience including
    meals, inflight entertainment and premium lounge access, or simply a seat and
    bag offering priced to compete with the budget airlines.
    
    Our alliance with Virgin Australia is also proving to be a strong success. We
    view it as a win-win strategy, where we can provide customers with a complete
    Australasian network offering consisting of 62 destinations across Australia
    and New Zealand. This network has high frequency, competitive pricing and
    seamless booking processes and connections. As a result, our combined market
    share has already grown significantly.
    
    Our equity interest of 19.99 percent in Virgin Australia further cements this
    relationship. Virgin are in the process of upgrading their product offering
    to provide closer alignment to the Air New Zealand offering and to increase
    the appeal to corporate clients - a crucial segment of the Australian
    domestic market that has long been dominated by Qantas.
    
    The benefit for Air New Zealand, from our equity stake in Virgin Australia,
    is that we gain a genuine economic interest in the Australian aviation
    market, without having to make the major capital commitments that would be
    required if we were to deploy our own fleet of aircraft and battle for a
    share of that market - something we would not contemplate.
    Our Loyalty business continues to expand and deliver results. Membership of
    our Airpoints programme grew by 19 percent during the year to 1.2 million
    members, and we have recently announced the addition of Shairpoints, which
    allows members to combine Airpoints Dollars between friends and family to buy
    flights and other rewards. Our OneSmart credit card is performing well, with
    high rates of activation and usage among customers.
    
    As I stand here today, I can report to you that the airline is in good heart.
    We are increasingly being recognised for our unique company culture, and this
    has been highlighted with us being voted New Zealand's most desirable
    employer for the second year running. We have also separately been recognised
    as New Zealand's most reputable company. I am very proud of our team of Air
    New Zealanders who go well beyond the call of duty in keeping our day-to-day
    operations running smoothly and delivering the award winning customer service
    that sets us apart from our competitors.
    
    As I now enter my final few months in my role as CEO, I feel proud with
    what's been achieved during my 7 year tenure and proud of how Air New Zealand
    and our people represent New Zealand on the world stage. It has been a
    special privilege to lead such an iconic company, and it is certainly the
    highlight of my career to date. As the national carrier of New Zealand, we
    have a proud tradition which I'm sure will be continued under Christopher's
    watch.
    
    I sincerely wish Christopher and the team all the very best in taking the
    company forward into the future.
    End CA:00227893 For:AIR    Type:ADDRESS    Time:2012-09-28 14:02:11
    				
 
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