WEBVTT - Air NZ on facing headwinds 0:00:03.520 --> 0:00:06.760 Kirakoto. Welcome to Shared Lunch. I'm Garth Bray. I hate 0:00:06.760 --> 0:00:09.160 to be Captain obvious, but if you are an airline 0:00:09.480 --> 0:00:12.639 and you're not flying, you can't make money. And sadly 0:00:12.720 --> 0:00:15.440 that's been the picture for part of Air New Zealand's fleet. 0:00:15.600 --> 0:00:18.000 Up to a fifth of its planes grounded at any 0:00:18.000 --> 0:00:21.599 one time thanks to engine trouble. That's also dragged down 0:00:21.640 --> 0:00:25.360 its results. You add into that higher non fuel costs 0:00:25.680 --> 0:00:28.520 and a weak economy where fewer people are flying domestically, 0:00:29.000 --> 0:00:32.880 how on earth are they going to chart a profitable future? Well, 0:00:33.159 --> 0:00:36.400 funny you should ask Richard Thompson, the CFO might have 0:00:36.479 --> 0:00:38.640 something to say about that. Before we hear from him. 0:00:38.680 --> 0:00:42.120 It some important information you should always consider before investing. 0:00:42.760 --> 0:00:45.360 Investing involves the risk you might lose the money you 0:00:45.400 --> 0:00:48.680 start with. We recommend talking to a licensed financial advisor. 0:00:49.400 --> 0:00:53.200 We also recommend breading product disclosure documents before deciding to invest. 0:00:53.479 --> 0:00:55.880 Everything you're about to see and here is current at 0:00:55.880 --> 0:00:56.760 the time of recording. 0:00:57.560 --> 0:00:59.720 So, Richard Thompson, I want to start actually with your 0:00:59.760 --> 0:01:04.480 own personal approach to aviation. Welcome to Sharesy Shared Lunch. 0:01:04.600 --> 0:01:05.679 Thanks Gar good to see you. 0:01:05.840 --> 0:01:08.520 Yeah, thank you you are a pilot in your own. 0:01:08.440 --> 0:01:11.080 Right, Ah, yes, amateur. 0:01:11.760 --> 0:01:14.920 So I've got a private pilot's license which is current, 0:01:15.120 --> 0:01:19.160 which I did thirty five years ago. I fly a 0:01:19.240 --> 0:01:22.760 little bit around sort of the country down in Central Uta. 0:01:22.840 --> 0:01:25.800 I go up here sort of once or twice a month. 0:01:26.080 --> 0:01:30.240 Not enough love it, but yeah, it's not quite the 0:01:30.280 --> 0:01:33.840 same as flying a jumbo, but it's my little outlet. 0:01:34.480 --> 0:01:38.959 So being someone that's always been interested in aviation, it 0:01:39.000 --> 0:01:40.560 must be a bit of a dream to be working here. 0:01:41.000 --> 0:01:43.920 It's a lot of fun. I've first joined here in 0:01:43.920 --> 0:01:47.760 two thousand and four and have had an association in 0:01:47.800 --> 0:01:50.760 a professional capacity with the airline since two thousand and 0:01:50.760 --> 0:01:51.520 one or two. 0:01:51.600 --> 0:01:55.280 I think it was. It's an interesting industry to be. 0:01:55.240 --> 0:01:57.640 Part of and a fabulous team to be part of, 0:01:58.520 --> 0:02:01.280 and we're very proud of them. No matter what sort 0:02:01.320 --> 0:02:04.000 of setbacks we're dealing with at any point in time, 0:02:04.600 --> 0:02:08.520 the team has remarkable resilience and just get out every 0:02:08.600 --> 0:02:10.440 day with a smile on their face and get the 0:02:10.520 --> 0:02:11.040 job done. 0:02:11.280 --> 0:02:12.920 I guess the idea is that if you're a pilot, 0:02:12.960 --> 0:02:14.760 you have to I think someone said to me once, 0:02:14.840 --> 0:02:15.560 panic slowly. 0:02:16.720 --> 0:02:19.760 Yes, So I think Greek said there, and I think, well, 0:02:19.800 --> 0:02:23.920 I think panic calmly, calmly. Yeah, sometimes you can't be 0:02:23.960 --> 0:02:26.840 too slow about it, but certainly you just want to 0:02:26.919 --> 0:02:30.320 sort of take stock of the situation, don't rush to conclusions, 0:02:30.840 --> 0:02:32.960 and just sort of calmly work your way through the 0:02:33.160 --> 0:02:35.560 sort of the curveballs that we get dealt from time 0:02:35.600 --> 0:02:35.920 to time. 0:02:36.040 --> 0:02:38.480 So let's maybe just refresh people on the top line 0:02:38.520 --> 0:02:40.799 results that you had out of the last result there. 