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Air New Zealand Group (ASX:AIZ) - CEO, Greg Foran
CEO, Greg Foran
Sourced: Air New Zealand
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  • Air New Zealand (AIZ) has given a glimpse into COVID-19’s impact on its end of financial year results
  • New Zealand’s flagship airline reported its short-term liquidity sat at NZ$640 million (about A$596 million) on May 25, a figure which does not include its recently won government loan
  • In March, when New Zealand announced its initial restrictions on international travel, Air New Zealand landed a NZ$900 million loan (roughly A$838 million) from the Government
  • However, due to cost-saving measures, the airline is expecting to reduce its average monthly cash outflows by approximately $50 million (approximately A$46 million) to $60 million (around A$55 million) for the 2021 financial year
  • For the second half of the financial year, Air New Zealand’s network capacity is expected to be around 50 per cent lower than the prior corresponding period
  • Due to this, the company is now expecting to report an underlying loss for the 2020 financial year
  • And CEO Greg Foran has warned the future travel industry will look different to what it does today
  • However, despite this bad news, Air New Zealand is up 2.06 per cent on market close and is trading for $1.24 per share

Air New Zealand (AIZ) has given a glimpse into COVID-19’s impact on its end of financial year results.

New Zealand’s flagship airline reported its short-term liquidity sat at NZ$640 million (about A$596 million) on May 25, a figure which does not include its recently won government loan.

In March, when New Zealand announced its initial restrictions on international travel, Air New Zealand landed a NZ$900 million loan (roughly A$838 million) from the Government.

“We have not yet needed to draw down on the government loan facility, as we continue to utilise all available levers to reduce our cash burn and right-size the business to reflect the expectation that, for some time, our airline will be smaller than it was pre-COVID-19,” Chief Financial Officer Jeff McDowal said.

Prior to COVID-19, the airline says it was in a strong position, with a resilient balance sheet and short-term liquidity of more than NZ$1 billion (about A$930 million). It has no significant debt maturities until 2022.

The company says it will continue to take swift and divisive actions to save cash and minimise expenditure.

The airline has already put in measures to save costs, which includes labour reductions to 4000 employees, which is expected to save between NZ$350 million (approximately A$326 million) to NZ$450 million (about A$419 million), suspension of short-term incentive schemes and reduction of pay to the Executive team.

Due to these measures, the company is expecting to reduce its average monthly cash outflows by between approximately $50 million (approximately A$46 million) to $60 million (around A$55 million) for the 2021 financial year.

“Like all businesses at this time, we find ourselves facing an environment where revenues will be a small fraction of what we are accustomed to,” Jeff said.

“Over the course of the last few months we have acted at pace to implement both short-term and structural cost-saving measures to adapt to this new environment, and we will continue to seek out further opportunities to consolidate facilities, reduce capital spend, review fleet composition, supply chain costs and adjust our labour base further,” he added.

Demand for air travel will eventually rebound, so Air New Zealand is aiming to ensure the airline is in the right position when it recovers.

2020 earnings

The airline was in a strong position before COVID-19 took off around the globe, but this soon changed when the pandemic came flying in. This made the airline withdraw its full-year earnings guidance.

“Across March and April, Air New Zealand reduced its network capacity by more than 95 per cent as demand declined to almost zero following the implementation of the New Zealand government’s travel restrictions,” Jeff explained.

Since then, New Zealand has moved to level two, which has allowed the company “to get the domestic engine turning again.” However, it will take some time for the demand to return to pre-COVID levels.

“We are preparing for a scenario in which the airline is still 30 percent smaller than pre-Covid levels in two years’ time.”

Chief Financial Officer, Jeff McDowal

For the second half of the financial year, Air New Zealand’s network capacity is expected to be around 50 per cent lower than the prior period, which is mainly due to a fourth-quarter reduction of 90 per cent.

Due to this, the company is now expecting to report an underlying loss for the 2020 financial year.

Chief Executive Officer Greg Foran says that the Covid-19 pandemic has had a huge impact on the aviation industry and the industry will look different to what it does today.

“This is without a doubt the most significant challenge our airline, and indeed the entire aviation industry, has ever faced,” he said.

“The implementation of domestic travel restrictions and border closures have been incredibly effective at slowing the spread of Covid-19 in a number of countries, including here in New Zealand, but they have also had a profound impact on demand for air travel,” he added.

However, despite this bad news, Air New Zealand is up 2.06 per cent on market close and is trading for $1.24 per share.

AIZ by the numbers
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