Aviation Financial Mngmt Course Work

8/9/2019 Aviation Financial Mngmt Course Work

1/18

LONDON METROPOLITAN UNIVERSITY

CA2010C Aviation Financial Management Page 1

COURSEWORK

(REPORT)

By

Nikola Georgiev

Student ID: 07059973

Email: [email protected]

O P E R A T I O N S


2/18



Introduction

The following report evaluates the operational activities of Air New Zealand. Air New

Zealand is the national carrier of New Zealand and is part of the Star Alliance Group.

Detailed examination of the company financial position have been reviewed, as well as key

operational activities examined, such as routes evaluation, passenger load factors,

employees productivity, operational statistics, operating fleet, company strategy, etc.

Competitor performance analyzes has been compared, followed by conclusion.

Route Structure

Air New Zealand has its route structure divided into domestic and international flights

(http://www.airnewzealand.co.nz/).

There are over 550 flights per day to 27 domestic destinations more than any other airline.

The routes include the following cities:

Kaitaia, Kerikeri, Whangarei, Auckland, Tauranga, Whakatane, Rotorua, Hamilton, Gisborne,

Taupo, Napier, New Plymouth, Wanganui, Palmerston North, Masterton, Wellington, Nelson,Blenheim, Westport, Hokitika, Christchurch, Timaru, Oamaru, Wanaka, Queenstown,

Dunedin, Invercargill;

The international flights of the airline are divided into three geographical parts Europe, Asia

& Australasia and the Americas.

Air New Zealand operates direct flight on its own to London, but uses code share

flights with its partners to other European destinations (mainly UK, Ireland and Germany),

such as Manchester, Edinburgh, Glasgow, Dublin, Belfast, Amsterdam, Brussels, Vienna,

Munich, Frankfurt, Dusseldorf, Berlin, Hamburg;

Australasia part of the world is again served directly by Air New Zealand and its code

share partners. Destinations include Sydney, Brisbane, Gold Coast, Melbourne, Adelaide,

Perth, Cairns in Australia, Tokyo, Osaka, Shanghai, and the new route - Beijing in Japan

(including other internal locations served by partners of the airline), Tonga, Norfolk Island

and others.

North American region is served by Air New Zealand with direct flights to Los

Angeles and San Francisco, USA and the new route - Vancouver, Canada, although many

more cities including New York, Washington, Chicago and Mexico are served by the airline

code share partners.


3/18



The performance on the routes is divided into domestic, long haul and Tasman &

Pacific Island flights and is observed as follows:

Long haul flights load factor has increased over 80%, with passenger numbers up by

12.3%. Air New Zealand route performance has shown great results, which enabled the

company to launch new direct services to Vancouver, Canada and Beijing, China. Business

Premier and Pacific Premium Economy sub classes show good performance. The new

services provided by the airline include gate-to-gate in-flight entertainment and concierge.

The company continues the optimisation of its long haul network.

Domestic flights capacity has increased by 7.5% compared with the preceding year,

although the load factor decreased by 0.7%. The airline operates more domestic routes than

any other airline, which leaded to increase of passenger numbers by 6.1%. Five more Q300turbo props have been added to the fleet. Air New Zealand has introduced to its domestic

passengers Koru Hour and Space + seats.

Tasman and Pacific Island flights capacity have been decreased by 1.9%, but load

factor have been increased by 2.7%. Air New Zealand has started a huge investment into

upgrading of the inflight entertainment system. The airline merged with Freedom Air.

In general for all routes of the airline, the capacity have increased by 5.4%, while the

passenger load factor have increased by 2.8%, with hugely increased competition on the

domestic market.

Flights Performance

The following table shows 20 of the most active routes for the airline based on the

number of observations made in the time period June 2007 June 2008.

Departure Arrival # Flights On-time Delay Cancelled Diverted

Code City Code City Rating Operated Codeshare % Avg Max Flights Flights

AKL Auckland WLG Wellington(3,8)

975 0 85% 12 178 4 0% 0 0%

WLG Wellington AKL Auckland(4,2)

903 0 88% 11 174 6 0% 0 0%

CHC Christchurch AKL Auckland(4,3)

826 0 88% 11 147 5 0% 0 0%
http://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=WLGhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKL


4/18



AKL Auckland CHC Christchurch(3,8)

805 0 86% 12 198 8 0% 0 0%

SYD Sydney AKL Auckland(2,5)

226 0 76% 18 195 8 3% 0 0%

AKL Auckland SYD Sydney(2,4)

223 0 71% 16 140 6 2% 0 0%

AKL Auckland ZQN Queenstown(4,5)

