Tourism Holdings Limited (THL) Earnings Call Transcript & Summary

Thank you all for standing by, and welcome to the Tourism Holdings Limited Interim Results Briefing. [Operator Instructions]. I'd now like to hand the conference over to CEO, Grant Webster. Thank you. Please go ahead.

Thank you, Kara. Welcome, everybody. Thank you for attending. I have with me here today, Nick Judd that everyone know is the CFO. We've got Nick Voss, who's Deputy CFO, while Stephen Hall is on parental leave. Congratulations to Steve. And Amir Ansari that everyone knows here as well. So thank you very much, as I said, for attending, and thank you very much, Nick, and Nick for compelling the results and Nick Voss with his team depleted for parental leave with a couple of people away for that over the half year, have delivered the results very, very effectively and in a timely manner. So we really appreciate that. The call today, we think, we won't -- we doubt we'll use the whole time given that we think the results are probably pretty well aligned with the expectations. And pleasingly, the result hasn't changed since we gave the numbers 2 days ago. So the outlook for the business does remain obviously somewhat uncertain, but we're very positive about the general outlook. So today, we'll cover the ATL update, and there'll be a few questions around that. We'll just give a headline overview of the results, balance sheet position, a bit of an update by each business and a couple of other things going on in the business, the outlook summary and then we'll open up for questions. So diving into it, we'll talk about the Apollo situation first. So the key questions that you're probably thinking about asking about the regulatory approvals and perhaps, in particular, the antitrust or ACCC and NZCC situations. Now the reality is we've provided a little bit relevant information that we can to the market. Those are both going through the processes. We have had some Q&A sessions with them, which has been very useful. They've asked for different sets of information that we've provided in a timely manner. So we'll just have to wait and see where they end up. The NZCC original date is March, we've got every right to extend that, and we don't know what they're going to do. They can extending the ACCC to early April. So that's the broad update there. You've seen in the information that we've disclosed that from a shareholder perspective, the steam booklet is out and available to Apollo shareholders now. Clearly, with the [indiscernible] family and the shareholding of 50% are clearly supportive and endorsing the transaction. The directors have unanimously supported the transaction subject to any other offers coming through. And the independent expert report was also noting that the valuation range was either within or above the stand-alone valuation. The independent expert will also just be taking these half year numbers from THL and Apollo and just making sure that there's nothing that changes their view or recommendation. And we don't expect that it will obviously and expect a response from that probably early next week. A reminder that, that transaction is strategically obviously really important to us. We see that the cost synergies in that value range of $17 million to $19 million being realizable. And in this kind of market, very appropriate and very, very strategically sound. Regardless of what happens in the next stages of COVID, we're buying good assets that were very supportive of the value of and have good value in this market. It supports geographical diversification and gives us that entry into Canada, which is something that they've been interested in for quite some time. Clearly, as a joint entity that gives a total asset value that's sitting around that $1 billion mark. And depending on what day you look at it, that combined market cap, obviously going up quite a bit from where we stand today. The key dates that are there, the shareholder meeting on April 20 is obviously a key date and being just working through the regulatory process from there. The only thing that -- there's a couple of things, obviously, that we don't have any control over. One of the things there is just get approval in Australia. With the election in Australia, there is a possibility that they go into key take mode, but we've got no idea when that would be or when that fits alongside our dates. But otherwise, we're running along this time line that we've indicated here, which I think is very, very achievable. From a CP's perspective, we remain very confident that all CPs will be achievable and will be achieved by the appropriate date. So we've got no concerns from that perspective. I'll pass over to Nick to just give an update on the funding arrangements for the merged entity.

Thanks, Grant, and good afternoon, all. Yes, as detailed in the scheme booklet and in our release earlier this week, we continue to work through the funding arrangements. It's expected that the new entity will utilize both corporate lending as we do in THL today in domestic financing, which includes corporate financing as well that Apollo also used today. So we are progressing discussions with both existing and some new vendors. Those discussions are progressing well, and we're on track in terms of the time line, as Grant mentioned, to satisfy this that sits in the agreement. With that, back to you, Grant.