0:02:40.400 --> 0:02:42.280 How are things looking at the moment. 0:02:42.639 --> 0:02:46.639 Yeah, it's a reasonably tough environment we're in at the moment. Garth. 0:02:46.720 --> 0:02:48.920 As evidenced by the last two years results, we made 0:02:48.960 --> 0:02:51.520 it one hundred and eighty nine million before tax in 0:02:51.520 --> 0:02:54.200 the year just finished thirty June, one hundred and twenty 0:02:54.280 --> 0:02:57.720 six after tax, and there are two or three things 0:02:57.760 --> 0:02:59.840 going on that are influencing it results. Sounds like a 0:02:59.840 --> 0:03:02.840 lot of money in the absolute terms. I guess it 0:03:02.919 --> 0:03:04.680 is a lot of money, but we've got four or 0:03:04.680 --> 0:03:10.480 five billion dollars of aircraft in associated infrastructure, so as 0:03:10.480 --> 0:03:13.480 a return on total assets, a return on investment, it's 0:03:13.520 --> 0:03:16.040 not where we want it to be. Three or four 0:03:16.080 --> 0:03:20.359 things going on there relatively at the stage week Domestic 0:03:20.400 --> 0:03:25.800 economy where optimistic that sort of improvements on the horizon 0:03:26.480 --> 0:03:30.080 is monetary policy ease these as dairies going well, that 0:03:30.160 --> 0:03:34.040 will filter through into the economy. Tourism is coming back 0:03:34.480 --> 0:03:37.280 by bit, which is good to see, but relatively weak 0:03:37.320 --> 0:03:40.760 economy just at the moment. And then in combination with 0:03:40.880 --> 0:03:45.480 that we've got the much publicized engine challenges. So one 0:03:45.480 --> 0:03:47.880 of the great virtues of the New Zealand has always 0:03:47.920 --> 0:03:52.240 been we've continued to invest in new aircraft and equipment, 0:03:52.640 --> 0:03:56.000 which has kept the experience very fresh. In the economics 0:03:56.040 --> 0:03:58.960 of new aircraft are pretty good. We've just been a 0:03:58.960 --> 0:04:02.760 bit unfortunate in the most recent environment to have an 0:04:02.840 --> 0:04:05.520 exposure to what's called the Trent thousand engine which we 0:04:05.600 --> 0:04:09.720 operate on the seven eight seven, and the geared turbofan 0:04:10.040 --> 0:04:13.800 Prats engine it's called the eleven hundred on the narrow 0:04:13.800 --> 0:04:18.200 body jet, and they are relatively new pieces of technology. 0:04:18.920 --> 0:04:22.200 They are safe, they are very economic. The issue that 0:04:22.240 --> 0:04:26.480 we've got is that the maintenance cycle on these engines 0:04:27.640 --> 0:04:31.080 is about a quarter of what it would normally be, 0:04:31.320 --> 0:04:34.600 So most of these wide body Euro engines on the 0:04:34.640 --> 0:04:37.800 seven eight seven would normally fly for three three and 0:04:37.839 --> 0:04:41.560 a half thousand what we call cycles. It's starting engine 0:04:41.720 --> 0:04:45.840 turning it off effectively a flight. They are lasting at 0:04:45.839 --> 0:04:50.919 the moment about anywhere between seven hundred and nine hundred cycles, 0:04:50.960 --> 0:04:53.880 so quite a bit less. And the problem that it 0:04:53.960 --> 0:04:55.760 causes is we have to take the engine off the 0:04:55.800 --> 0:05:01.719 aeroplane that has to go into an overhaul facility. Because 0:05:01.760 --> 0:05:05.839 neither ourselves nor Rolls Royce the engine manufacturer, expecting any 0:05:05.880 --> 0:05:08.760 of this to happen. They don't have a big enough 0:05:08.800 --> 0:05:14.200 global network of facilities to cope with the volume of 0:05:14.240 --> 0:05:15.880 these early engine removals. 