Air New Zealand has reported its financial year 2020 results. For the first time in 18 years, the airline has reported a loss blamed on the global crisis. The carrier is, however, looking to the future and is optimistic.
First loss in 18 years
Air New Zealand reported its 2020 financial year results. The 2020 financial year ran from July 2019 through June 2020. The carrier reported a loss before tax and significant items of NZ$87 million (~US$58.7 million). While the company turned a profit of NZ$198 million (~US$133.5 million) in the first six months of the financial year, the 74% drop in passenger revenue from April to June drove its operating losses for the year. In April, the airline’s capacity was down more than 95%.
In terms of significant items, Air New Zealand recorded an impairment of NZ$338 million (~US$227.3 million). This impairment was related to the grounding of the Boeing 777-200ER fleet for the foreseeable future– if not longer.
Average cash burn for the carrier was approximately NZ$175 million (~US$118 million) per month from April to June. Much of that burn was from impacts like refunds, redundancy payments, and fuel hedge close out costs. In July, this was down to NZ$85 million (~US$57.3 million). Moving forward, the company anticipates cash burn to be about NZ$65-$85 million (~US$43.8-57.3 million) per month.
Staffing-wise, already, 30% of the airline’s workforce has been permanently cut. This is over 4,000 employees. At the same time, the CEO, executives, and board members have seen a reduction in their compensation.
The plan for the future
Air New Zealand has access to about NZ$1 billion (~US$674.3 million) in cash. About NZ$900 million (~US$606.9 million) is in the form of a standby loan facility from the New Zealand government. While Air New Zealand had not drawn on that facility through August 27th, the airline will be drawing on those funds in the coming days.
Like just about every other market in the world, domestic travel is recovering far better than international travel. New Zealand continues to maintain strict quarantine and health requirements. Domestic bookings were strong in June and July, before decreasing in August amid new health guidance for Auckland. Nevertheless, July 2020 capacity was about 70% of what it was in 2019.
Cargo has been powering the airline. The carrier has completed over 250 charters to support the movement of personal protective equipment and other response items. In addition, some cargo flights are supported by the government’s International Airfreight Capacity scheme under which Air New Zealand offers 50 flights per week to Asia, Australia, and North America for cargo. Cargo has delivered a positive cash contribution to the firm. On a revenue basis, cargo flights equate about 30% of the operator’s previous long-haul business.
The airline has split up its overall plans into three different strategies based on time. Short-term, the company is focused on staying afloat and maintaining operational integrity, overhaul its cost base, support economic recovery via cargo, and encourage Kiwis to explore and travel domestically.
Medium-term, Air New Zealand plans to build back a network of profitable flying with a focus on preserving and protecting its competitive advantages. It also wishes to stimulate travel on Tasman and Pacific Islands routes assuming borders open up to more travel and quarantine requirements are lifted.
Long-term, the airline is also looking to return to profitability as a smaller, more efficient operation. Also, the carrier hopes to have its cost base rightsized with ancillary revenue opportunities.
Thus far, the airline has grounded its 777-200ERs for the foreseeable future. The company’s current fleet is:
- Seven Boeing 777-300ERs
- Eight Boeing 777-200ERs
- 14 Boeing 787-9s
- 22 Airbus A320s
- 11 Airbus A320neos and A321neos
- 27 ATR 72-600s
- 23 Bombardier Q300s
On order, Air New Zealand is expecting two ATR 72-600s in the financial year 2021, nine A320/A321neos split evenly between 2022-2024, and three Boeing 787s with one due in FY2023 and two in FY2024.
Air New Zealand has kept the Boeing 777-200ERs out of its future fleet plans as it deliberates what to do with those jets. They are grounded for an indefinite period of time, which means they could be retired completely, or else return the aircraft to service if necessary. Currently, Air New Zealand does not expect passenger levels to return to 2019 levels until 2023 or beyond.
After 80 years of operations, the airline has seen a lot. However, there has not quite been any crisis like this in the past, testing the carrier’s team, which appears to be ready to meet the moment and has, thus far, put its best foot forward.
Do you think Air New Zealand will bring the 777-200ERs back into service? What do you make of the airline’s financial results? Let us know in the comments!