Air New Zealand Limited (AIR) Earnings Call Transcript & Summary

Welcome to Air New Zealand 2026 Annual Results Investor Briefing. [Operator Instructions] And with that, I will turn the call over to Andrew Fenton, General Manager, Corporate Finance. Please go ahead.

Good morning, everyone, and thank you for joining us for Air New Zealand's 2026 Annual Results Presentation. Today's presentation is being webcast and recorded and a copy of the presentation and associated materials are available on our Investor Center website. Just a reminder that our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual results. We ask that you read through the disclaimer and in particular, the forward-looking cautionary statement provided on Slide 2 of the presentation. Joining us today are our Chief Executive Officer, Nikhil Ravishankar; our outgoing CFO, Richard Thompson; and our new CFO, Kris Cudmore. We'll begin with an overview of the year and the progress we've made since outlining our strategy reset in June. We'll then take you through the financial performance in more detail before finishing with the outlook for 2027. Following the presentation, we'll open the line for questions. With that, I'll hand over to Nikhil.

Kia ora, everyone, and thank you for joining us. When I took on the Chief Executive role late last year, I set 5 immediate priorities for the business. First, improving operational reliability and punctuality. Second, getting grounded aircraft and engines back into service as quickly as possible. Third, accelerating the cost improvement the business needed alongside resetting our executive portfolios and organizational structure; fourth, developing a new strategy and aligning our operating model behind it. And fifth, stepping up our advocacy for a fair, affordable and future-focused aviation system for New Zealanders. We have made significant progress against each of those priorities, but recognize that progress needs to translate into stronger financial performance. Financially, FY '26 was a very difficult year. Our financial performance was significantly and adversely impacted by high fuel prices. This came on top of the ongoing impact of engine availability issues and maintenance and aviation system cost pressures. We're not satisfied with that outcome, and our retention is firmly on improving it. First, the operational performance of the airline in terms of reliability and punctuality improved significantly throughout the year with on-time performance in the top decile amongst global comparable airlines. This is the result of an extraordinary effort from Air New Zealanders across the business. Second, our team has worked relentlessly with Rolls-Royce and Pratt & Whitney to return grounded aircraft to service earlier than expected, and aircraft availability improved by the end of the financial year. There are still residual risks and costs to work through, but we entered 2027 in a considerably more reliable fleet position than we had in the last 2 to 3 years. Third, we continue to make progress on the things we can control and are accelerating the cost improvement at pace. We have delivered $94 million of incremental transformation benefits during the year, and we now have identified an additional $135 million of annualized savings, including both direct and indirect costs which will accrue from the 2027 financial year to improve our overall cost base and offset expected inflation. This is an increase from the $100 million identified annualized cost savings previously announced in May, and this work is ongoing. And fourth, we reset our strategy around 3 strategic pillars: customer first, targeted growth and resilient and future fit, to deliver sustainable returns to shareholders over time. The fifth will be a longer journey, but we continue to advocate for an affordable aviation system for all at New Zealanders. New Zealand aviation costs have risen at more than twice the rate of inflation since 2019. Air New Zealand and our customers' share of these aviation system costs across New Zealand and the offshore ports we fly to was $1.2 billion in 2026, a price increase of $142 million on 2025. 2026 was difficult financially, but it was also a year in which we've rebuilt our fleet, materially improved our operations and reset our strategy. Moving to Slide 6, and I'll provide a financial year 2026 review across key categories. Our financial performance the key impact on the result in our revenue drivers, operational improvements and loyalty and safety. We recorded a loss before tax of $336 million compared with earnings before tax of $164 million in the prior year and slightly better than the guidance range provided to the market in May 2026. Approximately $465 million of the profit before tax impact came from 3 areas, namely the ongoing global engine availability issues which had an impact net of compensation of