0:05:16.000 --> 0:05:18.320 And so not just from any Zealand just. 0:05:18.320 --> 0:05:21.040 From the New Zealand, it's a global issue. We're probably 0:05:21.120 --> 0:05:23.560 unique in this part of the world in the Southern 0:05:23.560 --> 0:05:26.839 Hemisphere having that engine, but there's a lot of Northern 0:05:26.880 --> 0:05:29.600 Hemisphere carriers that have got it. So the engine ends 0:05:29.640 --> 0:05:33.039 up in a queue to get fixed, and that queue 0:05:33.720 --> 0:05:36.920 at times has been over a year long. So it's 0:05:37.000 --> 0:05:41.640 meant that we've had at times or right now, four 0:05:41.760 --> 0:05:44.599 or five of our fourteen to seven eight sevens on 0:05:44.640 --> 0:05:48.479 the ground and four or five of our brand new 0:05:48.600 --> 0:05:52.800 A three twenty one's on the ground, and a business 0:05:52.800 --> 0:05:57.159 that makes margins as fine as our own relatively thin margins. 0:05:57.520 --> 0:06:01.039 Having twenty percenty of your domestic jet fleet sitting on 0:06:01.080 --> 0:06:04.599 the ground, costing you money but not earning an income, 0:06:06.320 --> 0:06:08.960 has a negative effect on financial performance. 0:06:08.960 --> 0:06:11.960 Obviously, does an aircraft make any money at all when 0:06:11.960 --> 0:06:12.880 it's sitting on the ground. 0:06:13.200 --> 0:06:15.159 None. No, it spends money. 0:06:15.360 --> 0:06:17.760 And that's one of the other factors in all of 0:06:17.800 --> 0:06:21.880 this is to actually keep the aircraft on ground we 0:06:21.960 --> 0:06:26.800 call it AOG. To keep that position at twenty percent 0:06:26.839 --> 0:06:30.400 of the fleet has required us to spend a whole 0:06:30.440 --> 0:06:33.599 lot of money in the background to maintain it there. 0:06:33.760 --> 0:06:36.800 If we're not least triple seven aeroplanes or we've leased 0:06:36.839 --> 0:06:40.800 in twenty plus spare engines for the narrow body jet fleet, 0:06:41.080 --> 0:06:43.080 actually the ground at fleet would be much bigger than 0:06:43.160 --> 0:06:46.160 it is. But that's a huge impost on the business. 0:06:46.680 --> 0:06:49.960 We're getting some compensation for it, but in the round 0:06:50.120 --> 0:06:54.800 we're getting roughly thirty cents in every dollar it's costing us. 0:06:55.279 --> 0:06:58.920 So that's it's been a big drag on the business. 0:06:59.080 --> 0:07:01.120 I want to talk about that because presumably if it's 0:07:01.160 --> 0:07:04.200 a manufacturer of fault, it's not performing. I mean, obviously 0:07:04.200 --> 0:07:06.480 there's nothing like the Consumer Guarantees Act that's working here, 0:07:06.480 --> 0:07:09.080 there'll be some pretty serious litigation going on. Is this 0:07:09.120 --> 0:07:12.680 a negotiated settlement effectively between you and the manufacturers to 0:07:12.720 --> 0:07:15.800 achieve that or is it an advance on what might 0:07:15.840 --> 0:07:16.320 come later. 0:07:16.760 --> 0:07:21.680 No, it's a negotiated, ongoing settlement, so it's not full 0:07:21.720 --> 0:07:24.880 and final. As long as the problem persists, we hope 0:07:24.880 --> 0:07:27.600 to be able to negotiate more compensation, but it's not 0:07:27.640 --> 0:07:30.200 a given. And one of the reasons why it's more 0:07:30.280 --> 0:07:33.320 challenging than you think it might be is in New 0:07:33.400 --> 0:07:36.280 Zealand signed the contract on the Rolls Royce engines back 0:07:36.320 --> 0:07:39.920 in two thousand and four, so that contract was signed 0:07:40.040 --> 0:07:43.240 twenty one years ago, so we're out of any sort 0:07:43.280 --> 0:07:47.640 of traditional engine warranty period. Obviously, there are commitments in 0:07:47.680 --> 0:07:51.160 the contract keep us in a spares position, but really 0:07:51.200 --> 0:07:55.640 the terms of those arrangements didn't contemplate the environment that 0:07:55.800 --> 0:07:58.040 US and all these other airlines with the same engine 0:07:58.080 --> 0:08:02.680 type are grappling with. So the negotiated settlements we're doing 0:08:02.680 --> 0:08:06.400 the best we can, but it's not as straightforward. Does 0:08:06.440 --> 0:08:11.000 it probably should be, or or might look to a layperson. 