4 AIR NEW ZEALAND MEMBER v1:- Forward looking statements This presentation contains forward-looking statements. Forward-looking statements often include words such as “anticipate", "expect", "intend", "plan", "believe“ , “continue” or similar words in connection with discussions of future operating or financial performance. The forward-looking statements are based on management's and directors’ current expectations and assumptions regarding Air New Zealand’s businesses and performance, the economy and other future conditions, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Air New Zealand’s actual results may vary materially from those expressed or implied in its forward-looking statements. 2 A AIR NEW ZEALAND BUSINESS REVIEW AND STRATEGIC C). Christopher Luxon Chief Executive Officer A STAR ALLIANCE MEMBER Interim Highlights • Operating revenue $2.7 billion, (up 12%) • Earnings before taxation $457 million, (up 132%) • Net profit after taxation $338 million, (up 154%) • Operating cash flow $541 million, (up 43%) 457 Earnings before Taxation ($ million) 277 141 54 198 114 160 197 40 2012 2013 2014 2015 2016 4 Key drivers in our result • Demand exceeded record capacity growth – ASKs and RPKs up 16% and 17%, respectively • Passenger revenue up 16%, supplemented by robust cargo revenue, up 21% • Lower fuel price more than offset increased fuel volume • Economies of scale and business simplification drove incremental profitability of $106 million Capacity up 16% Demand up 17% Yield down 1.1%* Passenger revenue up 16%* * Excluding the impact of foreign exchange, yield decreased 4.6%, passenger revenue increased 12% and cargo revenue increased 11%. Cargo revenue up 21%* Fuel price down 44% 5 External dynamics support continued demand growth Tailwinds International Long-haul • Growth in overseas tourism (+10%*) • Strong USD makes New Zealand a relatively cheaper destination • Stable outlook for New Zealand economic growth Short-haul • Increase in short-haul leisure travel Headwinds • Increased long-haul competition driven by: – Strong tourism – Low fuel price • Increased competition on Trans-Tasman and Domestic routes • Domestic dispersal of inbound tourism Well positioned to respond to changing environment and grow the network profitably * Source: NZ Statistics, based on 12 months ending December 2015. 6 Significant progress on strategic priorities 1H16 highlights Realign our business for growth OUR STRATEGIC PRIORITIES Grow and develop markets MARKETS  Houston, Buenos Aires routes commenced Grow contribution from alliance partners  Initiation of revenue share alliance with Air China Grow, simplify and modernise our fleet  Three Boeing 787-9 aircraft delivered Simplify our business to drive down cost  Ordered 15 ATR72-600 aircraft for regional services CUSTOMER Grow a consistent and personalised customer experience  More than 2 million Airpoints members  Auckland and Sydney lounges completed PEOPLE Grow high performance culture and capability  Completed negotiation of 17 collective agreements TECHNOLOGY Unleash digital transformation  New Chief Digital Officer onboard EFFICIENCY 2014 Identifying 2015 Initiating 2016 Executing 7 Strategic priority: markets Grow & develop markets and contribution from partners 1H 2016 Progress Looking forward… • • 2H 2016 total capacity growth ~7% • Increased utilisation from Domestic network changes • • International long-haul capacity growth in 1H 2016 of 24% Successfully launched new international routes to Houston and Buenos Aires Partnership with Air China commenced in early December – Leveraging sales & distribution network to continue strong growth prospects in China • – Queenstown night flights commence – Schedule changes for better connectivity Launch of Ho Chi Minh City seasonal service commencing June 2016 8 Strategic priority: efficiency Grow and simplify the fleet 1H 2016 Progress Looking forward… • • Investment in modern, fuel efficient aircraft – Delivery of 3 B787-9s and 2 Domestic A320s • World-class modern fleet provides significant cost advantages – 13 A321/320 NEOs on order for Tasman & Pacific Island routes – Fuel efficient fleet supports growth profile of long-haul flights – Ordered 15 ATR 72-600s (11 replacement and 4 growth aircraft); took delivery of first one in December 2015) – Operational efficiencies including decrease from 5 pilot groups in 2013 to 3 pilot groups by FY2017 on the jet fleet Completed exit of Boeing 737-300 • Efficiencies combined with strong growth expected to achieve continued unit cost improvements 9 Strategic priority: customer Grow a consistent and personalised customer experience 1H 2016 Progress Looking forward… • Recognised as “Airline of the Year” for the third consecutive year by airlineratings.com • Lounge upgrades in Brisbane, Hamilton, Invercargill and Wellington regional • Airpoints loyalty programme membership surpassed 2 million, up 17%* • Continued development of loyalty partnerships • Completed flagship lounge upgrades in Auckland and Sydney • Refurbishment of Boeing 777-200s completed in December 2015 * Compared with December 2014. 10 Strategic priority: people Grow high performance culture and capability 1H 2016 Progress Looking forward… • Continued to attract top-tier talent • Jodie King appointed new Chief People Officer • Staff turnover remained at low levels (< 5%) • • High Performance Engagement between management, employees and their unions continued to drive results Continue to build upon relationships with employee representatives – Successfully negotiated 17 collective agreements 11 Strategic priority: digital Unleash digital transformation 1H 2016 Progress Looking forward… • Appointment of Avi Golan as Chief Digital Officer • Core focus of Digital team will be using technology to benefit our customers • Completed reorganisation of digital team • • Launched Airband™ for unaccompanied minor travel Reduce the pain points from the customer journey and enhance the experience • Improve productivity of Air New Zealanders to allow more time to focus on customers • Launched biometric baggage check 12 A AIR NEW ZEALAND FINANCIAL REVIEW Rob McDonald Chief Financial Officer A STAR ALLIANCE MEMBER Changes in profitability ?llb Passenger yield (49) Pasaenger capacily 231 T00 600 400 300 200 SERVICES mher 15 (53) Volume Cost (51) 252 Prime Revenue 53 247 I - (22) 3 6 (9) 2015 REVENUE LABOUR FUEL MAINTENANCE. SALES AND OWNERSHIP SHARE OF FX DNESTMENTS EARNINGS AIRCRAFT MARKETING COSTS ASSOCIATES MOVE MENTS BEFORE OPERATIUNS AND OTHER TAXATION AND EXPENSES PASSENGER 457 2015 EARNINGS BEFORE l4 Reduction in CASK* delivers $227m of value • CASK related to ongoing operations improved 11% • Average MOPS price decreased 44% from the prior period (from US$107/bbl to US$60/bbl) • Efficiencies from growth, fleet simplification and other cost saving initiatives drove $106 million of incremental profitability 12 0.50 CASK (cents) 11 10.87 (0.29) 10.58 (1.47) 0.19 (0.36) 10 9.44 9 8 * Operating expenditure per ASK. 1H 2015 CASK DIVESTMENTS 1H 2015 ONGOING OPERATIONS CASK PRICE FOREIGN EXCHANGE FUEL PRICE ECONOMIES OF SCALE AND EFFICIENCIES 1H 2016 CASK 15 CASK improvement CASK* • Improvements to cost structure driven by fleet simplification benefits • Over 3 years, CASK* improved 7% (excluding the benefit of fuel price movements) as a result of economies of scale and efficiencies 10.25 10.00 9.75 9.50 9.25 9.00 DEC 2012 DEC 2013 DEC 2014 DEC 2015 * Prior year CASK adjusted to the average fuel and foreign exchange rates for the six month period ending in December 2015 and excluding divested operations. 