Thanks, Nick. Well, I'll just give a lifting into the summary slide. I'll just give a quick overview without just repeating the bullet points that exist in there, and then we'll go over into a little bit more detail. So clearly, for the half, that's just been taking the transaction costs into account. We've indicated before, no business operator or not many like being in a loss situation. So from that perspective, clearly, we're unhappy with the fact that we're in the loss. However, the reality is we think that we would minimize that loss very, very effectively in the business. We'll continue to watch very carefully where the balance sheet is, making sure that we are maximizing the opportunity in terms of vehicle sales. We're leaning very heavily into the areas that aren't affected by the border areas, the border closures, and we'll talk about that as we go through the business by business unit results. And we've set ourselves up very nicely for the recovery options moving ahead. So good cost control, a very energetic team that clearly have been doing a lot of things as well as managing the P&L very effectively. Around the transaction costs, the THL teams, those are quite high for a transaction, and you'll see that [ 2, 1.5 ] our expectation that the transaction proceeds through the conclusion is that there will be around $6 million in total for the full financial year. But the reality is that reflects a New Zealand and Australian publicly listed situation. We understand it's one of the first times or the first time that a New Zealand PLC has completed a scheme of arrangement of an Australian publicly listed entities. So that's created a whole lot of additional work along the way. And clearly, that's global. So new jurisdictions and all the costs associated with that. From -- and come back to THL perspective, the sales are clearly the highlight in the way that we've been managing that balance of quantity and margin, maximizing the demand that exists in sales, whilst obviously protecting the rental fleet requirements and those pressures that are coming from the supply chain perspective. In regards to the supply chain, we are managing that on a weekly basis by jurisdiction. Within those sessions, we're looking both at a week ahead right through to 80 weeks ahead. And whilst things change on us, we are creating optionality between having different suppliers, between what we're selling in what periods of time, and the assessment of value of merchandise along the way. The growth in non-tourism that we've talked about, whether that the excellent growth on its own or actually looking to acquire MaxiTRANS, whether it be the retail side in New Zealand. We see all of those as strong benefits for the business, not a distraction from the core rentals business by growing opportunities, and you lead to the still of THL moving forward, clearly beneficial to the P&L today. But also providing another business opportunity into the future as well. Important to note, probably no surprise that we're declaring no dividend for the half. And we expect that, that will be the case through to the full year as well. The outlook for the half that's about to come, we'll cover again in the outlook statement more broadly. So I'll pass over to Nick to give a little bit more detail on balance sheet in those financial numbers.

Yes. So just on the half year, on the new slide, there are a couple of numbers here to back up sort of Grant's summary comments. So debt continues to reduce and reduce from the annual result number by around $30 million, down to just under $19 million at the half. And debt was as a result of those strong sales margins that Grant talked about and then actually held up the sale of goods number fairly well considering that the year-on-year number of vehicles sold was much reduced as Grant mentioned, as we made sure that we maintain the will to go forward. The other number that I'd highlight is the EBIT number at a $1.1 million loss, but that's obviously included $2.1 million worth of transaction costs to do with the Apollo merger as well. And obviously, these numbers will unpack in a little bit more detail as we go through some of the business units. Turning to the financial summary. There's a couple of things that I think are worthy of noting here. Obviously, it was a tough half for the New Zealand and Australian businesses with the impact of both Omicron on employees by the closed borders or lockdowns in New Zealand. Yet in spite of that, they still managed to improve their performance year-on-year, which I think is a really good achievement. Obviously, some of that was down to the vehicle sales that we talked about but also some really good cost control in there to improve performance year-on-year. And then Action Manufacturing, doing a great job, the team down there, and Grant will go into this in a little bit more detail, but the team down there in Hamilton and at Albany and at our [indiscernible] site really firing strong order book as they look forward. And they're managing some of those supply chain challenges extremely well as we go through it. The U.S., we signaled that in our annual results that they had a tougher quarter 1 than what we expected as domestic demand was down year-on-year. And that was as a result of obviously more options for travel and RVs being not the only game in town anymore. So that impacted quarter 1, and we gave quite a bit of detail at that time of the annual results. Turning to the balance sheet. We mentioned the debt number. This will be as low as it goes, and we are now starting to reflect and that will begin with our U.S. business in particular, which we're obviously now starting to take orders for the Northern summer peak season. So that number will start to increase. And obviously, we expect to start eating into that headroom that we have here, which is still significant at around just over $230 million. That reduction did obviously lead to a strengthening of the equity ratio as well in that period. So finite headroom and strong support from our banking partners continues, which we think reinforce. Grant, back to you to talk through some of the divisional reviews stuff.