0:08:11.960 --> 0:08:14.920 Does that change at all the kind of approach you 0:08:15.000 --> 0:08:18.960 have to how you'll handle engine fleet purchases these kinds 0:08:18.960 --> 0:08:20.360 of things in the future. Are you're going to mix 0:08:20.400 --> 0:08:22.080 things up a bit, Are you going to put better 0:08:22.160 --> 0:08:26.160 agreements in place? How does it change? It's a great question, Garth. 0:08:26.360 --> 0:08:29.280 I'm not sure you can put better agreements in place. 0:08:29.640 --> 0:08:33.680 If the engine manufacturers had to make good to the 0:08:33.760 --> 0:08:37.839 last dollar, all the losses incurred by these airlines around 0:08:37.880 --> 0:08:40.079 the world would probably go bankrupt themselves. 0:08:40.240 --> 0:08:42.959 So there's sort of a limit to how much they 0:08:43.000 --> 0:08:47.120 can cover. But I think if there's a lesson in 0:08:47.160 --> 0:08:47.600 all of this. 0:08:48.240 --> 0:08:51.480 There is. We were a very early move on the 0:08:51.480 --> 0:08:52.040 seven eight seven. 0:08:52.080 --> 0:08:54.559 We were actually the launch customer for that aeroplane end 0:08:54.559 --> 0:08:57.160 engine with A and A at that point the engine 0:08:57.160 --> 0:09:01.440 hadn't been built. And on the GTF the Pratz engine. 0:09:01.480 --> 0:09:03.880 It's a great engine, but we're a relatively early mover. 0:09:04.360 --> 0:09:06.960 If there was one thing you'd put sort of the 0:09:07.000 --> 0:09:10.560 internet in the institutional archive is maybe god a little 0:09:10.559 --> 0:09:13.520 bit later, wait until these things have got five or 0:09:13.559 --> 0:09:17.160 six years on wing and then pile into it. I 0:09:17.160 --> 0:09:20.280 think it's the lesson there in terms of sort of 0:09:20.280 --> 0:09:22.320 going back to the engine itself that we've got. They 0:09:22.360 --> 0:09:25.760 are good engines and When they're performing, they perform really well. 0:09:26.040 --> 0:09:28.440 We've got a bit of diversity going forward on the 0:09:28.480 --> 0:09:30.400 seven eight seven. We have both the roles and the 0:09:30.440 --> 0:09:32.520 gen X gen X on the new airplanes that are 0:09:32.559 --> 0:09:36.040 delivering starting to deliver from early next year. And we've 0:09:36.080 --> 0:09:39.400 got a mixture of the old V twenty five hundred 0:09:39.600 --> 0:09:42.040 and the GTF on the airbus fleet, so we do 0:09:42.200 --> 0:09:47.120 have a bit of diversification of technology across the airline. 0:09:47.559 --> 0:09:49.280 But so, how did you reach the view that you 0:09:49.320 --> 0:09:53.559 would have achieved substantially higher revenue without this problem. I 0:09:53.600 --> 0:09:55.360 think it was like one hundred and sixty five million 0:09:55.400 --> 0:09:55.880 was the figure that. 0:09:56.000 --> 0:09:57.199 It's meat of compensation. 0:09:57.679 --> 0:09:57.920 Wow. 0:09:58.160 --> 0:10:00.960 Yeah, So the actually the cost to us is in 0:10:01.080 --> 0:10:04.440 gross terms two hundred and fifty three hundred million, and 0:10:04.480 --> 0:10:09.520 that's a combination of a number of factors. One, we 0:10:09.600 --> 0:10:13.080 are flying at the moment the wrong aircraft types to 0:10:13.120 --> 0:10:16.000 the wrong markets. So we've got great big Triple sevens 0:10:16.040 --> 0:10:19.400 with huge premium cabins flying up to Japan, for instance, 0:10:20.000 --> 0:10:22.640 which is the wrong size aeroplane and the wrong cabin 0:10:22.720 --> 0:10:26.640 mix for that market. We've got higher variable operating costs, 0:10:27.040 --> 0:10:31.480 so that's expensive. We've got the cost of leasing extra 0:10:31.520 --> 0:10:35.440 aircraft in to keep the network intact to the extent 0:10:35.520 --> 0:10:38.160 we can. So we've got as I said, three triple 0:10:38.200 --> 0:10:42.280 seven three hundreds that we've rented in short term. By 0:10:42.280 --> 0:10:46.720 that I mean anywhere between three and six years, and 0:10:46.800 --> 0:10:51.000 so that's an expense. All of those aeroplanes are in 0:10:51.040 --> 0:10:55.720 a different configuration to our own, so we carry an 0:10:55.960 --> 0:11:02.160 entire bespoke parts pool for the aeroplane, different catering carts, 0:11:03.000 --> 0:11:06.080 the seats themselves have got different componentry on them, so 0:11:06.120 --> 0:11:08.920 we have to carry huge inventories of different components. 