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FULL ANNUAL FINANCIAL REPORT At we like to take

a straight forward honest approach contents The full Annual Financial Report is available by visiting - it's the way we do business. 01 EARNING REWARDS our website www.airnzinvestor.com IN TESTING TIMES 02 CEO UPDATE or 06 HAPPY TRAVELS You may elect to have a copy sent to you by contacting 08 AGILITY IN ACTION Investor Relations. 10 REGIONAL RECIPE 12 FUEL EFFICIENCY 14 FINANCIAL COMMENTARY 18 FINANCIAL SUMMARY Thisreport was printed using mineral oil free vegetable based inks on paper from third party certified forests and manufactured under the strict Eco Management and Audit Scheme and ISO environmental 14001 systems. Insight Creative Limited, Auckland/Sydney. 08/09 AIR098 Board of directors

John Palmer, Chairman

6

Roger France, Deputy Chairman Grabaseat won the Philips Innovation Award at the Tourism Industry Awards.

Paul Bingham

Dr Jim Fox

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Jane Freeman

Judges’ Choice Trophy awarded for an outstanding frequent flyer programme at the Loyalty 2009 Awards.

Warren Larsen

John McDonald In a year of almost unprecedented financial volatility and subsequent sluggish consumer demand, Air New Zealand has done well to record an operating profit.

The past year has been characterised by gloomy economic In these difficult times we have continued to see the spirit and conditions and consumers facing sharp declines in real personal morale of Air New Zealanders grow. Our relative performance over wealth. Discretionary expenditure such as travel has been hit the year is a reflection of the work they have put in to keep ahead harder than other parts of the economy. The combination of excess of competitors. Our on time performance and customer service capacity, deteriorating demand and significant discounting have all combined with the strength and depth of our network is keeping worked against us. Despite all this we have been able to adapt to the pressure on competitors. the conditions and enhance our already strong financial position. QUICK REACTIONS Our ability to react quickly remains a key competitive Our strong financial position has given us the ability to make investments that will keep us ahead advantage and this ability will continue to serve us through of competitors. In times of diminishing demand, the next period of uncertainty. A constant focus on cost is superior product and service are important. now entrenched in the way we do business and we continue to look for ways to lower costs. We will continue to assess the shape of our network and adapt in response Normalised earnings before tax for the 2009 financial year were to changes in demand patterns. $145 million, a 26 percent decrease on last year. This result positions Air New Zealand as one of the top performing airlines LET’S LIGHTEN UP globally, but it falls short of delivering shareholders an appropriate Tough times don’t need to be dreary. Air New Zealanders are commercial return. perfecting the art of having fun while taking their jobs seriously. This has been illustrated by the ‘Nothing to Hide’ advertising After reviewing the current trading environment and the airline’s campaign and, as fanatical sponsors of New Zealand Rugby, we financial position, the Board has declared a fully imputed have recently produced ‘Our Rugby Song’ drawing on enthusiastic dividend of 3.5 cents per share. This reflects the 2009 operating people from across the business. performance while acknowledging that economic conditions remain challenging throughout the next financial year. The dividend record We have also been re-examining the structure of our business date is 11 September 2009. to determine how we should position ourselves for the future. Especially in these volatile times airline industry economics can INNOVATING WITH CONFIDENCE change quickly. We need to understand the changing dynamics The willingness we have shown to innovate in difficult times and where the greatest value can be unlocked. We intend to stay illustrates the self confidence we have developed to understand ahead during this time of inevitable change and will continue to and anticipate customer behaviour. We have smoothly implemented make the sometimes tough decisions to get there. We still see the 01 world-first check-in innovations that have made vast improvements “Fasten Seat Belts” sign on as we start the 2010 financial year, to domestic travel, installed in-flight entertainment for all aircraft but are confident about our competitive position. flying trans Tasman and are fitting efficiency improving winglets on our Boeing 767-300 fleet.

Our strong financial position has given us the ability to make investments that will keep us ahead of competitors. In times of diminishing demand, superior product and service are important. Our decision to invest in lie flat beds for our Business Premier Air new Ze a l nd Sh a reholder review cabin has paid off and we are now focusing on lifting our game again when the Boeing 777-300ER aircraft are introduced from John Palmer Chairman the end of next year. Home Profile Friends Inbox

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For a number of years now we’ve been talking about View Photos of Rob (5) our flexibility that enables Send Rob a Message us to adapt the business Poke Rob quickly to the prevailing Information conditions. The 2009 financial

Networks: year presented us WITH the Air New Zealand perfect conditions to Birthday: May 6, 1961 demonstrate this ability. As the GLOBAL FINANCIAL crisis Friends unravelled, demand for air 129 friends See All travel rapidly deteriorated and we have been quick in responding by reducing the number of seats we fly. Gerard Rabbit James Cooper-Fyfe As a result Air New Zealand’s financial performance has been among the best in the industry.