153 0 93% 11 162 0 0% 0 0%

ZQN Queenstown AKL Auckland(3,8)

152 0 85% 14 235 1 0% 0 0%

BNE Brisbane AKL Auckland (3,7) 144 0 94% 25 179 0 0% 0 0%

AKL Auckland BNE Brisbane(3,1)

138 0 81% 17 170 0 0% 0 0%

AKL Auckland MEL Melbourne(1,6)

108 0 56% 19 129 0 0% 0 0%

MEL Melbourne AKL Auckland(2,7)

107 0 82% 17 113 0 0% 0 0%

AKL Auckland LAX Los Angeles(3,0)

103 0 80% 15 74 0 0% 0 0%

SYD Sydney CHC Christchurch(1,9)

92 0 83% 34 279 1 1% 0 0%

DUD Dunedin AKL Auckland(3,3)

88 0 79% 15 159 0 0% 0 0%

AKL Auckland DUD Dunedin (3,6) 86 0 93% 18 93 0 0% 0 0%

CHC Christchurch SYD Sydney(4,2)

81 0 91% 15 115 1 1% 0 0%

NAN Nadi AKL Auckland(1,8)

67 0 76% 23 94 0 0% 0 0%

AKL Auckland NAN Nadi(2,1)

67 0 77% 24 101 0 0% 0 0%
http://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAXhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAXhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=NANhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=DUDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAXhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=MELhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=BNEhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=ZQNhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=SYDhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=CHChttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKL


5/18



LAX Los Angeles AKL Auckland(3,7)

64 0 93% 18 45 0 0% 0 0%

Source: http://markets.ft.com/tearsheets/performance.asp?s=nz:AIR

The following tables show the arrival/departure performance of all flights of Air New Zealand.

Air New Zealand Flight Arrival Performance

Average Historical Flight Delays 6 min

Less than 10 min 72 %

10-30 min 20 %

30-60 min 5 %

more than 60 min 3 %

Air New Zealand Flight Departure Performance

Average Historical Flight Delays 9 min

Less than 10 min 68 %

10-30 min 23 %

30-60 min 6 %

more than 60 min 2 %

Source: http://www.airport-la.com/airlines/Air-New-Zealand.html
http://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAXhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAXhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=AKLhttp://www.flightstats.com/go/Airport/airportDetails.do?airportCode=LAX


6/18



Operating Fleet

Aircraft Type June 2006 2007

movement

June 2007 2008

movement

June 2008

Boeing 747-

400

8 - 8 - 8

Boeing 777-

200ER

5 3 8 - 8

Boeing 767-

300ER

7 (1) 6 (1) 5

Airbus A320-

200

12 - 12 - 12

Boeing 737-

300

14 - 14 2 16

ATR72-500 11 - 11 - 11

Saab 340A 13 (10) 3 (3) -

Bombardier

Q300

8 8 16 5 21

Beech

1900D

16 1 17 - 17

Total

operating

fleet

94 1 95 3 98

Source: Air New Zealand

The following table shows the new aircraft orders that will be added to the fleet of Air New

Zealand

Aircraft Type FY09 FY10 FY11 FY12 FY13

Boeing 777-

300ER

- 3 1 - -

Boeing 787-9 - - - 3 2


7/18



Bombardier

Q300

2 - - - -

Beech 1900D 1 - - - -


Operating Statistics

The following tables shows the operational statistics of the airline for year ending June 2008

compared with the preceding period. Statistics have been divided into short haul operations,

long haul operations and general group operations (http://www.airnewzealand.co.nz/).

Short haul operating statistics

June 2008 June 2007 Movement*

Passengers 11.2 m 10.7m 4.5%

ASKs 14,748m 14,588m 1,1%

RPKs 11,334m 10,980m 3.2%

Load Factor 76,9% 75,3% 1,6pts

* Calculations based on numbers before rounding

Long haul operating statistics


Passengers 2.0m 1.7m 12.3%

ASKs 22,243m 20,525m 8,4%

RPKs 18,015m 15,894m 13,3%




8/18



Group operating statistics


Passengers carried 13,2m 12,5m 5,6%

ASKs 36,991m 35,113m 5,4%


Yield (cents per

RPK)

13,0 12,9 0,2%


Group Operating Performance

The following graph shows the percentage performance of the load factor and yieldmovements for the period July 07 June 08 (http://www.airnewzealand.co.nz/).