0:11:09.240 --> 0:11:10.720 So you've had to buy a whole bunch of spears. 0:11:10.800 --> 0:11:13.240 We have to do the millions of dollars of all that. 0:11:13.400 --> 0:11:16.080 And then on the narrow body jet type or jet 0:11:16.080 --> 0:11:18.840 fleet I alluded to before, we've had to keep the 0:11:18.840 --> 0:11:23.160 fleet flying. What we've got flying, we've had to leasen 0:11:23.840 --> 0:11:26.959 a huge number of spare engines. Normally we would have 0:11:27.080 --> 0:11:34.880 four spares in normal times. We are carrying twenty soon 0:11:34.960 --> 0:11:40.240 to go to twenty one, and these at enormous cost. So, 0:11:41.440 --> 0:11:45.320 without giving too many secrets away, the cost of renting 0:11:45.360 --> 0:11:48.920 these engines runs to up to a couple of one 0:11:49.000 --> 0:11:54.000 hundred thousand US dollars a month per engine, and that's 0:11:54.040 --> 0:11:57.360 before you start burning any time off the engine because 0:11:57.400 --> 0:11:59.960 there are life limited parts on it. So the total 0:12:00.120 --> 0:12:03.240 cost of that's enormous. So that's the second big issue. 0:12:03.600 --> 0:12:06.280 The third issue is because we don't know when this 0:12:06.400 --> 0:12:10.160 problems exactly when it's going to cure itself, and we 0:12:10.200 --> 0:12:13.880 want to be ready to fly the full network when 0:12:14.080 --> 0:12:18.880 the engine issue recovers. We're carrying most of the staff 0:12:18.920 --> 0:12:22.400 that we were carrying pre COVID in different parts of 0:12:22.440 --> 0:12:26.679 the business pilots, airports, engineering and maintenance. 0:12:26.960 --> 0:12:29.439 That has to be a lesson from COVID, surely, because 0:12:29.480 --> 0:12:34.199 I think as a company you lost a huge number 0:12:34.200 --> 0:12:37.160 of staff four right, so. 0:12:37.160 --> 0:12:39.319 You also we've got all the staff for that very reason. 0:12:39.400 --> 0:12:42.079 We've learned through the COVID that it's really hard, particularly 0:12:42.120 --> 0:12:44.760 in a country as small as this, with a highly 0:12:44.800 --> 0:12:48.800 specialized workforce. You can't just magic them up. So we've 0:12:48.840 --> 0:12:52.720 got everybody on deck, but we are flying twelve percent 0:12:52.920 --> 0:12:56.640 less capacity than we were in twenty nineteen. So there's 0:12:56.640 --> 0:13:00.320 a big scale this economy occurring there in the short term, 0:13:00.960 --> 0:13:04.559 but we are playing a long term game, so we're 0:13:04.600 --> 0:13:05.600 not chasing it down. 0:13:06.320 --> 0:13:09.080 We're prepared for the upswing. Lolocky, you've got a bit 0:13:09.080 --> 0:13:11.120 of a bank balance. They're a cushion the falls. 0:13:11.360 --> 0:13:12.160 It is helpful. 0:13:12.280 --> 0:13:14.440 We don't take it for granted though, and we certainly 0:13:14.440 --> 0:13:15.280 don't want to waste it. 0:13:15.440 --> 0:13:18.120 That's I mean, that's on top of a high cost environment, 0:13:18.120 --> 0:13:20.120 as I understand, where you're paying a lot more. What 0:13:20.400 --> 0:13:24.040 sort of extra costs are you carrying that everybody is 0:13:24.080 --> 0:13:25.199 facing if they're in the airline. 