Jessica McEwan Leah M Evans

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Ronny Franks Young Ly Create an Ad

Innovate and lead Become an Air New Zealand Fashion Week Fan Our continued investment over this tough period is setting us apart from our competitors. A good example of this has been the changes we have made to domestic travel. With the duration of the majority of our direct services within New Zealand being less than an hour, on time performance and a fast and efficient transit through airports is critical.

Air New Zealand’s ability to fly its domestic and international Immerse yourself in AIR NEW ZEALAND customers into and out of Queenstown over the busy winter FASHION WEEK, 21–25 September 09. season has been enhanced with 18 aircraft now fitted with 1,786 people are fans of Air New Zealand Fashion Week advanced navigation technology. Required Navigation Performance (RNP) was introduced onto six of Air New Zealand’s 737s two years ago, with the initiative so successful that it has now recently been extended to the airline’s A320 aircraft, making Air New Zealand the first airline in the world to have Happy Travels an entire A320 fleet RNP enabled.

Adapting the business to survive can be tough as we have to say good bye to things of which we have grown fond. In June our first Boeing 747-400, which was delivered to us in 1989, departed Auckland for the last time to the US where it is being dismantled for parts. This signifies the start of the exit programme for our Boeing 747-400 fleet which have served With Air New Zealanders feeling happier and more us well for almost two decades. connected at work we think it’s no coincidence that customer compliments are up 67%. Our first Boeing 777-300ER aircraft is due to be delivered in November next year. After reviewing the catalogue of seating and interiors for these aircraft, we were underwhelmed. Therefore we have been working to design our own. We are looking to innovate in this space and have a team of Air New Zealanders working to develop our own bespoke Regional New Zealand interiors. We look forward to unveiling these early next year and are certain that these will be instrumental in maintaining our market position. 03

Ed Sims Anyone who is a fan of kiwi-can-do is going to love our 777-300ER interiors. Tues at 10.30 am Find out the ingredients for a great on page 11. Write a comment... Air new Ze a l nd Sh a reholder review Home Profile FriendsRob Inbox Fyfe

sustainable second-generation biofuel jatropha. This New media significant step forward was completed well ahead of experts’ original forecasted timeframe. As part of our strategy to be responsive to change we are developing a greater understanding of how Further research this year has shown that jatropha our customers are altering the way they interact is unlikely to be Air New Zealand’s primary source and gather information as a result of technology. for biofuel because of the distance between our fuel New media is changing the way we approach pumps and where it can be grown under our strict marketing and blurring the line between advertising sustainable criteria. While this is disappointing, there and entertainment. In this new era of marketing, the are many other potential sources we are looking at demand for fresh, innovative and creative ideas has and although the change of focus may push out our increased dramatically. original programme timing, we strive to be ground breakers in this area. As part of the “Nothing to Hide” campaign we released a “Bare Essentials” in-flight safety video featuring staff Norm Thompson I love that our unique country is wearing nothing more than body-paint that received readily shared with others from all over the world. more than three million views on YouTube in its first Fri at 12.30pm 10 days. This has been followed by the launch of our

“Rugby Fanatic Campaign” that demonstrates our Write a comment... passion for New Zealand and our willingness to take a leadership role in promoting the uniquely kiwi attitude as illustrated through rugby supporters. At home

100% Pure NZ Air New Zealand’s unique geography makes running a domestic airline a complex recipe. We fly four types Our fortunes are linked to that of New Zealand more of aircraft to 27 different airports in often testing than any other company. New Zealand is still top of weather conditions. Especially in times of reduced the pops in the destination desirability stakes as demand only a handful of customers are on some proven in Conde Nast Traveller’s last poll. However, flights, making the cost per passenger very high. We this is something that we cannot take for granted will do our best to keep these flights affordable, with and we will need to work hard to sustain this appeal. grabaseat already offering many great specials.