16 Domestic • Capacity growth of 11% • Strong performance with demand closely tracking capacity • Comprehensive domestic & regional network with over 400 flights daily serving 22 destinations across New Zealand • On time performance (OTP) was world class at 91.1% for domestic jet and 86.2% for regional turboprop aircraft for the 6 months to December 2015 Dec 2015 Dec 2014 Movement* Passengers carried (‘000s) 4,932 4,562 8.1% Available seat kilometres (ASKs, millions) 3,093 2,778 11.3% Revenue passenger kilometres (RPKs, millions) 2,465 2,241 10.0% Load factor 79.7% 80.7% (1.0 pts) 27.5 28.7 (3.9%)** Yield (cents per RPK) * Calculation based on numbers before rounding. ** Excluding the impact of foreign exchange, Domestic yield decreased by 4.5%. 17 Tasman & Pacific Islands • Capacity growth of 7% • Increased frequency of wide-body aircraft • Introduction of Premium Economy on select routes commenced in October with solid demand • International short-haul on time performance (OTP) 87.1% for the 6 months to December 2015 Dec 2015 Dec 2014 Movement* Passengers carried (‘000s) 1,859 1,718 8.2% Available seat kilometres (ASKs, millions) 6,024 5,624 7.1% Revenue passenger kilometres (RPKs, millions) 5,046 4,681 7.8% Load factor 83.8% 83.2% 0.6 pts 12.2 11.9 2.7%** Yield (cents per RPK) * Calculation based on numbers before rounding. ** Excluding the impact of foreign exchange, Tasman & Pacific Islands yield increased by 1.6%. 18 International • Capacity growth of 24% • Commenced new routes to Buenos Aires and Houston in December 2015 • Announced new Ho Chi Minh City seasonal service beginning June 2016 • International long-haul on time performance (OTP) 78.8% for the 6 months to December 2015 Dec 2015 Dec 2014 Movement* 966 764 26.4% Available seat kilometres (ASKs, millions) 10,868 8,758 24.1% Revenue passenger kilometres (RPKs, millions) 9,353 7,477 25.1% Load factor 86.1% 85.4% 0.7 pts 10.8 10.6 2.0%** Passengers carried (‘000s) Yield (cents per RPK) * Calculation based on numbers before rounding. ** Excluding the impact of foreign exchange, International yield decreased by 5.2%. 19 Cargo • Robust revenue growth driven by strong volumes and improved yields • Capacity increases and new routes allowed for increased volume • Growth particularly strong on Pacific long-haul and into Singapore Volume up 9% Revenue Yield up 21% up 1.6% Foreign Exchange up 10% 20 Strong operating cash flow and balance sheet provide flexibility Operating cash flow ($m) 722 541 146 1H 326 343 2H 1H 2012 430 407 378 300 2H 2013 1H 2H 2H 1H 2014 1H 2015 • Net cash on hand of $1.4 billion, up 6% from 30 June 2015 • Operating cash flow $541 million, up 43% over prior period • Gearing moved to 53.8%, up slightly from 52.4% at June 2015 due to additional debt and dividends offset by earnings • Fully imputed interim dividend of 10.0 cents per share, an increase of 54% on the prior year • Stable outlook Baa2 rating from Moody’s 2016 Dividends (declared) (cents per share) 20.0 16.0 5.5 2012 10.0 8.0 2013 2014 Interim Final 2015 Special 2016 21 Aircraft capital expenditure Aircraft capital expenditure 1,000 • Expected investment of ~$2.3 billion in aircraft and associated assets over the next 3.5 years $ millions 800 600 • Assumes NZD/USD = 0.65 400 • Includes progress payments on aircraft 200 0 2016 2017 2018 Fleet on order Aircraft 2019 Number in Number existing fleet on order Delivery Dates (Financial Year) 2H 2016 2017 2018 2019 Boeing 787-9 6 6 - 3 2 1 Airbus A320 28 2 1 1 - - - 13 - - 3 6 10 19 3 2 4 5 Airbus A320/A321 NEOs* ATR72-600 * Excludes orders of up to five A320/A321 NEOs with purchase substitution rights. 