0:13:25.280 --> 0:13:28.400 Yeah, I think so everybody in the airline business is 0:13:28.440 --> 0:13:32.880 facing higher labor costs, although that that is starting to moderate, 0:13:33.000 --> 0:13:37.400 has moderated over the last year or two. Engineering parts 0:13:38.160 --> 0:13:45.200 and components are still incredibly expensive. Through COVID, the global 0:13:45.320 --> 0:13:50.640 aeronautical supply chain was interrupted badly. You've got you always 0:13:50.679 --> 0:13:54.560 think about Boeing, Eearbus, General Electric roles, but actually each 0:13:54.600 --> 0:13:58.880 of those big manufacturers have got huge supply chains of 0:13:59.120 --> 0:14:02.400 much smaller or organizations, a lot of whom or not 0:14:02.440 --> 0:14:04.040 a lot of whom, but a number of whom went 0:14:04.120 --> 0:14:09.280 bankrupt and COVID. You have got one customer might be Boeing. 0:14:10.040 --> 0:14:13.360 Boeing is not buying anything off you. 0:14:13.360 --> 0:14:14.520 You're on life support. 0:14:14.960 --> 0:14:18.000 So a lot of them disappeared from the landscape during COVID, 0:14:18.080 --> 0:14:21.080 and some of them haven't come back, and the ones 0:14:21.120 --> 0:14:25.440 that are back are inundated with demand can't keep up 0:14:25.440 --> 0:14:29.960 with it. So classic economics, supply demand even't got much supply, 0:14:30.200 --> 0:14:33.080 plenty of demand. Guess what that does to prices. So 0:14:33.120 --> 0:14:37.040 we're still seeing that increase materially, and we buy a 0:14:37.040 --> 0:14:40.720 lot of those parts and materials in US dollars, So 0:14:40.880 --> 0:14:45.360 the current exchange rate isn't helpful on that front either. 0:14:46.200 --> 0:14:49.280 But I think, gosh, why are you still shut up 0:14:49.280 --> 0:14:50.480 shop and go home kind of thing? 0:14:50.560 --> 0:14:52.480 Oh no, we love it. 0:14:52.840 --> 0:14:58.280 We're New Zealand's largest deer carrier. You know, we obviously 0:14:58.360 --> 0:15:03.480 the biggest oper domestically. We've got a big network domestically, 0:15:03.680 --> 0:15:05.400 we sort of cover just about everything. 0:15:05.920 --> 0:15:06.720 We've got some. 0:15:06.640 --> 0:15:11.120 Really good regional operators here Chats sounds a great barrier. 0:15:11.200 --> 0:15:12.680 More deals with them, you think coming out in. 0:15:12.760 --> 0:15:16.040 Origin they do some great jobs, sort of in some 0:15:16.120 --> 0:15:19.280 of the smaller ports, really good job. They're facing similar 0:15:19.280 --> 0:15:22.280 precures to us, and we're increasingly working with them where 0:15:22.280 --> 0:15:24.720 we can to just sort of help each other out. 0:15:26.000 --> 0:15:27.760 That govern announcement around I think it was like a 0:15:27.760 --> 0:15:30.200 thirty million dollar facility to try and help that in 0:15:30.320 --> 0:15:32.760 lining sort of enabling them to take it straight through 0:15:32.800 --> 0:15:35.760 to your service or whatever. Does that actually is that 0:15:35.800 --> 0:15:36.480 going to help it all? 0:15:36.560 --> 0:15:40.800 I think it will help. We shouldn't overstate the benefits 0:15:40.840 --> 0:15:42.200 of that, but it is beneficial. 0:15:42.240 --> 0:15:46.400 And does that make those smaller regional flights potentially more 0:15:46.520 --> 0:15:50.520 viable though smaller, it should help, yes, during christ down 0:15:50.600 --> 0:15:50.880 with it. 0:15:50.880 --> 0:15:53.480 It won't bring the costs down, but it might help 0:15:53.520 --> 0:15:55.400 with the revenue and loads. 0:15:56.480 --> 0:15:58.120 I mean, all this kind of comes back to what 0:15:58.160 --> 0:16:00.720 does it cost to fly around? I think I heard 0:16:01.080 --> 0:16:03.960 Greg saying, like anything under two hundred bucks, you're not 0:16:03.960 --> 0:16:04.880 really making any money. 