Summary

  • It has been a difficult couple of days for Air New Zealand with the news on the resignation of long-serving employee and current Chief Commercial and Customer Officer, Cam Wallace coming just a few days after the FY2020 results, severely impacted by COVID-19.
  • Cam Wallace resigned from his role after serving the Company for 19 years. He would step away from the airline full time on 30 September and would provide consultancy support to the CEO till the end of the year.
  • The Company had announced its FY2020 results last week highlighting the considerable impact of the pandemic on its financials and operating activities. Air New Zealand experienced a loss of NZ$628 million and a 16% YoY decline in operating revenue.
  • Air New Zealand would not provide final dividend for FY2020. Further, it expects a loss in FY2021.

Air New Zealand (NZX:AIR) experienced another shock post the release of its FY2020 results when the Chief Commercial and Customer Officer Cam Wallace resigned from the Company. Cam Wallace will step away from the airline full time on 30 September and would give consultancy support to the CEO Greg Foran until end of 2020. Cam was associated with the Company for 19 years and has played various senior and executive roles.

Cam has made a substantial contribution to the Company, and under his leadership, the Company’s passenger, cargo, and loyalty revenues witnessed unparalleled growth over the previous six years. During his tenure, Mr Wallace was instrumental in developing new market opportunities, growing strategic alliance partnerships, expanding loyalty footprint, and driving profitable growth all over the airline’s business.

This announcement harmed the Company’s shares as by the end of the day’s trade on 04 September 2020, AIR share price slipped 1.11% and settled at NZ$1.34. AIR has a market capitalisation of NZ$2.88 billion and has nearly 1.11 billion outstanding shares.

FY2020 Result:

On 27 August 2020, Air New Zealand announced its FY2020 result for the period ended 30 June 2020. The Company affirmed the COVID-19 impact on its business as well as on the global aviation industry due to the massive travel and border restrictions imposed by the government since March 2020.

Air New Zealand experienced a loss before other significant items and taxation of NZ$87 million, compared to earnings of NZ$387 million in the previous year.

Despite a robust interim profit of NZ$198 million for 1H FY2020 along with the buoyant demand on North American and regional routes in the initial parts of 2H FY2020, the travel restrictions related to COVID-19 caused 74% drop in passenger revenue in Q4 FY2020 as compared to the previous corresponding period. This caused the Company to experience massive operating losses.

Statutory losses before taxation were NZ$628 million. It comprises of NZ$541 million of other significant items. Non-cash items of NZ$453 million showed the majority of the other significant items, which include the NZ$338 million aircraft impairment charge concerning grounding of the Boeing 777-200ER fleet for the foreseeable future.

Air New Zealand responded to the crisis as an emergency. It took steps such as obtaining addition liquidity, cost reduction, postponing significant capital expenses and simultaneously ensuring that the Company is well-positioned so that AIR can grow profitably when the travel restrictions are eased, and customer demand returns.

Air New Zealand Amid COVID-19:

The business responded at a faster rate to reduce the cost base and pivoting quickly to ramp up domestic and cargo services to help keep the New Zealand economy moving. These actions, coupled with strategic review, supported AIR in managing the crisis and also stay strong and in a competitive position when the travel restrictions are lifted.

In preparation for the subsequent recovery of demand, the board lately supported a refresh of the airline’s strategy that concentrates on sustaining competitive strengths and simultaneously making sure about the long-term positive result for clients, staff, the wider community as well as the shareholders.

DO WATCH: How Air New Zealand is preparing to roll out its new business amid crisis?

Know About AIR’s Liquidity and Cash Burn During FY2020:

Short-term liquidity of Air New Zealand, as at 25 August 2020, was ~NZ$1.1 billion. It comprises of cash and the NZ$900 million standby loan facility from the government of New Zealand. As the Company had a strong cash position pre-COVID-19, its management was able to reduce cash burn. After the initial lockdown was lifted in New Zealand, the Company experienced a better return of domestic demand. AIR confirmed that it had not utilised the standby loan facility. However, I would use the loan facility in the coming days.

Average cash burn every month was around NZ$175 million per month from April to June 2020. It comprises of over average refunds, redundancy payments along with fuel hedge closeout costs. The cost got reduced to NZ$85 million.

The airline is assessing the go forward average monthly cash burn to lie in between NZ$65 million to NZ$85 million.

INTERESTING READ: Potential Resumption of International Travel in Australia: A Subject of Debate

Dividend Update:

Looking at the financial pressure as a result of COVID-19, the board, at present, has determined not to declare a final dividend for FY2020. The board would be focusing on preserving Air New Zealand’s liquidity across various possible demand recovery scenarios.

FY2021 Outlook:

Considering the present uncertainty surrounding the travel bans, and the anticipated level of demand as these restrictions lift, the Company is not in a position to provide FY2021 guidance. However, as per the prevailing scenarios, Air New Zealand expects to make a loss in FY2021.

 

 


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