.?OOde?mm >5 2m? NEEZU 5 2352.39.22 h: 1:3. 3 - 31-? . 1.. 3 i? Another strong result Normalised earnings* before tax $216m Hedge timing Taxation ($19m) ($64m) * Normalised earnings represents Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding net gains and losses on derivatives that hedge exposures in other financial periods. Refer to the supplementary slides for a reconciliation to IFRS earnings. Statutory net profit after tax $133m First half normalised earnings before taxation $216m $180m $139m DEC 12 DEC 13 DEC 14 > Result includes equity losses of $14 million from the company’s Virgin Australia shareholding First half operating cash flow > Operating Cash Flow before tax payments up $113 million > Increased tax payments of $35 million > Underpins strong liquidity position $378m $343m $300m DEC 12 DEC 13 DEC 14 Key revenue metrics Passenger revenue up 5.1%* Yield up Capacity up Load factor 3.8%* 1.7% 83.9% Cargo revenue up Cargo capacity up 6.8%* * Prior to the impact of foreign exchange 3.0% Dec 2013 Normalised Earnings before Taxation Passenger Yield Passenger Traffic Cargo, Contract Services 8: Other Revenue Labour Fuel Maintenance Aircraft Operations Other (incl. Ownership) Net Impact of FX Movements Equity Earnings 50Dec 2014 Normalised Earnings before Taxation Dec 2014 Statutory Earnings before Taxation $197m Changes in pro?tability Cost per ASK Cost per ASK* Dec 2014 (cents) Dec 2013 (cents) 10.76 10.84 (3.22) (3.49) 0.07 0.19 7.61 7.54 Exclude Fuel Foreign exchange gains CASK (excl. fuel and foreign exchange gains) > Impacted by growth in higher unit cost short sectors versus longer sectors * Includes normalised earnings adjustments Full year FY15 capacity (ASKs) increasing 6.6% 1H 2H Total 1.7% 11.6% 6.6% North America & Europe Asia 22% 3% Tasman & Pacific 3% Domestic New Zealand 4% Domestic > Capacity growth driven by replacement of B737-300 with larger A320 aircraft and additional ATR72s > Final B737 scheduled to exit fleet in third quarter of 2015 Dec 2014 Dec 2013 movement* 4,562 4,465 2.2% Available seat kilometres (ASKs) 2,778m 2,692m 3.2% Revenue passenger kilometres (RPKs) 2,241m 2,180m 2.8% Load factor 80.7% 81.0% (0.3 pts) 28.7 27.6 3.9%** Passengers carried (‘000s) Yield (cents per RPK) * Calculation based on numbers before rounding ** Excluding the impact of foreign exchange, Domestic yield increased by 4.3% Tasman & Pacific Islands > B787-9 now flying Auckland-Perth route > Virgin Australia alliance continues to improve customer proposition > Strong capacity growth on Pacific Island routes Dec 2014 Dec 2013 movement* 1,718 1,698 1.2% Available seat kilometres (ASKs) 5,624m 5,527m 1.7% Revenue passenger kilometres (RPKs) 4,681m 4,604m 1.7% Load factor 83.2% 83.3% (0.1 pts) 11.9 11.8 0.9%** Passengers carried (‘000s) Yield (cents per RPK) * Calculation based on numbers before rounding ** Excluding the impact of foreign exchange, Tasman & Pacific Islands yield increased by 3.4% International > Significant capacity increases in Asia, particularly Japan > B787-9 performance exceeding expectations – now into Shanghai, Tokyo and Perth Dec 2014 Dec 2013 movement* 764 764 0.1% Available seat kilometres (ASKs) 8,758m 8,659m 1.2% Revenue passenger kilometres (RPKs) 7,477m 7,442m 0.5% Load factor 85.4% 86.0% (0.6 pts) 10.6 10.6 0.3%** Passengers carried (‘000s) Yield (cents per RPK) * Calculation based on numbers before rounding ** Excluding the impact of foreign exchange, International yield increased by 2.8% Singapore Airlines alliance > Air New Zealand recommenced flying Auckland-Singapore route last month > Captures connecting traffic beyond Singapore > Refurbished Boeing 777-200 aircraft offering great customer product New Buenos Aires route > First scheduled direct Air New Zealand service to South America > Consistent with Pacific Rim growth strategy > Code share agreement* with Aerolineas Argentinas > Flights commence December 2015 *Subject to regulatory approval Cargo Revenue up Volume up Yield down 6.8%* 7.6% 0.8% > Virtual global network providing innovative solutions for New Zealand’s exporters and importers * Excluding the impact of foreign exchange Financial management > Net cash on hand of $1.27 billion Interim dividend (cents per share) > Gearing moved up to 51.6% > Fully imputed interim dividend of 6.5 cents per share, an increase of 44% on the previous corresponding period 6.5 > Moody’s Baa3 investment grade rating 4.5 3.0 DEC 12 DEC 13 DEC 14 Aircraft capital expenditure $NZm 900 800 700 600 500 400 300 200 100 0 > Investment of $3.0 billion in aircraft and