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Buoyant domestic market helps Air NZ weather pandemic

March 2, 2021 Headline News No Comments Email Email

In a graphic demonstration of how suppressing Covid-19 helps a country and its travel industry, Air New Zealand has reported domestic seat capacity has reached 76% of pre-Covid levels, “led by robust domestic tourism and the return of business demand during the first half of the 2021 financial year”.

For a rough comparison with Australia, for the month of December 2020 (latest data available), Melbourne-Sydney (Australia’s busiest scheduled air traffic route with 183,000 passengers) recorded a decrease of 75.8% compared with December 2019. Australian domestic commercial aviation (including charter operations) carried 2.5 million passengers in December 2020, a decrease of 54.9% over December 2019.

On Friday, Air New Zealand released its six-month results to the end of calendar 2020 – with the impact of Covid-19 on international operations predictably dragging the figures down. Air New Zealand announced a loss before other significant items and taxation of NZD 185 million (AUD 174 million) for the six-month period ended 31 December 2020. This compares to earnings before other significant items and taxation of NZ$198 million for the same period last year.

Air New Zealand chief executive Greg Foran called 2020 “the most challenging year in the airline’s 80-year history”.

Statutory losses before taxation of NZ$104 million in the six months include an NZ$81 million gain from other significant items, compared to a NZ$139 million profit before taxation for the first half of the previous financial year.

The continuation of significant restrictions on international travel to and from New Zealand saw the carrier’s operating revenue decline 59% to NZ$1.2 billion in the first six months of the financial year, as network flying was reduced by 65%.

Other significant figures:

  • Short-term liquidity of just over NZ$700 million as at 23 February 2021, made up of approximately NZ$170 million cash and NZ$550 million undrawn funds on the Government standby loan facility (the Crown facility)
  • Continued cost discipline has resulted in a significant decline in cash burn to an average of NZ$79 million per month from September 2020 through January 2021. For the remaining five months of the financial year, average monthly cash burn is expected to be in the range of NZ$45 million to NZ$55 million.
  • Steps to recapitalise the balance sheet are underway and are intended to be completed by 30 June 2021.
  • Providing customers with even greater flexibility by extending credit redemption deadline to 30 June 2022 and continuing to waive change fees for customers with international flights commencing before 30 June 2021.

Foran said Air New Zealand’s workers should be very proud of the interim results given the context of a global pandemic that had virtually suspended international air travel.

“I could not be more proud of the way our team has gone about operating our airline in the midst of this crisis. They have dealt with each and every obstacle thrown their way with a huge degree of professionalism and frankly, we wouldn’t be operating the level of domestic and cargo capacity we are without their extraordinary efforts.

“While we made significant changes to our business and cost base, and did this more quickly than most airlines, since the outbreak of the pandemic we have still burnt through over NZ$1 billion in our own cash reserves – that’s just huge. We have been fortunate to receive significant financial assistance from wage subsidies and the Government’s aviation relief package throughout the first half of the financial year, as well as benefiting from lower fuel prices, however these benefits are not expected to extend into the second half of the financial year.

“From the start of this crisis we have had to make a lot of incredibly tough calls, especially where our people are concerned, and that is never something we would do lightly – but it has all been with the sole purpose of ensuring Air New Zealand’s survival. The fact is, we must remain vigilant and disciplined in our approach to cost management and cash burn while borders remain closed,” Foran said.

Foran said the airline remained optimistic and after making both short and long-term changes to the business to lower the cost base, was well positioned for recovery when demand returned.

“Although it is clear that Covid-19 will continue to impact the aviation industry for some time to come, we are thrilled to see such strong results from our domestic and cargo businesses. We are one of the few airlines globally that has seen this level of passenger recovery and we know that is driven by our core strength on the domestic market. We know this recovery would not be possible without the continued support of our customers and I want to thank each and every one of you for your support of our airline.

“For the six months to 31 December 2020, we operated 58,000 domestic flights, moving four million passengers around the country and saw strong signs of corporate demand recovery as the economy started to ramp up following the second lockdown in August 2020.

“Air New Zealand is a critical part of the country’s infrastructure, connecting Kiwis within and around New Zealand and transporting crucial imports and exports.

“The airline’s cargo operations, supported by the IAFC [International Airfreight Capacity] scheme, have also played a vital role in driving New Zealand’s economic recovery, delivering vital medical supplies and PPE and transporting our precious export products around New Zealand and the world. As a result of these operations, cargo revenue has increased 91% to NZ$373 million for the six-month period.

“Following the most challenging year in the airline’s 80-year history, it has been incredibly satisfying for the team to see both the domestic and cargo businesses perform so well. In particular, the strong recovery in domestic travel has been really exciting because it shows that when people have confidence to travel, they will. With the roll out of the vaccines underway around the world and here in New Zealand, this has positive implications for our recovery when borders open,” Foran said.

Edited by Peter Needham

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