22 Hedging Fuel hedging* Fuel hedges* 1,750,000 – Participated in 82% of available fuel decline in 1H 2016 • 2H 2016 is 71% hedged • 1H 2017 is 56% hedged Volume (bbls) – 1H 2016 MOPS price of US$60 compared to US$107 in 1H 2015 $60 1,500,000 1,250,000 $50 1,000,000 $40 750,000 500,000 $30 250,000 0 $20 FY16 Q3 Jan - Mar FY16 Q4 Apr - Jun Volume FY17 Q1 Jul - Sept Brent Collar Ceiling Price FY17 Q2 Oct - Dec FY17 Q3 Jan - Mar Brent Collar Floor Price U.S. dollar hedging • 2H 2016 hedges for US$325 million at a NZD/USD rate of 0.73 • 2017 hedges for US$295 million at a NZD/USD rate of 0.66 * Fuel hedging as at 16 February 2016. 23 US$ • Average decline of jet fuel price per barrel of 44% during the period A AIR NEW ZEALAND OUTLOOK Christopher Luxon Chief Executive Officer A STAR ALLIANCE MEMBER Outlook • External factors that can influence outlook for second half of the year include fuel prices, foreign currency rates and competition • Based upon current market conditions and assuming current fuel prices and foreign exchange rates, we are targeting earnings before taxation for the full year 2016 to exceed $800 million • This outlook excludes equity earnings from our Virgin Australia shareholding 25 Capacity Outlook 2H 2016 2017 (preliminary) ~+7% +8% to 10% total capacity total capacity Short-haul: ~+5% Short-haul: ~+6 to 8% Long-haul: ~+9% Long-haul: ~+8 to 10% 26 Thank you ?llb A AIR NEW ZEALAND SUPPLEMENTARY SLIDES A STAR ALLIANCE MEMBER Financial overview Dec 2015 Dec 2014 Movement Movement $M $M $M % 2,698 2,403 295 12% Earnings before taxation 457 197 260 132% Net profit after taxation 338 133 205 154% Operating cash flow 541 378 163 43% 1,400 1,321 79 6% 53.8% 52.4% n/a (1.4 pts) 10.0 cps 6.5 cps 3.5 cps 54% Operating revenue Net cash position* Gearing* Interim ordinary dividend** * Comparative is for 30 June 2015. ** Dividends are fully imputed. 29 Group performance metrics Dec 2015 Dec 2014 Movement* Passengers carried (‘000s) 7,757 7,044 10.1% Available seat kilometres (ASKs, millions) 19,985 17,160 16.5% Revenue passenger kilometres (RPKs, millions) 16,864 14,399 17.1% Load factor 84.4% 83.9% 0.5 pts 13.7 13.8 (1.1%)** Yield (cents per RPK) * Calculation based on numbers before rounding. ** Excluding the impact of foreign exchange, yield decreased by 4.6%. 30 Projected aircraft in service • 5 ATR 72-600 aircraft expected to be delivered in the next 6 to 9 months • Beech 1900Ds exiting by September 2016; Boeing 767-300ERs exiting by calendar 2017 Aircraft fleet age in years 2017 2018 2019 Boeing 777-300ER 7 7 7 7 Boeing 777-200ER 8 8 8 8 Boeing 787-9 6 9 11 12 Boeing 767-300ER 4 2 - - 29 30 25 18 - - 6 13 ATR72-600 13 15 19 24 ATR72-500 11 11 8 3 Bombardier Q300 23 23 23 23 3 - - - 104 105 107 108 Airbus A320 Airbus A320/A321 NEO Beech 1900D Total Fleet 9.2 (seat weighted) 9.1 7.8 age in years 2016 7.5 7.5 6.7 6.2 2013 2014 2015 2016 2017 2018 2019 31 Fuel hedging* Volume Ceiling Floor (bbls) (USD) (USD) 2H 2016 Brent collars 2,917,500 50.68 36.46 1H 2017 Brent collars 2,537,500 41.07 26.05 2H 2017 Brent collars 200,000 42.13 27.13 * Fuel hedging as at 16 February 2016. 32 A AIR NEW ZEALAND MEMBER vi:-