9/18




Employee Performance

Air New Zealands customer service staff are well known for their warmth and cheeriness

and they are empowered to go the extra mile for their passengers. All cabin crew are

professionals, satisfying every need of the passengers on board, making Air New Zealand

one of the most favorable airlines in the world by passenger voting. Probably the mostsuccessful of conversions from legacy airline to a full service low cost format has been Air

New Zealand. This enabled the airline to make some cost reductions including staff cuts.

Approximately 40% of the management staff was cut after the takeover of Ansett Australia

back in 2001. Rapid management decisions in operational staff have been made in 2006 in

order to restructure the airline activities. Currently the airline employees 10,975 people,

operational and management staff. Through personal and professional development

initiatives, airline and retail discounts, employee benefits and performance related incentives,

the airline aim to encourage its employees to work hard and wear the Koru with pride. Air

New Zealand retains its people because they feel they couldn't get the same exposure,

responsibility and recognition elsewhere. Resilience, foresight and innovation are key to this,and regardless of where Air New Zealand fits into people career strategy they have a

compelling track record in developing future leaders and managers.

The following graph shows the productivity of Air New Zealand employees.



10/18



$37m extra cost savings are achieved in 2008

$361m per annum are being delivered from business transformation initiatives

already implemented

Financial Performance

Financial Overview

The following graph represents the financial position of Air New Zealand.


Fuel Hedging*

For the first half of FY09, approximately 74% of the fuel has been hedged with theaverage ceiling price at US$104 per barrel of WTI crude oil

The second half of FY09, approximately 38% of the fuel has been hedged with the

average ceiling price at US$127 per barrel of WTI crude oil

*Fuel hedge position as at 18th August 2008

Risk Management/Currency Hedging

2009 US Dollar operating cash flow exposure is approximately 90% hedged at anaverage NZ$/US$ rate of 0.76


11/18



General financial overview

$1.3bn cash on balance sheet at year end with gearing of 45.5% (7, 6% percent

improvement), Average fleet of 6.5 years, 2 X Boeing 747-400s sold and leased back

The following is a snapshot of the financial statement of Air New Zealand for operations.

From the statement above, we can calculate the operating ratiousing the formula

operating expenses / operating revenue: 3,720/4,667 = 0.79X100=79%

The following graph represents the key influences on the company profitability.


12/18




Generally, we can conclude that that the airline has a strong financial position and

competitive strengths in core markets.

Strategy

Priorities(http://www.airnewzealand.co.nz/)

The general priorities strategy of Air New Zealand includes closely matching of supply to

demand, becoming leader in the chosen market, introducing short haul innovations, long

haul focus on service and sales strategy, growing of non revenue sources, becoming the

worlds leading environmentally sustainable airline.

Apart from the above, the company focuses on separate strategy for its core business: short

haul, long haul and other business. For short haul operations, the airline priorities include:

domestic airport, inflight and loyalty changes, inflight entertainment for all seats on Tasman

flights, new Grabaseat everyday low fare initiatives, Space+ seats across short haul

international. Long haul operations priorities include: network changes in response to

demand, implementation of fuel efficiency innovations, continuing North Asian network

expansion, building on service and product offering, strategic planning for B777-300ER and

B787-9 (including new orders, etc.). Other business strategies includes optimization of the

core business for Cargo, high utilization of facilities with third party focus for Engineering,exploring wider applications outside air travel for the airline loyalty programme (airpoints).

Environment

In regards to environment, Air New Zealand strategy is to become the worlds leadingenvironmental airline. The company strategic plans are to develop biofuels, to work on fuelefficiency innovations, to adapt environmental management system, to establish voluntarycarbon off-set programme, to create Air New Zealand Environmental Charitable Trust. Air

New Zealand is one of several air carriers working to diversify and secure its energy futurethrough participation in the Sustainable Aviation Fuel Users Group. That effort includes acommitment to sustainability criteria for fuel sourcing and commercializing plant-based fuelsthat perform as well as, or better than, kerosene-based fuel but with a smaller carbonlifecycle. The goal is to create a portfolio of next-generation biofuels that can be blended withtraditional kerosene fuel (Jet A) to improve environmental performance. On November 11,2008 Air New Zealand and Boeing have announced Dec. 3, 2008 as the date for the airline'ssustainable biofuels flight from Auckland using a 747-400 jetliner. Conducted in partnershipwith Rolls-Royce and UOP, a Honeywell company, one of the airplane's four Rolls-RoyceRB211 engines will be powered in part using advanced generation biofuels derived fromjatropha. After this flight, Air New Zealand became the first airline to use a commerciallyviable biofuel sourced using sustainability best practices.