Thanks, Nick. So moving to -- you said on rentals and sales as Nick covered the revenue situation. And quite scary that how low the rental income was for the half, not something that we're pleased with and especially given that over 25% of that was non-tourism revenue. But again, really well balanced by the way that we've managed vehicle sales, seeing the margin improvement that you can see there, which we'll talk about in a second. So just a couple of the other bullet points that we've got there. Clearly, what we're trying to achieve in terms of that non-tourism revenue is something for the long term, and we're very pleased with. The bullet point there around responsible camping is just to provide some clarity there, I had a couple of questions this morning on that. Look, broadly, the trend is proposed there. We're very supportive of the reality as we well as the responsible camping works well for communities in the environment. It's something that broadly the industry is being very supportive of for quite some time. We just want to make sure that the technical requirements are hitting in the right way for self containment, and we're on the adviser group for that and also just some of the issues around the way that fines are managed. We have retained operational capacity. We've got a really good leadership team that has stuck with us through the last couple of years and are looking forward to an exciting future. Our facilities and infrastructure is well managed, and we are going to be looking at a new Auckland site following the 5 that we've had over a year ago. From a fleet perspective, again, so those margins reflected a couple of different things going on. So some of the vehicles that I guess was called sort of the gold of -- the older vehicles that have been highly desirable that's being depreciated to an appropriate extend, and we've sold a large proportion of those. So there has always been a really good margin in those. And the differential in price to new. So clearly, the new pricing is representing some of those inflationary pressures on a global basis, both from a chassis perspective and a broader componentry perspective. And clearly, having the existing stock is that arbitrage margin opportunity that exists. That flows through all the different jurisdictions as well. We've also obviously had a swing and we've seen this across all jurisdictions as well. A stronger swing to retail, which is obviously a higher margin. And within all of that, clearly no discounts like we saw in the great amount of home sale which just get activity moving. So we're content with where the fleets are under and quantity down on the prior year, but that's 100% with what our expectations were and where we desire to be. So it's no indication that there's a drop in demand. We have a slide in there about the retail sales, and we don't need to go into any detail about it. But given the fact that in the half, it was $3 million in revenue and our rental revenue was $6 million, it did receive some attention. Look, it's a great example of occur in this business, taking the opportunity to explore our market further use the broader group expertise and create an opportunity, not just for now but for the future as well. This retail business is low CapEx. It leverages our sites. It leverages our category buying power. It's an area that has category growth more broadly, and it deepens our customer engagement as well. So an area of the business was an exciting future and performing really well. Moving on to Action Manufacturing. We're the -- to have some more discussion time not just from a perspective of how it's performed in the half that with the future for Action Manufacturing, in particular with those -- that acquisition opportunity with MaxiTRANS, which is dependent on new Congress Commission approval. So important just a technical point, we've highlighted it very clearly that we continue to report internally on a non-eliminated basis so that we can really see how that business is performing as a standalone entity. So we've decided to disclose in this presentation on that basis as well, clearly, the financial statements have all the group eliminations included within it. I'll note that non-motor home growth is an area that's becoming a larger and larger proportion of Action Manufacturing. It represents the strong design center and the broad capability that we had in that business. Right now, they're managing very effectively the growth of that segment's revenue. The supplier shortages that are same, the price changes. We're going to hit some location moves, which they've been managing really well. And the recruitment of new people into the business and managing all the changes that go along with that. So the productivity is excellent. Their stock takes and processes and new product development are all performing exceptionally well. So a business now that's got over 200 employees really skilled in specialist vehicle design in the broader heavy transport sector with some good opportunities in front of it. Tourism, we don't need to dwell in to a large extent. The team are working really, really well in the challenging situation. They're managing the loss in an effective way. And on a year-on-year basis, just that note that last year you had the STAPP funding in it. So yes, a loss but we've got to remember as well that on an ROFE basis, pre-COVID, this group of businesses was our most successful. On an ROFE basis, they delivered a lot of funds and with a little capital requirement for the business. So it's right and proper that we supported them and looking forward to the future for that business as things return from an international travel perspective. Australia, look, again, similar sort of broader messages that we've seen that border impact. What we did see in the last half was a much better understanding by us of what to do when borders were closed, basically when borders were open on a state-by-state basis. So we saw a very strong yield improvement in Australia versus the prior corresponding period, and that reflected our ability to know and see that if borders were sort of closed, there's no real need or chance to discount to try and generate business is basically reacted to that and move vehicles to states that were open. And when states were open and things were happening we knew that there's the appropriate demand. So that good yield look on the prior corresponding period gives us some confidence that yields in that market can return to historical levels as borders reopen in general. Pleasingly, from a fleet perspective, where you saw the same margin kind of impacts that we've seen elsewhere, but we also have enough fleet to be able to see fleet sales grow as well. So on top of that, we've got a real opportunity moving forward to further push new vehicle sales in the Australian business. And indeed, we had in our own view [indiscernible] in Melbourne, but opened in Brisbane in December as well. So some good opportunities moving forward there. The U.S., to be honest, is actually much more about the first quarter story, which we described in quite a bit of detail that in both the annual results and with the annual meeting. So I don't think we need go into that in huge detail. The margin on vehicle sales, again, hitting the same theme for the same way that we're managing and picking up the signals in the market with the same drivers that we talked about before, a greater shift to retail, that cost differential from new to use and that general shortage in the market as well and maximizing that opportunity. So I'll pass over to Nick now to talk through the equity investments, GSCs and some other initiatives in the business before discussing the outlook later on.