approximately $190 million, fuel price, which had an adverse impact of $135 million in the year. From an initial fuel price impact of $328 million, our hedging protection recovered $123 million of this cost increase and through adjusting capacity and fares in response we've been able to mitigate about 1/3 of this post-hedged fuel impact, and an increase of $139 million in maintenance costs, excluding FX, driven by additional life cycle maintenance and maintenance costs on leased engines. Richard will go through each of these in more detail shortly. We carried around the same number of passengers as last year at 16 million passengers, while passenger revenue increased 4.8% to $6.1 billion, while [ RASK ] increased 3.4% and it was not enough to cover the significant increase in fuel cost with about 30% of increased fuel price recovered through mitigating capacity and fair activities from March through to June. Given the price sensitivity of air travel, airlines globally have not been able to recover the full increase in fuel costs. We took quick and decisive action through fair adjustments and capacity reductions to balance affordability for customers and maximize recovery and will continue to do so. Capacity increased 1.3%. And while above prior year, second half capacity was about 5% below our original plan as we adjusted to the sharp increase in the jet fuel price for March. Thanks to a range of initiatives we're putting in place and our team's dedication, our customer and operational metrics continue to move in the right direction. Our on-time performance increased to 84% in the second half of the year, up from 77.5% in 2025 and in the global top decile amongst comparable airlines. Our rebranded [indiscernible] loyalty program and the new multi-tier membership are resonating well with our customers with 5.4 million loyalty members, up 8.3% on 2025. Safety will always be our utmost priority. We are proud to be awarded airlineratings.com 7-star plus safety rating in 2026. Moving to Slide 7 and the step change of what the return of grounded aircraft means to the airline. At the peak of the engine disruption, 5 of our 14 Boeing 787s and 6 of our Airbus A320 and A321neo aircraft were grounded, almost 20% of our total jet fleet. This created disruptions for our customers, operational complexity and significant financial cost. We carried the fixed cost of aircraft, people, infrastructure and systems, and we incurred additional costs through leased aircraft and engines to protect the network and schedule. We missed out on the cost per seat efficiency of these newer aircraft types, which are about 10% to 20% lower than the older generation aircraft despite incurring the cost of owning these new aircraft. While we received some of the compensation from engine partners, this was not enough to offset the financial costs incurred. Today, the picture is very different. The last 787 was returned from long-term storage in June, an incredible milestone and a huge thank you to our teams around the business who [ perciviate ] to make this happen sooner than expected. And on the narrow-body fleet, we expect the last of these to return to service during calendar year 2027. There are still residual risks to availability through 2027, and we're still carrying the cost of temporary leased aircraft and engines in the system. It takes time to bring returning aircraft fully into the selling and operating schedule. We are in continuous discussions with both Rolls-Royce and Pratt & Whitney on extending compensation. While risk remains the fundamental point is that the fleet constraint, which has shaped this airline over the last 3 years is materially reducing and the airline enters 2027 in a considerably more reliable fleet position. This gives us more options around capacity, network deployment and operating efficiency. When we announced our future in June, we set out 3 strategic priorities: first, customer first providing safe, reliable and punctual service for our customers, delivering unique key service and innovative products and increasing customer reach and sales with smarter, more relevant offers. We're expanding on our operational and resilience driven review of clean sheet scheduling onto our [ transtasman ] Pacific and long-haul networks to further improve reliability and punctuality. We're investing in our service proposition and lounges grounded in our unique Kiwi hospitality, improving disruption management and continuing to modernize the way we market to customers and how they buy from and interact with Air New Zealand. Second, targeted growth, targeting profitable network growth, transforming our loyalty program in line with industry-leading practice and diversifying our revenue streams. This includes inbound premium leisure on our long-haul markets with new 787 and A321neo aircraft that are fit for mission, strengthening our hub and