Business Report:  Air New Zealand Limited


This report relates to Air New Zealand Limited.

Air New Zealand Limited, founded in 1940 as Tasman Empire Airways Limited, is New Zealand’s domestic and international airline company. The Company is committed to passenger and cargo transportation directly serving 53 cities across Asia, Europe, North America and Oceania, including 27 destinations within New Zealand (Star Alliance, 2014). The airline's main hub is located at the Auckland Airport in the southern part of Auckland (Flight International, 2007).  In addition, first Air NZ shares were listed on the New Zealand Stock Exchange in October 1989 in Transport and Services Market sectors (NZX Ltd, n.d.).


Financial statement trends

Revenue trend

Financial statement trends

The graph illustrates a huge decline of 19.08% in total revenue in 2010. The sales revenue itself fell by 8.85%, while the trend experienced a more dramatic decrease in interest received and other income – 56.12% and 97.01%, respectively (NZX Ltd, 2013). This has probably resulted form the Great Recession of 2009, which lead to  lower cargo and yields volumes with 4.6% fall of passenger demand (Harris, 2010). However, the graph has an upward trend in the following years as New Zealand increased its GDP (Reserve Bank of New Zealand, 2014).

EBITDA trend

However, there has been in increase of EBITDA from 2009 to 2010. This is due to the decrease of company expenses by 15% (Air New Zealand, 2010). This possibly resulted from substantial cuts in capacity to meet a drop in passenger numbers, resulting in a bigger percentage decrease of expenses than a drop in revenue (Hargreaves, 2009). Afterwards, a graph has minor fluctuations with a general upward trend, similar to Total Revenue figures.

NPaT trend

Since net profit after taxation is further calculated from EBIDTA by deducting interest, tax, amortisation and depreciation, NPaT graph is similar to EBITDA yet with smaller figures According to the trend, Air NZ managed to report profits even in 2009 and 2010 during the recession. Moreover, the trend goes up with expected NpaT of $249,00, due to half-year net profit of $140 million, caused by world recovery from crisis, network enhancements and cost reduction (Bradley, 2014).

Efficiency ratio

Air New Zealand’s efficiency increased by 4.58% in 2010 due to a huge cost reduction. Afterwards it decreased again and had a further upward trend with an expected rise to 17% in 2014. This indicates that Air NZ is able to keep its earnings at a high level with its efficient operations, leading to increase in profits as shown on a graph above.

 Profitability ratio

During the period from 2009 till 2013 percentage of return on shareholder funds has increased by 9.45%. However, the trend experienced a slight decrease of 0.45% in 2011, most likely to bigger taxation expenses. Although, in 2014 ROSF is expected to rise to 13.43%, meaning that the company will become more profitable with more profit available to shareholders.

Liquidity ratios

Current ratio declined from 2009 to 2013 by 0.2. The ratio hit the bottom of 0.81 yet slowly went up to 1.09 in 2013, meaning that company’s ability to pay back its short-term liabilities has increased. Same trend is observed with Quick Assets Ratio as it measures the same variable. However, operating cash flow ratio figures have always been less than 100%, indicating that Air NZ generated less than it needs to pay off its short-term liabilities.

Leverage ratios

Air NZ’s shareholders’ equity percentage always maintained an average of 30%. Consequently, this ratio is beneficial to shareholders as long as return of company’s assets is bigger than interest paid to creditors. However, given ratio also means that shareholders will receive less during company’s hypothetical liquidation.

Share market trends 

The share price trend started with approximately 90c per share in 2009 and increased by 22c by 2011. However, in the second part of 2011 the adjusted share price fell to 85c most likely due to volatile industry conditions, including harsh oil prices and uncertainty of company’s short and medium term prospects (Share Investor, 2011). Yet the prices plunged in 2012 after company share buyback announcement (The Natioanl Business Review, 2012). Afterwards, the trend has mostly been positive with $2.30 per share in 2014 as Air NZ’s continues to lift its performance due to strengthening yields, fuel price stability and introduction of lower cost aircrafts (Radio New Zealand News, 2014).