Thanks, Grant. So turning to the equity investments, standout results from Just Go as restrictions relaxed in the U.K. That result is actually well above pre-COVID result levels as well. So bounce back very strongly year-over-year. As we have announced also earlier this week, we have a desire to purchase the remaining 51% and as well the owner of that 51% is aware of that intention. Additionally, we've also had an indication from 4 regarding the preference shares related to what used to be called Togo and is now called Roadpass Digital, and they have sent through an indication of a buyout at a discount. So it is likely that we will go into the discussions around that, but no certainty of it that there will be a conclusion to that at this point in time. Turning to Group Support Services. Just -- it's up obviously, because of the transaction costs but also actually one point to note because this impacts the Rentals New Zealand and Rentals Australia business unit is that we're out now obviously internally recharging for the Cosmos and telematics platforms that have gone live as well. So they no longer set as a cost structure within the GSEs. They set as part of our Rentals business units. Non-tourism revenue Grant has touched on, and a really solid performance, both in New Zealand and Australia in the context of obviously severely impacted rental revenue results, and we expect that some of that will continue on, obviously, for the remainder of the year and some of the uses that we have. But the team have done a really good job on that in tuning our hand and our vehicles to some unique users that we haven't done before. The next couple of slides touch on Future-Fit, and I won't spend any time on the first one because it should be very familiar to you. It's our benchmark slide and what our prioritization of our goals are. But by way of update on the second slide, we are making some good progress against some of the break-even goals. It's no secret that the one that we would love to move further on and are most challenged on is sort of our future fleet program and having viable options to replace the ICV engines and the fossil fuels and the carbon that we build. We are initiating some new initiatives in this and certainly from a technical perspective, we past the leadership of the over to [ Christoph Voya ] in the Action Manufacturing team so that they can engage with that with the manufacturers, while we will also continue to lead some key sort of stakeholder engagement pieces to help try and accelerate that. We're not happy with where that sits at the moment, and we would like to make more progress in that space. And so we'll be putting some extra effort into that, obviously, as we go ahead. We have initiated a supplier code of conduct, and we have a global procurement team that's set up to look at how we procure and make sure that we're doing that on a sustainable basis, and we see some really good initiatives coming out of it. And so we'll be rolling that out on a global sense in this half. And then on the branch side of things, all of our branches now have Future-Fit action plans, and there's 5 areas that they're all looking to improve on, which are energy, water, waste, operational emissions and a community aspect as well. So they're tracking and measuring individual action plans and now they're achieving against those. So still looking to do more in that space and continuing to push hard on our goal of sort of getting to breakeven across those '23 goals. Grant, I'll pass back to you to provide the outlook.