alliance network growing our SME corporate and enterprise position, particularly on regional and domestic networks, transforming loyalty and expanding flight adjacent revenue. And third, resilient and future fit. That means removing cost and complexity, improving labor productivity, transforming engineering and maintenance, developing a financially sustainable regional network unwinding the temporary inefficiencies created by fleet disruption and delivering on our capital management metrics. We are well underway with our ongoing transformation program. alongside work to build a financially sustainable regional network and deliver against our capital management metrics. On to Slide 9 and pleasingly, the customer-first strategic initiatives we are putting in place are already delivering benefits for our customers. Before a customer experiences a new seat, a lounge or a digital feature, they need to trust us to get them where they need to be safely, reliably and on time. Our on-time performance increased from 77.5% in 2025 to 84% in the second half of 2026. Customer satisfaction increased from 83.6% to 84.5% and controllable cancellations reduced from 2.2% to 1.3%. These are very significant improvements and have been the result of a detailed operational and resilience driven review of our schedule that included a focused program of initiatives across our team and the rollout of new digital tooling in support of operational communication and decision-making. We continue to invest in this area with the goal of being 1 of the top 5 airlines in the world for reliable and punctual operations. We have retrofitted 9 out of 14 of our Boeing 787 fleet, and the new interior product is resonating very well with our customers. The remaining 787 fleet fit out will be completed by November this year, slightly ahead of schedule. Finally, our automated passenger rebooking technology is transforming how we reaccommodate passengers when disruptions do occur, taking most rebookings from hours to under 20 minutes, even on our largest aircraft. Customers get certainty and control over their journey much sooner, enabling our people to focus on complex journeys and those who need extra care. There is more to do but the direction of travel is encouraging, and our customers are noticing. The demand picture across the network was mixed, but we're seeing solid inbound volumes continuing the trend of 2025 and the first half of 2026. Across Asia, overall passenger growth was flat, but with higher inbound passenger volumes. Premium cabin mix and revenue growth was particularly strong in the fourth quarter. Passenger capacity and cargo volumes were impacted in the second half of the year, and we manage capacity in [ RASK ] to mitigate the surges in fuel price. North America also delivered flat inbound volumes, although outbound New Zealand sales remained softer, in part reflecting the weak New Zealand dollar. Capacity held flat during the year, up 1% but was lower than planned for the second half and with softer yield and RASK recovery. Tasman and Pacific Island passenger volumes grew, mainly supported by strong inbound volumes out of Australia. Domestic demand remains challenging. Passenger demand was down and the New Zealand economy remained soft. We have been disciplined in matching capacity to demand and where appropriate, using yield to respond to the higher fuel environment. More generally, we continue to see encouraging trends in product and cabin mix with premium cabin revenue increasing by 14% and ancillary revenue by 12%. In 2026, we delivered transformation initiatives, generating an incremental $94 million of EBITDA benefits in 2026 against 2025. That has come from a broad range of initiatives. Next-generation revenue management is now operating across the network, and we have increased direct ancillary buy-ups. We've improved contact center efficiency, including through AI-powered live chat. We've replatformed and rebranded our loyalty program to Core, renewing our successful long-standing strategic partnership with Westpac, continuing to deliver great value to our customers and providing ways to accelerate their core rewards through banking. And we have introduced automated disrupt rebooking and improved cargo revenue management. We're building on this program of work under our future, which applies a sharper lens around customer first, profitable growth, cost and capital. Before I hand over to Richard Thompson, who will run through the financials, I'd like to take a moment to thank him for his nearly 6 years at the helm as Chief Financial Officer. Richard was instrumental during the airlines post COVID recovery, managing the recapitalization of the airline, the response to the various fleet availability challenges and most recently, a response to the fuel crisis. Richard, you are deeply respected across the company and will be truly missed.

