AAR(AIR) - 2025 H2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings before taxation of $89 million and a net profit after tax of $126 million, despite facing significant operational constraints [9][22] - The estimated gross impact of engine availability issues for the financial year was between $280 million and $320 million, with compensation received from engine manufacturers amounting to $129 million [22][24] - Revenue and other income decreased due to a 4% reduction in network capacity compared to the prior year [24] Business Line Data and Key Metrics Changes - The transformation program delivered approximately $100 million in incremental EBITDA benefits, with a shift towards stronger performance in ancillary revenue [5][16] - The loyalty program, AirPoint, surpassed 5 million members, indicating strong customer engagement [10] Market Data and Key Metrics Changes - Domestic demand remains soft, particularly in Wellington, with government travel down 10% and corporate travel down 5% [11][60] - International demand, particularly on the Tasman route, remains strong, with plans to launch new routes and increase capacity [12][61] - Outbound demand to North America has held steady, supported by a strong U.S. dollar, while Asia has seen a slight decline due to reduced operations in Korea [13][65] Company Strategy and Development Direction - The company is focused on improving operational resilience and digital infrastructure while managing the impact of engine availability issues [5][14] - Future capacity growth is expected to be low single digits in FY 2026, with a more significant increase anticipated in FY 2027 and FY 2028 as engine constraints ease [6][40] - The company aims to leverage digital systems and AI to improve cost efficiencies and maintain stable fixed costs as the network grows [28][46] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by engine availability issues, which have persisted longer than expected, impacting operational capacity and financial performance [36][39] - The outlook for FY 2026 remains constrained, with expectations of non-fuel cost inflation of 3% to 5% due to increased charges across the aviation ecosystem [52] Other Important Information - The company declared a final dividend of $1.25 per share, totaling approximately $40 million, and has initiated a share buyback program [34][33] - The company is preparing for increased capital expenditures over the next two years, with a total forecast of approximately $3.7 billion through to 2030 [32][33] Q&A Session Summary Question: Clarification on FY 2026 non-fuel operating cost inflation - Management confirmed that the transformation benefits for FY 2026 are expected to offset non-fuel cost inflation pressures [55][56] Question: Insights on domestic and international demand - Management provided details on soft domestic demand, particularly in Wellington, while noting positive trends in international markets, especially from Australia [59][61] Question: Guidance on compensation and liquidity - Management indicated that the first half guidance assumes a reduction in compensation from engine manufacturers and noted the current strong liquidity position [83][84]