Thanks, Nick. And those Future-Fit goals and performance is critical to the way that THL operates and the way that we want to operate into the future as well. So from an outlook perspective, so we've given that indication, which we think is the best indication that we can at this point in time, that we expect the second half to still be a net loss after tax. But improved on the prior corresponding period, which would mean that the full year, we're obviously still expecting a loss at this point in time. And just to note on the transaction costs within that as well. So we are expecting some improvements taking the transaction costs out. But clearly, it will still remain in an uncertain period. The net CapEx, we've narrowed the range there slightly, but I have confidence about the fact that clearly, we're purchasing a number of fleet into the U.S., and that's already occurred. So there'll definitely be deposits there. Same thing for Australia and New Zealand indeed has that had new fleet coming through over the coming months as well. We've given our general sort of indications there, so I don't need to read them out. But from a New Zealand perspective, we know it's changing on a daily basis. Just yesterday, obviously, there was an indication from the government that they are going to take advice and review our isolation requirements. We're very clear in our view. And I think the industry is more broadly that those need to go shortly and at the very least needs to be a date set. So those airlines need to basically now today be making their final plans that they come to New Zealand. And they want to -- wholesalers want to be selling New Zealand and the rest of the world is open and we're getting left behind. So that is the key to New Zealand, and we certainly are more encouraged today than we were yesterday. Australia, look, it's very, very early days. So it's hard to say exactly what we're going to see from a demand perspective and in particular, obviously, we've got the horrific situation with Russia and the Ukraine as well, which we hope ends swiftly with minimal impact on humanity in general. But from that perspective, we just don't know what's going to happen from a booking perspective with Australia. But it started positively and it looks like Australians are certainly really keen to travel domestic again to start with. So that's very positive. We have been concerned and we talked in the U.S about the asymmetrical issue. So basically, people going out before other starts come in. And it doesn't seem to be the case in Australia, which is positive. The U.S., nothing more really to add than the commentary that we've put in there. So we don't really get clarity on the summer season. That's the one that's not quite looking as close to previous levels. But the summer season, whilst not there yet, is certainly hitting towards a full utilization peak period around July. Supply chain interruptions, nothing that is significantly material at this point in time, but we have to keep watching and monitoring it in each jurisdiction. And broadly speaking, we talked before about the fact that the RV category is one that we believe is a very, very positive one that's responded well from a vehicle sales perspective, and that will flow through to better rental activity. It's those experience seekers that tend to get out into the broader environment and travel for longer and stay longer in the countries that we are operating in. So we've got the regulatory approvals to get through from the Apollo perspective, and both parties are working very, very effectively to give -- to make that happen. There's really good alignment in the broader discussions that we're having today. So that's all positive. And we've got those core foundations that I think is going to put us in a really positive case moving forward. Great energy in the business. We said before, we've got a lot of activity going on. We're responding to situations but remain really positive about what's next. So that's -- Nick, any other points that you want to...

I would -- just on some breaking news, we can confirm it's just been released at the independent [indiscernible] said that there is no change to his opinion.

All right. Very good. It is breaking news.

Here we go. Don't often we get to break news in our investor call, but we just have.

No. Nick and Amir were writing stuff to each other and so I was Oh my god, what have I done wrong? But that's good breaking news. So Kara, we will pass back to you to open up for any questions.

[Operator Instructions]. Our first question comes from John O'Shea at Ord Minnett.

Look, I think it's a couple from me and primarily sort of delving each other. How confident are you to be able to restock the fleet when the time comes? Obviously, clearly, the recovery in the business is absolutely critically dependent on you being able to do that in the time frame that you want to. As the fact that you're in the southern hemisphere helpful into that? And secondly, you benefited a lot on the retail sales side from the higher prices. On the flip side, would we go to actually stopping the fleet, you're going to have to pay the higher prices to pay for those vehicles. Can you talk me through kind of how you're seeing, how we should think about that unfolding in the next year or 2 as they start to open up in the various -- typically in Australia and New Zealand, hopefully?