Thanks, Nikhil, and good morning, everyone. I'll start with the financial summary on Slide 13 before talking to the major movements in the result. Operating revenue increased 3.9% to $7 billion, with revenue up 4.8% to $6.1 billion. Cargo revenue was broadly flat at $484 million. RASK increased 3.4% for the full year but part of this reflected the impact of the Middle Eastern conflict on fuel prices and in turn, the capacity and airfare responses in the second half. These actions were not enough to recover the 31% increase in fuel cost in the second half versus the second half of 2025. The significant increase in costs, including fuel the cost of engine availability issues, increased maintenance costs and aviation system costs, all materially impacted the bottom line. Despite the loss before taxation of $336 million for the year, operating cash flow remained positive at $819 million compared with the $940 million in the prior year, with cash flow in the second half of the year boosted by improved transportation sales in advance. We finished the year with $1.6 billion of liquidity, slightly above our target range of $1.2 billion to $1.5 billion. Net debt-to-EBITDA increased to 3.8x higher than our target ratio of between 1.5x and 2.5x, reflecting a combination of lower EBITDA $511 million in 2026 compared to $939 million in 2025 and higher net debt compared to the prior year due to increased capital expenditure, particularly in the first half. I'll talk about net debt in more detail shortly. And consistent with our capital management framework, no final dividend has been declared. The waterfall graph on Slide 14 shows the biggest impact on this year's result compared to 2025. Revenue and other income were better overall, including the benefit of higher RASK, but this really only increased in the second half of the financial year as we manage capacity and fears in response to the higher fuel price environment. This was partially offset by $39 million less in engine-related compensation in 2026 within other income. However, the overall increase in revenue was more than offset by significant increases in fuel, engine availability, maintenance and aviation system costs, and I'll go through each of these in turn on the next few slides. But as you can see from the graph, fuel price was the single biggest impact. Nonfuel costs experienced modest general price inflation, but as discussed earlier in the year, aviation system costs increased at a much faster rate. The transformation benefits Nikhil discussed are already included in these numbers. Without them, the result would clearly have been weaker still. Slide 15 details the 3 major transitory impacts on 2026. And which we expect to unwind progressively in the coming years. Together, the impact of engine delay issues, the Middle Eastern conflict and fuel crisis and increased maintenance costs had an adverse impact on earnings of approximately $465 million. We estimate that the engine delay issues contributed approximately $190 million of that additional cost, net of compensation compared to $165 million in the prior year. We expect a financial impact of between $70 million and $90 million in 2027, from a combination of continuing lease commitments related to engine issues and available aircraft not able to be fully utilized [indiscernible] fuel crisis. The Middle East crisis increased our fuel bill by approximately $328 million compared to what we expected going into the second half and by $205 million after the benefits of fuel price hedging. We reacted quickly and decisively adjusting capacity and fares and response, mitigating about 1/3 or $70 million of that impact. resulting in an estimated net impact of $135 million on the pretax result compared to expectations. As indicated this time last year, 2026 was a higher-than-normal year for aircraft maintenance. The cost increase of $139 million, excluding FX, was attributable to increased activity the timing of life cycle maintenance events and additional maintenance on leased engines in particular. We expect aircraft maintenance costs to be between $50 million and $100 million lower in 2027 than in 2026. The fourth impact during the year in one area that is concerningly not unwinding is aviation system cost inflation. While price inflation is moderating across most line items, the cost of operating within the New Zealand aviation system continues to increase materially faster than general inflation. In New Zealand and our customers share of these aviation system charges across New Zealand and the offshore ports we fly to, was $1.2 billion, a price increase of $142 million on 2025. Of this amount, approximately $720 million was recognized as a cost in our own financial statements, a price increase of approximately $83 million in 2026 compared to 2025. [indiscernible] aviation system cost inflation was approximately 14% for the year, compared to all other nonfuel cost inflation of around 3%. In particular, price-driven CAA safety and [ FSC security Levies ] increased by more than 90% in the current financial year. While CAA and [indiscernible] will not keep increasing at the same rate in 2027, landing charges are expected to continue increasing well ahead of CPI with some airport charges expected to increase by upwards of 10% during the 2027 financial year. We continue to advocate for an affordable and efficient domestic aviation system and pricing structure in New Zealand. Moving to Slide 17 and looking at these costs in more detail on a unit cost basis. The adverse pressures I've just mentioned are visible and all unit costs. Overall, reported CASK increased 10.4% compared to a RASK increase of only 3.4%. A significant component of the CASK increase was fuel price, which contributed [ $0.52 per ASK ]. Underlying CASK, excluding fuel and foreign exchange, increased 4.8%. The increased maintenance activity I just discussed represented roughly 1/5 or $0.32 per ASK of the increase and aviation system costs represented much of the balance. This is why restoring aircraft utilization matters so much, scale economies matter. As the fleet availability normalizes, we can restore scale, remove temporary lease and engine costs simplify the operation and spread the fixed cost base across more productive capacity. Turning now to Slide 18 and looking at net debt. Net debt increased materially in the first half of the financial year from $1.1 billion at 30 June 2025 to just under $2 billion at 31 December 2025. You can see from the graph that this was as planned and driven by a step-up in capital expenditure on aircraft, aircraft interior retrofits and capitalized engine maintenance. Operating cash flow was solid in the second half despite the reported P&L loss. While EBITDA was soft, we have seen forward bookings strengthen since late May, increasing sales and advance. As a result, we ended the second half with net debt at approximately $1.9 billion, slightly less than at the half year. Our leverage metrics are clearly above the target range, and the Board and management are committed to restoring our capital management metrics. The key driver will be returning near line to profitability and improving EBITDA. That reinforces the approach we are taking to aircraft deliveries and capital allocation. We will continue to adjust investment with demand, returns, balance sheet capacity and operational readiness. With that, I will hand you over to Kris Cudmore, the airline's new CFO and Nikhil for some closing comments on the outlook.