A major part of sustaining our attractiveness is making Just as it was hard to wave goodbye to our oldest sure our environment remains pristine. We have Boeing 747 we have also had to make some tough continued to focus on the environmental initiatives decisions at home. After a great deal of analysis we where we can make the biggest difference. Our made the difficult decisions to cease trans Tasman investment in winglets, zonal dryers and more fuel services from Hamilton and reduced trans Tasman efficient fleet is paying off. This combined with the services out of Dunedin. As a publicly listed company capacity reductions that we have put in place reduced Air New Zealand has a duty to its shareholders to our fuel burn by 10 percent, lowering our carbon make decisions that will sustain profitability.

emissions by over 350,000 tonnes of CO2 on the Therefore routes that will be unable to sustain long 2008 financial year. term value must be terminated.

The development of biofuels remains an integral part On a brighter note we have been able to add of our strategy. In December last year, in partnership to our regional destinations and have announced that with Boeing and Rolls Royce, we completed the world’s we will start trans Tasman services from later first commercial aviation test flight powered by the in the year. Where we see potential for sustainable + Add Rob as your friend Rob Fyfe Settings Logout Search

profitability we will continue to invest in new routes. We have been working on the basis that anything Support and loyalty for Air New Zealand is very strong can happen and are continuing to put plans in place within New Zealand. Research has shown that our for a wider range of scenarios than ever. We are also customers have never felt so positive about us. confident that we are in the best possible position to adapt the business to both persisting weakness in economic conditions and a rapid recovery. Our Bruce Parton Look forward to visiting the Wairarapa financial position, dynamic work force and market again on our new service. leadership mean that we are in great shape to tackle Sun at 5.12 pm the year ahead.

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Our biggest advantage

The biggest highlight of the year for me has been the continuous stream of positive customer feedback that has flooded my inbox. Customer compliments are up Rob Fyfe by 67 percent and this is a direct result of the positive attitudes and hard work of Air New Zealanders.

A record number of Air New Zealanders completed our 2009 Culture Survey. Employee engagement levels improved across all the main work groups, including pilots, cabin crew, airports and engineering, with every aspect that we surveyed showing progress. There is a greater understanding of the role we all play in delivering a uniquely Kiwi experience to our customers. Our sense of identity as Air New Zealanders continues to strengthen as does our commitment to make a difference and to ensure open, honest communication throughout the company. More Air New Zealanders than ever before are genuine advocates for our airline.

Not a time to relax

While we are pleased with our progress over the past year we cannot allow ourselves the luxury of relaxation. The airline industry moves at a rapid pace, and while this can be exhausting at times, it makes an airline 05 one of the most rewarding places to work. The 2010 financial year is looking to be another roller coaster of a year. We are continuing with the same Weekend away disciplined approach to capacity and cost management, 8 new photos but have the ability to add capacity as necessary. May 11 at 6.31pm • Comment • Like • Share Air new Ze a l nd Sh a reholder review

O ur 2009 ‘It’s What We Think’ survey results show that Air New Zealanders are feeling more connected and happier at work. All aspects surveyed, from understanding where the business is heading to whether respondents feel they can directly impact on financial performance, have improved over the Past two yearS. Especially encouraging has been the progress in areas that are in direct contact with our customers. GREAT improvements have been seen at International Airports and in Direct Sales which has contributed to positive customer feedback rocketing upward by 67%.

In the competitive airline industry customer New media is changing the way we do satisfaction is seen as a key differentiator business and enables us to make more 4.8 and increasingly has become a key element meaningful connections with our customers. of Air New Zealand’s business strategy. We have recently launched a new website 4.6

Because customers have different called ‘My Voice’ that shortens the feedback 4.4 preferences, Air New Zealanders are given loop from the customer to the front line. the freedom to be themselves and take Both compliments and constructive 4.2 initiative to treat each customer in a unique criticisms are instantly accessible to those way. Air New Zealanders are encouraged who can make a difference. By empowering 4 to take the opportunity to make decisions employees to solve problems and quickly 3.8 that can make a big impact on customers’ receive positive feedback for these actions experiences. For example, if operationally Air New Zealanders are more satisfied. 3.6 possible, our people have the ability to let This is important as it is our people that 2007 2008 2009 customers board a flight after the check-in deliver great customer service. cut-off – this can make a massive Logical connection Emotional connection Brand connection difference to someone’s day!