Yes. So as we indicated all the way through, we're managing sales to the degree that we see that the risk profile on the purchases. So U.S. is a good example. If you look at their half year-end fleet number versus prior year, we could have been at last -- the prior year's number or lower, but we went right. This is where we see the degree of risk. This is what we need to hold, and we've got the opportunity to sell those as we get more certainty around what vehicles are coming in. So we are managing that profile and managing it through the broader stock volumes that we're seen. We are starting to see stock coming through from a chassis perspective now that we were ordering in the midst of COVID 12-plus months ago. And we have to diversify its price mix perspective as well. So we feel that we've got a reasonable sort of risk profile on all of that now as well. As it happened, some of the shortages and so forth, have all sort of worked out for the business in terms of an Omicron wave impacting manufacturing production at the time that has actually coincided with some stock shortages. So it's actually sort of been a hit that was coming regardless, and so you catch up and clean for that accordingly. So not too concerned being in the Southern Hemisphere plus or minus inherently, it's a minus because the majority of our product comes from the Northern Hemisphere. But as I say, we're managing that. It's challenging, but no big issue from that perspective. On a pricing basis, also, clearly, it's high capital that we're having debt outlay. But from a pricing perspective, we don't see that we're going to be changing depreciation rates. And what we're seeing is clearly the market is paying those prices. So from a consumer elasticity perspective, we're quite happy and confident. And the key -- one of the key metrics that sort of supports that, again, is the value of this category relative to holiday homes relative to other accommodation in the housing market in general. And clearly around all the markets that we're operating, you can be anywhere from 20% to 30% increase in house values over the last 18 months. And we had nowhere near that kind of retail price increase for our products. So the customers are clearly willing to pay, the pricing looks to be stable. And so margins will return to historical levels, but we're reasonably confident that broader pricing will stay up, and clearly in any business when you've got inflationary pressures, whether it be labor cost or anything else, you've got to be watching your revenue loan to make sure you're recovering that, so that's a message well understood in the business.

Sure. Look, where we're coming from the Southern Hemisphere. As I said, when the time comes that everybody is looking more positive about restocking the fleet, the team and everyone's going to be trying to build at once. What I was -- where I was coming from there was the fact that your Southern hemisphere buyer as opposed to the northern hemisphere buyer, is that work in your favor at all or not?

You mean on the actual vehicle purchasing?

Absolutely, that's where I'm coming from. Yes.

So you're probably trying to see about the ball for me to hit that I wasn't watching the ball closely enough. So -- but we do get an excellent benefit if this is where you were heading. The likes will just go in the other relationships that we have up there, use that countercyclical on a seasonal basis. So we've always had a view that buying vehicles from Bear and basically [ Satinga ] arriving late October gets us that extra season. So yes, as we get those vehicles through in the Northern Hemisphere, we'll be able to get those secondhand ones down here in and be able to use those in New Zealand in particular.

I guess I was thinking more of the new ones. So the new vehicles you're buying, I mean, clearly, you're obviously, as I'm seeing probably att his time of the year when they are [indiscernible]. So does that help at all, the fact that you are trying to buy them and the others are trying to buy them out there?

No. There could be a little bit manufacturing -- we manufacture as well, well pre-COVID would have been U.S. or Europe. Yes, you're right. We were prepared to buy off-season. So U.S., in particular, we'd be saying to the manufacturers, you can produce in December and January, and that would be going great and never get orders in December, January. So yes, we've got those benefits, the same thing in Northern Hemisphere. So as the market returns to normality, from a supply perspective, we will still be in that beneficial position, yes.

Our next question comes from William Cunning of Carter Bar Securities.

I've got a couple of questions. I guess, sort of reflecting on where you are now in each region on a domestic basis. Can you sort of give a bit more color about maybe the stickiness that you've seen on the domestic customer for each of the regions? And whether there's -- whether you foresee when international travel returns, whether there's any sort of mix shift towards domestic relative to international and what that means for the management of the business in each of the regions.

So there's -- the simple answer is we really don't know because this is all completely new. So we don't know how many domestic customers will obviously just go when I'm not traveling or the first person to take open time. So -- and that asymmetrical issue that we're talking about that we saw in the U.S. last summer. So what we do know is that we've got a much better understanding of some of the price elasticity by different times of the year in the domestic market in the subregions within there, the certain states in the U.S. and Australia and so forth. So we'll definitely -- we've got a number of those lessons that we carry forward, and we think we'll have a stronger domestic base. The same thing goes for the non-Tourism revenue. We've got some very good context relationships and business development that secured deal. So that will be a stream of activity that is countercyclical to some of the tourism season and stuff. So from that perspective, there will be shifts as well moving forward. But the broader domestic dynamic, who really knows? Nick, you got views on the results?