Thank you very much, Richard. First, I'll discuss our future fleet investment profile, our capacity expectations, fuel and FX hedging then financial outlook before handing back to Nikhil for closing remarks. Turning to Slide 20, fleet investment. The key decision we have taken is to smooth the aircraft investment profile in the near term and to bring it down medium term. The delivery profile of the new Gen X powered 787s has been fluid for some time. Following the most recent delays of 2 of these 787s from earlier this year to later this year and a quicker-than-expected return of grounded wide-body aircraft. We are in active negotiations with Boeing to rephase the delivery profile to smooth capital investment and realign fleet deliveries with our targeted capacity growth. We want the right aircraft, but we also want them at the right time. The program also includes completion of the remaining Boeing 787 retrofit by the end of calendar year 2026 and the commencement of the 777-300 ER cabin refresh in early 2027. The remaining investment across those 2 cabin programs is approximately $200 million over the next 2 years. In the 2027 financial year, we expect to see incremental depreciation of between $110 million to $130 million compared to 2026. And this is also subject to our Boeing negotiations. Turning to Slide 21, capacity outlook. Our 2026 capacity was approximately 10% below pre covered levels. But as aircraft return and new aircraft arrive, capacity begins to recover in 2027. We currently expect group capacity to increase between 2% and 4% year-on-year. Domestic capacity is expected to be broadly flat year-on-year with the first half affected by fuel-related reductions, balanced with the expected delivery of 2 A321s later in the financial year. Tasman and Pacific Island capacity is expected to increase between 3% and 5% with the increase in wide-body aircraft availability and supported by new route development, particularly Christchurch to Perth and Auckland to Western Sydney. International long-haul flying is expected to increase around 2% to 4%. This reflects returning wide-body aircraft and new 787 deliveries, offset by completion of the retrofit program and the lower levels of profitable utilization due to the fuel crisis. Some additional capacity will be deployed into new services, including [indiscernible] to Tokyo and to Singapore. This new lower-cost Christchurch hub option for New Zealand is something we're very excited about. Now on Slide 22, fuel and FX. Fuel remains the single largest area of uncertainty in the outlook. Our hedging program provides some nearer-term protection, but it is far from a complete solution. As of 14th of August, approximately 80% of our estimated '27 first half fuel volume was hedged on Brent crude and 38% for the second half of '27, across the full year that represents approximately 60% of expected volumes. Similar to many airlines, we have traditionally hedged almost entirely through Brent crude instruments, but now we have an overlay of approximately 20% of crack spread swaps to help partially manage basis risk in the first half. The chart illustrates the sensitivity of our total fuel costs to changes in Singapore jet fuel prices. assuming an average jet fuel price of USD 130 per barrel, our 2027 fuel cost would be approximately NZD 2.1 billion. Foreign exchange is also partially hedged, particularly our U.S. dollar exposure, and we are 60% hedged for the 2027 financial year at USD 0.59. Now turning to Slide 23 for our outlook. Prior to the Middle East conflict, the airline expected in its central case to return to profitability in the 2027 financial year, reflecting the underlying improvements in the business. Given the continued uncertainty surrounding the conflict, the volatility of jet fuel prices and with jet fuel currently in the region of $140 to $150 per barrel. The airline is not in a position to provide earnings guidance for the 2027 financial year at this time. Beyond fuel, the major factors that impacted the 2026 financial result are expected to continue to have some impact in the '27 financial year, albeit to a lesser extent. Disruption from engine availability is reducing substantially as aircraft return to service. However, there remains an estimated financial impact of between $70 million to $90 million in '27 for a combination of continuing lease commitments related to engine issues and available aircraft not able to be fully utilized due to the fuel prices. We expect maintenance costs to be $50 million to $100 million lower in 2027 than in 2026. The Aviation system costs continue to rise well above inflation, with airport charges expected to increase by upwards of 10% at some ports during the 2027 financial year. The airline expects the 2027 financial year to be both a transition and a recovery year with operational performance continuing to improve even as elevated fuel prices weigh on profitability. We also expect the range of initiatives we have implemented in response to the currently elevated fuel cost will contribute to offsetting a larger portion of the elevated cost of fuel compared to the prior year. And with that, I'll now hand back to Nikhil to close the call.