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HIGH GROWTH LOW GROWTH MED GROWTH +/– 5% PER ANNUM O ver the year Air New Zealand has put its agility into action and proven the rewards it can generate. 4.8As passenger demand deteriorated we were quick 4.6to spot the changes in our forward bookings and 4.4worked hard to quickly adapt. While long lead times

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The capability for an airline to change its capacity with as little We were already doing this in response to seasonality but as disruption0% to customers as possible is critical to profitability. This can be the economic conditions have deteriorated it has become necessary0ppt accomplished by either changing the gauge of the aircraft we fly or to be more disciplined and proactive in scheduling in response to flying less frequently on a route. Air New Zealand has the ability to demand levels. operate four different aircraft on the trans Tasman; Boeing 747s, When necessary we will take aircraft out of the operating fleet, 777s,-5% 767s and Airbus A320s. Therefore we are able to allocate the -5ppt however in order to avoid aircraft ownership costs we need the ability appropriate sized aircraft based on forward bookings. This is an to adjust our fleet size. When we make aircraft orders and take options advantage over some of our competitors that continue to fly wide to purchase aircraft we seek to build in as much flexibility as possible, body aircraft despite poor passenger loadings. –10% so we have options to adjust capacity depending on conditions– at10 ppt

OurCAPACITY IN CHANGE decision to fit ourB oeing 767 fleet with individual seat back the time. MOVEMENT FACTOR LOAD entertainment systems has also given us agility to change aircraft In the fleet flexibility graph below we show that nine months out gauges on long haul services. We have used this ability on our we have the ability to increase or decrease our long haul capacity Japanese–15% flights in the 2009 financial year when Influenza A (H1N1) –15ppt by approximately five percent. This enables us to have greater control led to a number of cancellations at short notice. As a result the impact over ownership costs. Last year we sold and leased back two of our of the influenza on the business was significantly reduced. Boeing 747-400 aircraft and we also have options for the right to While–20 down% gauging is our preference to keep the service frequency buy two Boeing 777-300ER aircraft in 2012 to expand capacity–20 ppt that our customersJUL 08 value, AUG 08we also SEP have 08 the OCT option 08 to NOVreduce 08 services. DEC 08 JANif necessary. 09 FEB 09 MAR 09 APR 09 MAY 09 JUN 09

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New Zealand's unique geography, as a remote island nation with rugged terrain, makes reliable domestic air services essential. We have one of the highest number of airports per capita in the world, with Air New Zealand flying to and from 27 domestic airports.

23 x Q300s 11 x ATR 72-500 18 x Beech 1900D

27 x Unique airports ook Airline, 1036 Air New Zealanders Mount C

e have spent years perfecting Air New Zealand hasE threeach has wholly its ownowned management subsidiary airlines;team and a long history of flying in Airways. and Eagle New Zealand’s unique and often testing weathere have conditions. also added W ingredients to make it a fast our recipe, with just the right amount of each ingredient to make domestic air travel an economical dish for families and friends. W and reliable service for business people whose livelihoods may depend on the reliability eof have our ith three types of aircraft and over 550 flights per day we need the best people services. W with a diverse skill set. 300 aircraft, completing the fleet of 23. ombardier Q Our investment in these 50 seat ll great recipes need fresh ingredients and the regionalA aircraft. airlines are no exception. W A Saab 340 ew Zealand providing additional leg recently taken delivery of our last new B These aircraft replaced the 33 seat aab. aircraft has significantly improved travel around regional N room, more space under seat, active noise and vibration suppression systems and faster trip times – 287 knots in cruise compared to 265 knots for espitethe S the difficult economice launched conditions services 11 The $650 million investment that we have made in regional air travel is one of the highest per Westport, where weThe saw support potential that forthe capita in the world and we intend to keepChristchurch investing. D/ of the 2009 financial yearMasterton we have and continued to invest in new services. W Auckland / between sustainable profitability and have customer and community support. New Zealand public show for our classic regional airline recipe will see it remain a fresh

and favourite dish for years to come. Air new Ze a l nd Sh a reholder review creating fuel savings out of thin air New Zealand’s remote location means we are highly dependent on air travel to link us with the outside world. We realise that more fuel efficient aircraft, to both reduce fuel cost and carbon emissions, are critical. At Air New Zealand greater fuel efficiency is not a distant promise based on the new generation aircraft that we have on order. It is reference to programmes we already have underway that are helping increase the efficiency of aircraft we already have in our fleet.

zonal dryer ZONAL DRYERS ESTIMATED TO SAVE

red u c es w ei g ht & fuel consumption 808 tonnes of carbon emissions annually red u c es car b on across the 767 fleet emissions 80% dry air ZONAL DRYERS ESTIMATED TO SAVE recirculated through cabin lining