Source: http://www.boeing.com/news/releases/2008/q4/081111c_nr.html


13/18



Competitors

Air New Zealand biggest regional competitor is Qantas (Australia). As well as Air New

Zealand, Qantas is part of one of the biggest airline alliances One World. Qantas fleet

comprises of:

4 x Airbus A380-800, 6 x Boeing 747-400ER, 22 x Boeing 747-400, 27 x Boeing 767-300ER,

41 x Boeing 737-800, 21 x Boeing 737-400, 11 x Boeing 717-200, 10 x Airbus A330-300,

6 x Airbus A330-200, 21 x Bombardier Dash 8 (200/Q300), 17 x Bombardier Dash 8 (Q400);

Qantas flies to 16 domestic destinations and 21 international destinations in 14 countriesacross Africa, Americas, Asia, Europe and Oceania excluding the destinations served by itssubsidiaries. The difference in the route network between the two companies is that Qantashas South America and Africa to its direct network of services. Hence, Qantas posses betterfleet capacity in order to be able to maintain those routes.

Financial Overview (www.qantas.com.au)

Profit before tax

Qantas mainline profitability fell 76.2%, to AUD199 million.

Qantas profit before tax, 1H09 (to 31-Dec-09)

Source: Qantas


14/18



Yields

Total domestic yield (Qantas, QantasLink and Jetstar) "excluding exchange" decreased by2.0%. Total international yield (Qantas and Jetstar), excluding exchange, actually increased

by 3.4%. However, with a shift in the Australian dollar of up to 31%, this number does notprovide a great insight into how yields have actually moved.

Capacity reductions

Qantas has made what it describes as "decisive reductions in capacity to mitigate trafficdecline". However, as global conditions deteriorate, these reductions in fact will probablyneed to be more "decisive" in the near future.

The reductions include retiring four B747-300s, whose impact will be felt most domestically.

Total capacity in 2009 is to be reduced by 4% compared with 2008 and the planned growthfor the 2009/10 financial year will be cut from 10% to 2%. This implies some acceleration ofwithdrawal from service of older equipment, as there is no mention of deferrals of aircraftpurchases.

Cost reduction programme

Qantas is to begin a deeper round of cost cutting, with a new target of AUD1.1 billionreduction to 30-Jun-10. Savings are to be "reduced growth-related savings" and "reducedfuel efficiency savings". Meanwhile it expects to achieve the target of AUD550 million

reductions for the full year FY09.

Balance Sheet

Qantas still retains a strong balance sheet, although gearing increased to 52% during theperiod. The group retains a cash balance of AUD2.8 billion, with a standby facility of AUD500 million.


15/18



Qantas group balance sheet at 31-Dec-08

Source: Qantas

II. Traffic highlights

The two brand strategy is again delivering dividends, as can be seen from the respectiveperformances of the group (including Jetstar) and Jetstar separately.

Qantas Group passenger number growth and passenger load factor: 2005 to 1H2009(Financial year ended 30-Jun)


16/18



Source: Centre for Asia Pacific Aviation & Qantas Group

Conclusion

Comparing both airlines Air New Zealand and Qantas, we can conclude that Qantas has abetter fleet capacity and network coverage than Air New Zealand, although this does notmean its more profitable. When comparing both companies financial results and statistics,we can conclude that even with lower fleet and network capacity, Air New Zealand is moreprofitable and cost efficient airline than its direct competitor Qantas. We can also observethat Air New Zealand has a strategic company management and focus on utilization ofaircrafts, operational activities and general management activities strategy. Another goodopportunity for the company is the fact that its focus on network expansion is in line withdemand eliminating the possibility of creating non-profitable routes that can create losses.Overall, the company policy for financial strength and market share proves to be a goodmanagement decision. "We are pleased with the level of profitability, particularly inlight of the ongoing pressures we face from competitors, and the challenge ofaccommodating increased fuel costs and excess charges at some New Zealand

airports," says Mr Palmer

CEO of Air New Zealand. Therefore, we can conclude that AirNew Zealand possesses strong financial position, coordinated operational activities in linewith financial cost cuts and strong market share that projects a famous brand name.


17/18



REFERENCES

Websites:

Air New Zealand - http://www.airnewzealand.co.nz/

Qantas - www.quantas.com.au

Flight Performances - http://markets.ft.com/tearsheets/performance.asp?s=nz:AIR

Los Angeles Airport (flight performances) - http://www.airport-la.com/airlines/Air-New-

Zealand.html

Boeing (news) - http://www.boeing.com/news/releases/2008/q4/081111c_nr.html

Centre for Asia Pacific Aviation & Qantas Group - www.centreforaviation.com


18/18


CA2010C A l 18

Documents

Aviation Financial Mngmt Course Work