Thank you, Kris. This has been another demanding year for Air New Zealand, and our people have continued to rise to the challenges we have faced. I'm incredibly proud of the commitment, professionalism and care they have shown for our customers and for each other. There is more work ahead, but we enter the new financial year with a clear strategy, a strong operation and confidence in the future of Air New Zealand. We're seeing encouraging inbound demand with strong forward bookings into New Zealand. This is a positive signal for tourism and for the country more broadly, and it is pleasing to see the work we've been doing to stimulate demand in our key international markets contributing to that momentum. New Zealand remains a highly desirable destination and our investment in our onboard product and unique kiwi service and hospitality puts Air New Zealand in a strong position to bring more international visitors to our shores. Our customers remain at the heart of everything we do. We will continue to work hard to maintain and improve our operational performance while delivering the exceptional product and service experience our customers expect from Air New Zealand. We have one of the most valuable brands in New Zealand. We have the strongest loyalty program. We consistently ranked one of New Zealand's most attractive employers and we are back to commanding strong customer preference. We remain focused on executing our strategic priorities, improving financial performance and positioning the airline for long-term sustainable returns. Thank you. With that, we'll open the line for questions.

[Operator Instructions] First, we have Andy Bowley from Forsyth Barr.

A few questions from me. The first of which I -- just curious around Slides 22 and 21 in the [indiscernible] around the overall fuel cost guidance, I guess, a $2.1 billion and then the capacity growth that we're anticipating in 2027. And the question really revolves around -- I think, Kris, you had the comment that in the first half, domestic we'll see fuel-related reductions. And I'd imagine that there's other fuel-related reductions across the capacity backdrop, particularly for the first half. But I guess the question is, are the 2 slides consistent is that capacity backdrop that we're anticipating for 2027 predicated on the $2.1 billion in terms of fuel costs.

[indiscernible].

Thanks, Nikhil. And yes, I mean, it should be. We are taking down capacity versus what we would have done because of the fuel crisis. So yes, I mean we're continuing to evaluate that as you expect. It's sort of -- it's not something that changes on a dime. We reviewed the Northern winter schedule this morning. And we're in the middle of reviewing the Northern summer schedule with an initial view today. So what we've given you is as close to hot off the price as we can.

And in terms of then splitting that between first and the second half for 2027, can we assume that the plus 2% to plus 4% for group is going to be lower in the first half?

Andy, Richard here. I think the slightly lower in the first half than the second half. All I am conscious of the fact that we've got a number of these new long-haul routes launching in Northern Winter. And so we'll see pretty constrained capacity from now through to end of October, mid-November, December, we're flying quite a bit more. And we've sort of kicked our powder dry, I endorse the comments Kris has made. We'll see where the fuel crisis is heading -- and to Kris's point, sort of evaluate reevaluate what we're operating, if need be in the fourth financial quarter of the year, probably later in the first half. But at the same -- for the purposes of your modeling assumptions, it's sort of a 50-50 split really between the first and second half.

Great. And maybe just on fuel, I recognize that the fuel crisis is only kind of 6 months in or so. But how are you thinking about fuel cost in a strategic sense? What is normalized from a cost point of view within the wider business model, what's that business model predicated on? And I guess, how do you -- so far, we've see technical or tactical changes to date, but at what stage do you anticipate that they would become structural or what would need to change for those to become structural within the business?

Yes. Thanks, Andy. I think -- it's worth thinking about it this way. This is sort of how it's playing out, and we don't have years of data, of course. But in real time, when there is a fuel price spike, the amount of fuel price that we can recover in the first instance is teeters around sort of the 20% to 30% mark. And the longer that fuel price stays there, i.e., there is a degree of stability, then our ability to recover more increases and shifts either in fuel price in either direction means that cycle starts all over again. We are looking at calibrating the operations for fuel price somewhere between $120 and $160 and the measures we are taking though tactical balancing, maximizing recovery with demand elasticity. But we're also thinking about what we would have to do if the fuel price went north of that, say, north of $160, $170. Of course, it's hard to tell what fuel price is going to do at any point in time. But what's encouraging to see is the approach that we are taking is consistent with what's happening around the world. And we are recovering fuel price at the same levels as what we're seeing others managed to recover in their respective markets. If you think of fuel price recovery at this moment, we're recovering anywhere between 40% to 60% of the current fuel price. And as I said, as those fluctuate, the recovery rates fluctuate with it.

That's helpful. But maybe on that $120 million to $160 million level that you're calibrating the business for, can you be profitable with fuel prices even as high as that $120 million?

We're in a situation now where if that were to persist, there are actions that we can take to get to profitability at those levels. But for everyone's sake, we're, of course, hoping that fuel price returns back to some semblance of normal.