Over the period from 2009 to 2011 figures of dividend cover percentage fell nearly by 255% due to the fall of reported net profit after tax. However, just as NPaT began to increase in 2012, dividend cover percentage began to recover. Yet since 2009 dividend cover figured have always been below 100% meaning that Air New Zealand did not have sufficient funds to pay off its required dividend payments.

Furthermore, Air NZ’s dividend yield has decreased from 7.22% in 2009 to 5.37% in 2013, meaning that investors’ return for a share purchased has declined compared to initial figures. In contrast, Air NZ’s current coupon is 6.9% meaning that returns from company’s bond is bigger than from direct investing in it (, n.d). Although, NZ Government bond rates are smaller than that - at 4.46% as at May 2, 2014 (, 2014). What is more, ANZ 5 year bank deposit rates are at 5.75% - which higher than Air NZ dividend yield, yet smaller that its bond coupon (, n.d).

Overall, Air New Zealand has a positive outlook regarding its future due to the recently revealed interim result of $140m NPaT, which is 40% bigger than last year’s result. Consequently, Air NZ expects to attain more than $300m of full year profits (NZ Herald, 2014). This data is similar to Forsyth Barr, as it predicted 388.85m of EBIT for 2014. In conclusion, brokers also agree on Air New Zealand positive prospects and recommend buying company’s shares (NZX Ltd, 2014).

Current Issues

Issue 1 : Corporate Social Responsibility 

The world Business Council for Sustainable Development defined CSR as follows:

“CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families as well as of the local community and society at large” (Richard Holme, 2000).

To begin with, Air New Zealand hugely contributes to countries prosperity and economic developent. Only in 2013 the company spent $74 million NZD on taxation expenses as cash inflow into the economy (NZX Ltd, 2013). Moreover, 53% of Air New Zealand shares belongs to the Government (3 News, 2013). As a result, an expected 17% rise in full-year earnings this year will directly contribute to New Zealand’s budget (Underhill, 2014).

However, with regards to the community, Air New Zealand has double standarts towards its national identity. According to Air NZ’s guiding principles the company should promote New Zealand people and culture (Air New Zealand Ltd, n.d.). Nevertheless, Air NZ does not accept employess with visible Tā moko, which is a traditional Maori tattoo (Tait, 2013). Such policy is contradictory, especially considering that Air NZ uses traditional koru motif in their branding. What is more, such policy limits maori career choices and subsequently has a negative impact on society. Despite that, the company has still been voted the country's most attractive employer (Fairfax NZ News, 2013). In addition, Air New Zealand recently released a new safety video called  “Safety in Paradise”. The video was criticized as highly sexualized and has been accused with woman objectification. Yet Air NZ denied such claims, saying that the video was shot in a tasteful manner (Michael Foreman, 2014).

In conclusion, Air New Zealand is truly a good corporate citizen from an economical perspective. Nonetheless, I believe that Air New Zealand should review its contradictory cultural policy to truly give back to indigenous communities. 

Issue 2 : Corporate governance

The ASX Corporate Governance Council defined ‘corporate governance’ as follows:

“Corporate Governance is the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled within corporations’’ (ASX Corporate Governance Council, 2014).

Principles and Guidelines of Corporate Governance in New Zealand have certain criteria’s about board composition and performance.  Air New Zealand does comply with most of them, however, instead of having an appropriate balance between executive and non-executive directors, there are 7 directors all of which are non-executive including the chairman (Air New Zealand Ltd, 2013).

What is more, the Principles indicate that the board is ought to have a balance of skills, knowledge and experience (Securities Commission New Zealand , 2004). Nevertheless, Air NZ’s recently retired board chairman John Palmer has said, “there are too many lawyers and accountants in the boardroom…You need wider commercial experience and an approach that is different from the way you run a professional advice practice” (Georgina Bond, 2013). However, Air New Zealand recently appointed a new member of the board - former Fonterra chief financial officer Jonathan Mason, who can possibly make a difference (Martin, 2014). Furthermore, its board’s direct observe high standards of ethical and moral behavior (Securities Commission New Zealand , 2004). Nonetheless, there have been ethical issues regarding Maori employment, as a result of bad corporate governance.

In conclusion, I believe that Air New Zealand generally complies with Principles and Guidelines of Corporate Governance, yet has some issues in particular places. In my opinion, those are not so significant on the bigger scale and should not undermine investor confidence.



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