The only thing I'd add, I think, is that we know that as a category, it's going through growth. And so proportionately, what does that mean? Time will tell, but in a market the size of America, obviously, they have a huge domestic market there. So could that change proportions over the long term? Absolutely, it could. But its rough. So I guess it's pretty hard to put a prediction on what that means at the moment, but that's the one other thing I would add.

Yes, fair enough. And I guess the other question is, I know that you've made comments about sort of the difficulty in forward-looking in terms of international tourism back into Australia and New Zealand. But is there any sort of extra color that you could provide just on maybe some leading indicators and whether they're in line with maybe where you'd expect them to be? Whether it's inquiries or web searching or anything like that?

Yes. So look, there's some good Google Travel Inside data on a global basis, which is cliché to Australia once the announcements were made really searches for Australia ramped up dramatically. And we've seen that flow through to our web searches as well. But lead times between the dream, plan and book are all out of whack with historical norms. So we've just got really no idea what it really, really means. But certainly, those search indications are good and positive. What we've seen from a U.S. perspective is definitely a change in lead times, uncertainty on the shoulder, but we've got confidence about people wanting to travel in their core busy season, the summer season. So those are sort of probably the broad indicators. Key atros in Australia are going out hard with their campaigns, and we think it's really supportive by focusing on EU, U.K., U.S. And that's great for us and for our category and our core markets, and that's spending a lot of money the airports, airlines are tracking a lot of money into it as well. So I think Australia is going to actually rebound really well. Again, New Zealand won't start really firing until you see that self-isolation requirement removed. What we do know as well is that preference indicates that that's the tourism New Zealand for an Australia indicators of those who are considering Australia and New Zealand, the preference has remained really strong and sticky. So COVID hasn't changed that. You just got to keep making sure that the number of people on that broader bucket gets filled out. And Australia seems to be doing that. Anything, you think you should add to that?

I think there's some pretty good indicators there around new line capacity growing now how that's growing back in different jurisdictions. And probably the only other thing you could say is that we're hearing anecdotally that obviously, at the back of the announcement in Australia that certainly travel agents and wholesalers that have seen a dramatic increase, albeit at a tougher low base, anything looks pretty dramatic in the current environment. But certainly, the level of inquiry has gone up significantly now the borders are open.

Yes. That's great. And just for a bit of added context. Just looking at the New Zealand government website, I think they've dragged Australian back from around July. Not putting any forecast as to whether that occurs or anything like that. But if that did happen, is the reopening from New Zealand to Australians in July, enough time to provide sort of meaningful trends have impact in the summer period?

There's still uncertainty within that around the isolation requirements. So they need to guarantee and get clear about the isolation requirements. But it's no isolation from July, then that gives is a real opportunity for a strong summer for Australia to New Zealand. There's probably a little bit of argument as well that short haul is going to be a stronger market in the first summer. And certainly our view will be Tourism New Zealand is most likely to focus on Australia for just all those reasons. And from any loan capacity that have been deployed fast and the easiest. The answer is still the self-isolation therapy.

[Operator Instructions] Our next question comes from Andy Bowley at Forsyth Barr.

Now just picking up on the lead times issue for New Zealand and Australia, particularly for long-haul customers. I recognize that there's a self-isolation issue. And then -- and that's kind of a key question for airlines in terms of their willingness to commit capacity either in terms of optionality relative to other routes that they may put capacity on there, not in New Zealand but if there's a New Zealand, then they need to grab the slots and they talk about a time frame being May and typically get capacity being committed in this part of the world is, say, April. For you guys in terms of lead times, and I recognize, Grant, you mentioned that lead times have been knocked up through COVID and they're all over the place. But when do you think the window closes for you in terms of that first summer around long haul? If we don't get some kind of confirmation either, one, from government; or two, airlines committing capacity for long haul in time?