And by that, do I take that you mean there needs to be some further structural changes in the business to be able to [indiscernible] that?

Too early to say Andy. We're working through it. if there are -- if fuel prices remain elevated, then we do have to look at the capacity lever quite seriously, and we are. Sorry, Chris, do you want to add.

Yes. Thanks, Nikhil, I think it's sort of a shape and valving, Andy. So if the market was to stay at [ 120 ] for all time from here, I think did the market just adapts and we'd be profitable again as quickly as you'd expect us to be profitable given the other things that are going on in the business. It's the upwards of all in particular, that hurts us, as you know. At fuel prices of [ 200 ] or more, you've got a different situation, but we're nowhere near that at the moment, thankfully. So yes, we'll continue to adapt.

Okay. Great guys. Let's just back to the comment, Richard, that you made around forward booking strengthening from late May. And I guess we were deep in the first part of the fuel crisis at that stage. Could you talk to forward bookings where they are today on a kind of a sector by sector or business segment by business segment perspective, and particularly against the prior year, please?

Yes. I can give you the risk of giving you generalizations on that, just reinforcing some of the comments that we've made. Domestic demand -- 2 things in domestic. In the early part of the sort of fuel crisis to reiterate the point, Nikhil, we put prices up in immediate response to the fuel price increases. We saw almost, in some cases, more than unit elasticity. We saw volumes drop off as fast as we were putting prices up. Since May, that has stabilized significantly. And although we're flying fractionally more now and planning to fly -- sorry, we're flying fractionally less now and planning to fly flat 2% less over the course of the financial year, we are seeing fares starting to stick now. And so the recovery rate Kris's point, are improving very much domestically. For outbound international long-haul international, the market is still very soft. So we are seeing some price increases working their way through, but volume is flat, in some cases, down. And we're particularly exposed to that at this time of year. where the inbound market, we're a seasonal market for tourism, the inbound market is smaller seasonally than it normally is, as you well know, -- and we normally look to New Zealand outbound demand to fill the airplanes in the sort of fourth or third trimester fourth quarter of the year. Having said all of that, we are seeing some very encouraging signs. So out of Asia, we're seeing very strong increases in [ RASK] on slightly reduced capacity at the moment. The same is true for North America and the Tasman is holding up. We put quite a lot of capacity into the [indiscernible], particularly over the last 12 months. probably haven't seen as bigger RASK improvements as we'd like, but the market has absorbed that extra capacity. We feel good about that. So without putting sort of specific percentage or on a inbound, we're seeing strong demand domestic and outbound New Zealand travel flat, down slightly. Overall, we are seeing sort of RASK improvements now in a broad range, but sort of between for in 6%, 7%, depending on the market, which is very encouraging.

And Andy, maybe 2 data points if you're interested in terms of sales momentum, this latest week, sales have been 12% ahead of the same time last year. And over the last 4 weeks, sales have been about 15% ahead. So it feels like we're carrying a little bit of momentum into this FY.

That's good, encouraging. Could I just dig down into domestic New Zealand point of sale demand in terms of the various customer sets that you've got. How does that look in terms of current bookings or however you look at it at that level with regards to leisure with regards to SME, corporate and government, et cetera, please?

Year-on-year?

Yes, yes.

Yes. So we are seeing...

And trend in terms of how that's progressing?

Yes. So I think over the last 3 or 4 months, we've seen -- before Iran, actually, we were seeing some encouraging signs domestically. The Middle Eastern crisis put a pause on that. But we are continuing to see a small but an encouraging improvement in corporate and SME demand that is flowing through. in leisure in terms of volumetrically, relatively flat. But as I said before, we're starting to see some encouraging signs in terms of yield on domestic even with leisure. So it's -- the challenge is volume. We are starting to see customers become accustomed to the sort of domestic air fares we need to charge to recover.

Sorry, Richard, I'm really struggling to hear you.

Can you hear me now?

That's better. Yes.

Is it better. Sorry, I'll sit much closer to the microphone. We're seeing some improvements year-on-year in corporate and SME. Leisure volumes year-on-year are relatively flat, but we're seeing some improvement in yield.

Great. Okay. And government.

Government, slightly up.

Okay. Great. That's it from me, from a question point of view. But to echo Nikhil's words on you Richard it's been also interacting with you over the last 6 years or so and best wishes for your next journey.