0:16:05.160 --> 0:16:08.000 I think that's probably right. Little know in fact, but 0:16:08.120 --> 0:16:11.640 fun fact is the smaller the aeroplane in, the shorter 0:16:11.760 --> 0:16:15.000 the sect you're flying, the higher the seat cost. So 0:16:15.040 --> 0:16:17.720 we often get sort of asked questions why it costs 0:16:17.720 --> 0:16:20.760 as much to fly from Timaru to Gisbon as it 0:16:20.800 --> 0:16:25.720 costs to fly from sort of Auckland to Brisbane, for instance, 0:16:25.840 --> 0:16:29.600 or even further afield, And it's just scale economies. It's 0:16:29.600 --> 0:16:32.080 the same reason why it costs you a fortune to 0:16:32.280 --> 0:16:35.560 go on a scenic flight around Mount Koch and a 0:16:35.640 --> 0:16:39.360 six seater versus you know, flying in New Zealand from 0:16:39.680 --> 0:16:41.520 Dunedin to Auckland, you're. 0:16:41.360 --> 0:16:45.800 Just spreading the costs over over a much bigger base, 0:16:46.000 --> 0:16:48.400 the bigger the aeroplane gets. Because it's an era of 0:16:48.520 --> 0:16:52.520 pretty stiff competition. I mean, obviously there's renewed competition in 0:16:52.560 --> 0:16:57.440 the domestic marketplace as well. That must make things quite challenging. 0:16:57.480 --> 0:16:59.560 Yet again, yes it is. 0:17:00.040 --> 0:17:04.480 We've always had competition on domestic main trunk and that 0:17:04.520 --> 0:17:10.160 competition is as intense as it's ever been. We've got 0:17:10.440 --> 0:17:14.199 a great network, a great product. We're very proud of 0:17:14.240 --> 0:17:19.080 the service we deliver. We're motivated to that as affordably 0:17:19.240 --> 0:17:23.359 as we possibly can, working hard to ensure that we 0:17:23.400 --> 0:17:27.959 are price competitive. But we've got a very big, ubiquitous 0:17:28.000 --> 0:17:32.320 network in New Zealand and we're the only ones actually 0:17:32.400 --> 0:17:37.480 in the country that fly to virtually all of these places. 0:17:37.480 --> 0:17:39.320 The tough thing was some of the competition is the 0:17:39.320 --> 0:17:41.680 competition gets to pick and choose the ones that they 0:17:41.720 --> 0:17:45.679 want to go after us on and so therefore tend 0:17:45.680 --> 0:17:51.640 to restrict the flying to the biggest, most lucrative sort 0:17:51.640 --> 0:17:52.800 of markets in the country. 0:17:52.960 --> 0:17:55.199 Behind all of that are some very patient shareholders. And 0:17:55.200 --> 0:17:57.040 I'm not even talking about the Crown at this point. 0:17:57.160 --> 0:17:59.760 I mean, I think I'm not wrong in saying that 0:18:00.160 --> 0:18:03.520 the Any Zealand is probably the most held stock or 0:18:03.560 --> 0:18:05.920 one of the most held stocks on the shareses platform. 0:18:06.000 --> 0:18:09.400 It does seem to have quite a wide base. What's 0:18:09.480 --> 0:18:13.320 going on there because the results are, as you say, challenging. 0:18:13.600 --> 0:18:14.120 Is it right? 0:18:14.160 --> 0:18:15.239 Why people hanging on to it? 0:18:15.280 --> 0:18:15.879 Well, I don't know. 0:18:16.200 --> 0:18:17.960 We don't know whether people are hanging on to it 0:18:18.040 --> 0:18:20.400 or not. That we people buying and selling shares all 0:18:20.440 --> 0:18:20.760 the time. 0:18:20.840 --> 0:18:22.680 Well, you're selling home buying a few. At the moment. 0:18:23.200 --> 0:18:25.520 The buyback that's been going on, what are we about 0:18:26.040 --> 0:18:27.040 forty million dollars through. 0:18:26.880 --> 0:18:29.720 It's it's one hundred million dollar buy back, which we're 0:18:30.000 --> 0:18:32.120 sort of planning what we need to have to sort 0:18:32.119 --> 0:18:34.520 of finish by the end of the calendar year, and 0:18:34.560 --> 0:18:36.160 we're a bit over halfway through that. 0:18:37.280 --> 0:18:40.320 And reasonable prices. He would have to say at the moment, yes, 0:18:40.359 --> 0:18:43.680 that's right, Yeah, and that's obviously we wouldn't be buying 0:18:43.720 --> 0:18:46.520 shares back if we didn't think if we were confident 0:18:46.600 --> 0:18:48.840 in the in the long term, medium long term value 0:18:48.880 --> 0:18:49.399 of the company. 0:18:49.440 --> 0:18:52.400 There's no point in us buying shares back for more 0:18:52.400 --> 0:18:54.880 than we think they're worth. But we're in the middle 0:18:54.920 --> 0:18:57.320 of that process at the moment. We've got a capital 0:18:57.320 --> 0:19:00.800 management framework that we're working tightly within, and we just 0:19:00.920 --> 0:19:07.160 had some flexibility within that to give offer an opportunity 0:19:07.160 --> 0:19:08.320 for shareholders. 