All indicating that will be a -- it's a graph with a line on it and you ask what we care that is because there'll be something that always comes late without a doubt. I think relative to our expected sort of fleet size and we're not saying what that number is. I think -- we're not anticipating that this summer in New Zealand is free of COVID kind of regardless if they see no self-isolation today. But Nick, you're far closer to the airline situation and the core dates there. But for us, you can still get some activity booking September to February. That's not unusual. So again, the key of that is that booking. So we're very, very clear all that tourism agencies talk about dream book plane, dream book plane book, so that's the right way. And so it really -- you've got to have confidence a couple of months before that. So I'd be saying in May, we still have some confidence in getting some activity late summer and February is the key for us from an international perspective. Nick, your thoughts? In June?

Yes. No, I haven't got much to add to that. I think it's been on Andy's notes and comment on it. So he's got it right. So...

So if we go back then to say pre-COVID, and there is -- I imagine there's kind of a shallow bell curve in terms of your booking cycle for the upcoming summer. When is the process booking of that booking cycle historically for, say, long haul?

Yes. So you did a couple of ways. It's one way of saying there's a wave in September. So the end of January and February is years pigments, and that gets you through October, November, December, some of January and some of February. And then you get sort of reasonable bookings in your last big spike for summer in September. So unfortunately, those are sort of the biggest single months. So February and September.

It's important to know what Grant said about that cycle. People that are booking in September have started building far before that. And so border openings means you're either in the top of the funding decisions yet or you're out right from the start. So your network started months before.

Yes, yes. No, that's pretty clear. Great. Now moving on to the Apollo transaction. Grant, you mentioned in the kind of opening remarks around Q&A that you've had with the New Zealand Commerce Commission and the ACCC. Can I get a sense of what are the key issues you think they're really digging down into in relation to the Q&A that you've had with them?

Look, I haven't been through the NZCC through a process like this before. So I haven't got anything to compare it against obviously, our legal representatives do. What I would say is there's no indication to us of issues per se. They are clearly assessing what you would naturally, I think, as an economist or analysts look at this industry. So they want to know if how different brands perform, they want to know what the different categories are and the subcategories and level of substitutability between categories. And all those sorts of things. They want to know who you see as your competitors if they want to check what you've been -- the way that you've been doing pricing and everything internally and all those sorts of things. So I'm looking at the things that would help them define what the market is, what the degree of substitutability is, what the degree of price constraint is on us as a business more broadly. Interestingly, one the things that we haven't disclosed sort of publicly, but we probably can now as part of all of this process, is we do watch the broader markets and hotel market. And in fact, if you look at the last 15 to 17 years, we've got about 0.98 correlation to hotel pricing in New Zealand. So we are part of a very small subset of the tourism market in New Zealand.

Okay. Sure. Lastly for me, just around Tourism group. You talked, Grant, around the recovery opportunity and the work that's been put in there. But I recognize that these businesses were as part of these businesses for sale pre-COVID. And you had the transaction lined up. The question being, strategically, how core is the Tourism group assets now?

So they were never for sale. What we always say was any part of the business is the SMB approach, and it's the right thing. It's the right thing. I think what we said pre-COVID is these businesses deliver an excellent return on funds. They don't require much in the way of capital for ongoing growth and development. They're not a significant distraction to the business and they have a DCF valuation that works for us from a business perspective. Those key things, part of them don't apply today good stuff they've done losing money but the core principles don't apply. So they don't distract and the things have got that really, really strong operating leverage, it doesn't take much for them to get up and you've got a business that will be operating at 45% to 50% EBIT margin with a return on funds of 35% plus. So if somebody wants to approach us around those kind of assets and they recognize that value and the value that we see in them, that's a discussion that you have. But they are not noncore or non -- yes, they don't go into cadence right, those are off the sale.

[Operator Instructions] Looks like we have no further questions, so I will hand back for closing comments. Thank you.

Just again thank you to all of you that put the work into tracking THL and following us. We know that it's a difficult time to predict what's happening for the tourism industry. You know our core comments in terms of how we think that we've got ourselves in the right position and a positive outlook. So thank you for following us. Thank you for those that have contributed good questions. They're all really great. And again, Nick, Nick, Amir and your teams, doing a great job in difficult circumstances to pull together all the information in the right way. Thank you, all, very much. Thank you, Kara, for hosting us.

Thank you very much. This conclude the call today. Thank you all for joining. You may now disconnect.