associated assets over the next 6 years > Includes progress payments on aircraft > Assumes NZD/USD = 0.7500 FY15 FY16 Aircraft deliveries FY17 > Excludes capitalised maintenance of approximately $65m p.a. and non-aircraft capital commitments FY18 FY15 FY16 FY17 FY18 FY19 FY20 Boeing 787-9 2 3 2 3 1 - Airbus A320 4 2 - - - - ATR72-600 3 5 1 - - - Airbus A320/A321 NEO* - - - 3 6 4 Boeing 777-300** 1 - - - - - * Committed orders ** Aircraft on operating lease Average fleet age in years (seat weighted) Fleet update 9.2 9.1 7.9 JUN 13 JUN 14 DEC 14 FY15 FY16 FY17 FY18 FY19 FY20 Boeing 777-300ER 7 7 7 7 7 7 Boeing 777-200ER 8 8 8 8 8 8 Boeing 787-9 3 6 8 11 12 12 Boeing 767-300 5 4 2 - - - Airbus A320 26 28 28 22 15 15 Airbus A320/A321NEO* - - - 6 13 13 Boeing 737-300 2 - - - - - Projected jets in service * Reflects timing of aircraft expected to be sourced through operating leases that may substitute current purchase commitments Jet fuel > Price drop largely the result of structural changes to global jet fuel market. > Average jet fuel price per barrel down 13% (in USD terms) for 1H15, partially offset by hedge losses of $26 million. > Benefits from lower jet fuel price will accrue more in 2H15, albeit some of this will be offset by weaker NZD. > Hedging programme gives us time to adjust  Typically around 75% hedged for next 6 months  2H15 is 62% hedged Jet fuel price benefits going forward > Based on current jet fuel prices the impact of the reduction in jet fuel prices on the 2H15 compared to the 1H15 is $148 million. This price impact is offset by an increase in hedge losses of $66 million giving a net improvement of $82 million*. > Based on current jet fuel prices the impact of the reduction in jet fuel prices on FY16 compared to FY15 is $151 million. This price impact is improved by a decrease in hedge losses of $98 million, giving a net improvement of $249 million*. > Jet fuel cost will also be affected by the impact of changes in foreign currency rates to the extent that these are not hedged, and changes in the volume of fuel purchased. > The above numbers assume Singapore Jet Fuel being at US$76. * The above analysis does not include the impact of any changes to the competitive environment that may be brought about by lower fuel prices. 4 Currency 2H15 is 94% hedged at 0.8452 1 H16 is 80% hedged at 0.8175 Outlook > In November we stated that should the then current level of jet fuel price persist, there would be a significant additional improvement in earnings in the second half of the financial year. > Fuel prices are lower than in November and the sales momentum has been maintained, further strengthening the company’s earnings outlook for the current year and beyond. Supplementary slides ?llb Financial overview Dec 2014 Dec 2013 $ movement % movement $2,403m $2,324m $79m 3% Normalised earnings before taxation $216m $180m $36m 20% Statutory earnings before taxation $197m $198m ($1m) (1%) Statutory net profit after taxation $133m $141m ($8m) (6%) Operating cash flow $378m $300m $78m 26% $1,265m $1,234m $31m 3% Gearing* 51.6% 42.9% n/a (8.7 pts) Interim dividend** 6.5 cps 4.5 cps 2.0 cps 44% Operating revenue Net cash position* * Comparative is for 30 June 2014 ** Fully imputed Fuel hedging* FY15 H2 FY16 H1 Volume (bbls) Ceiling (USD) 175,000 94.74 Brent collars 1,675,000 106.02 97.60 WTI collars 537,500 88.38 80.60 Bought Brent puts 612,500 WTI swaps 25,000 94.74 Brent collars 162,500 102.33 95.71 WTI collars 512,500 82.52 75.22 WTI swaps * Fuel hedge position as at 13 February 2015 Floor (USD) Strike price (USD) 89.29 Normalised earnings reconciliation Dec 2014 Dec 2013 $197m $198m Fuel derivatives $17m ($18m) Foreign exchange derivatives $2m n/a $216m $180m $14m n/a $230m $180m Earnings before taxation (per NZ IFRS) Reverse net (gains) / losses on derivatives that hedge exposures in other financial periods: Normalised earnings* before taxation Virgin Australia equity losses Normalised earnings* before Virgin Australia equity losses and taxation *Normalised earnings represents Earnings stated in compliance with NZ IFRS (Statutory Earnings) after excluding net gains and losses on derivatives that hedge exposures in other financial periods. Normalised earnings is a non-IFRS financial performance measure that matches derivative gains or losses with the underlying hedged transaction, and represents the underlying performance of the business for the relevant period. Normalised earnings is reported within the Group’s interim financial statements and is subject to review by the Group’s external auditors.