0:19:07.840 --> 0:19:10.360 That might want to sell in the buyback. The ability 0:19:10.400 --> 0:19:11.480 to do that. 0:19:11.080 --> 0:19:13.200 That comes at a cost. I mean, that's potentially funds 0:19:13.200 --> 0:19:17.280 that you could arguably use for to support a dividend policy. 0:19:17.280 --> 0:19:19.119 That's a lot that's more generous than what it is 0:19:19.160 --> 0:19:19.639 at the moment. 0:19:19.800 --> 0:19:22.400 So we've got a different way of dealing with the dividend. 0:19:23.320 --> 0:19:25.720 So the dividend policy we published a couple of years 0:19:25.720 --> 0:19:30.159 ago links it to earnings, which we think is appropriate. 0:19:30.480 --> 0:19:35.800 So it's anywhere between forty and seventy percent of rolling 0:19:36.080 --> 0:19:39.520 net profit after tax. So as earnings come under pressure, 0:19:40.040 --> 0:19:44.920 the dividend comes down. As earnings improve, the dividend goes up. 0:19:45.440 --> 0:19:51.800 But we treat decisions around buybacks entirely independently of earnings 0:19:52.080 --> 0:19:54.879 in the dividend policy, so the buyback is more a 0:19:54.920 --> 0:19:59.240 function of the strength of the balance sheet, our liquidity position, 0:19:59.760 --> 0:20:03.520 our capex profile, our gearing ratio, how much debt we've 0:20:03.520 --> 0:20:06.480 got in the business, and whether we've got the ability 0:20:07.800 --> 0:20:12.680 to thunder buy back while maintaining all our capital management metrics. 0:20:12.680 --> 0:20:17.359 So we the scope for the buyback program we're running today. 0:20:17.440 --> 0:20:19.040 But I think back to your thing around earnings and 0:20:19.320 --> 0:20:23.040 shareholders patients, which I think you know it's an important 0:20:24.200 --> 0:20:26.720 it's a very important question. We're obviously confident in the 0:20:26.760 --> 0:20:30.840 future of the organization, but short term earnings are under 0:20:30.880 --> 0:20:34.639 pressure and through sort of three reasons I've given some 0:20:34.680 --> 0:20:38.680 of them, but three things that make a successful airline 0:20:39.359 --> 0:20:43.560 generally you need some scale so the business. It always helps, 0:20:43.600 --> 0:20:46.199 particularly in a high inflation environment. It helps if the 0:20:46.280 --> 0:20:49.760 business is growing and we have plans to grow. We've 0:20:49.760 --> 0:20:53.359 got a great fleet plan we're getting We've just taken 0:20:53.440 --> 0:20:56.840 delivery of two new A three twenty one narrowbody jets 0:20:56.880 --> 0:20:59.120 and we're getting some seven eight sevens early next year. 0:20:59.240 --> 0:21:02.400 Five years late, mind, but they are arriving. 0:21:02.680 --> 0:21:04.160 But it's important to have growth. 0:21:04.400 --> 0:21:06.600 With twenty percent of the jet fleet on the ground 0:21:06.640 --> 0:21:09.520 at the moment, we haven't been able to pursue the 0:21:09.520 --> 0:21:11.679 growth agenda we would have liked, but that is coming. 0:21:12.440 --> 0:21:17.280 The second element of it is new technology. New aircraft 0:21:17.320 --> 0:21:23.000 technology generally or almost exclusively lowers the cost seek cost 0:21:23.280 --> 0:21:26.520 of traveling, and we can use that to either make 0:21:26.600 --> 0:21:29.800 fears more competitive and grow the top line end or 0:21:30.200 --> 0:21:34.359 bankerter's margin, usually some combination of the two. But with 0:21:34.480 --> 0:21:38.440 our very best aircraft ten or eleven of them grounded 0:21:38.440 --> 0:21:41.680 at the moment, we are not getting the fleet economics 0:21:41.680 --> 0:21:42.640 that we would have expected. 0:21:42.640 --> 0:21:44.160 We're paying for it. 0:21:44.200 --> 0:21:46.480 So we've got half a billion dollars worth of brand 0:21:46.560 --> 0:21:48.920