20% regenerated moist air for airconditioning or release overboard 324 thousand litres of fuel annually Air intake across the 767 fleet

Photo: John Selkirk The Dominion Post creating fuel savings winglet

reduces drag WINGLET HEIGHT increases lift

more efficient

3.4 si g ni f i cantly metres improves fuel use

extends en g ine li f e & red u c e S maintenance cost

WINGLETS EXPECTED TO SAVE 6.5 million litres of fuel annually across the 767 fleet

WINGLETS EXPECTED TO SAVE 16,000 tonnes of carbon emissions annually across the 767 fleet

ZONAL DRYERS REMOVE OVER

200 13 kilograms of water per aircraft Air new Ze a l nd Sh a reholder review Photo: Stephen Jones, Gm Strategic Development, AND Rob Mcdonald, Cfo, Discuss Capacity Management  For the 2009 financial year, Despite deteriorating economic normalised earnings before conditions significantly taxation were $145 million, a decrease of 26 percent on the reducing demand for air travel, 2008 financial year. 15 Overall the year was extremely Air New Zealand’s financial challenging, as the business firstly adapted to deal with significant performance in the second increases in fuel costs, followed half improved against the first by rapid capacity adjustments in response to falling passenger half of the 2009 financial year. numbers and cargo volumes. Air new Ze a l nd Sh a reholder review FINANCIAL COMMENTARY

REVENUE reduced flying. During the period Air New Zealand income compared to last year. Conversely the Operating revenue for the year decreased by introduced an executive pay freeze, an elective stronger US dollar had a negative impact of $58 million, down 1.2 percent on the same period four day working week and a voluntary redundancy $488 million on costs of which $301 million related last year, to $4.6 billion. Excluding the favourable programme to adapt the business to the reduction to fuel. These impacts combined with the movement impact of the weakening New Zealand currency, in passenger numbers. Full time employees in foreign exchange hedging effects resulted in a operating revenue was down 6.9 percent. decreased by 4 percent excluding increases net benefit from foreign exchange movements of related to the recently acquired businesses. $272 million compared to last year. Passenger revenue fell by $74 million which was primarily due to a 7.6 percent decrease in demand, The average US dollar in-to-plane cost of fuel, CASH POSITION measured in revenue passenger kilometres. This excluding hedges, decreased by 15 percent year on Net cash generated from operating activities, prior decrease in demand was offset by a $188 million year. However, this decrease has been more than to the impact of the rollover of short-dated foreign positive foreign exchange impact due to the weaker offset by fuel hedging losses and unfavourable exchange contracts, was $355 million, a decrease New Zealand dollar against major trading currencies. foreign exchange movements. The reported fuel of $307 million on last year. This is primarily due to cost also includes the net impact of derivatives reduced forward sales and higher tax payments. In the Long Haul airline yield was up 12.1 percent, that hedge exposures in other financial periods. due largely to the foreign exchange impact, but The total investment in fixed assets was was partially offset by an 8.8 percent decrease in Fuel usage was reduced by 878,000 barrels, a $318 million during the year. This included demand. Capacity was reduced by 9.4 percent and 10 percent reduction. This decrease resulted from the installation of in-flight entertainment systems the passenger load factor increased by 0.6 of a reduced capacity and the withdrawal of the freighter in the Airbus A320 and Boeing 767 fleets, percentage point. Influenza A (H1N1) considerably service, combined with fuel saving initiatives. innovations at the domestic airports, two Q300 weakened the performance of Asian and Japanese Maintenance and overhaul expenses increased by aircraft and progress payments on the Boeing routes in the last quarter of the financial year. $80 million, or 32 percent, for the period. This was 777-300ER aircraft. Asset sales, including the sale and lease back of two Boeing 747-400 aircraft, Competition on the trans Tasman routes intensified primarily due to the lower New Zealand dollar that realised $104 million of cash. Cash outflows of as competitors increased capacity despite a softening increased the cost by $57 million. Additional costs $21 million arose from the acquisition of new demand environment, affecting passenger load were incurred due to additional maintenance businesses, including Tenix Aviation, Masling factor and yields. The Tasman and Pacific Island activity and from the consolidation of recently acquired engineering businesses, which were offset Industries and VCubed. operation’s passenger load factor fell by 2.4 by revenue generated by these businesses. percentage points on last year despite a 3.9 percent Net cash inflow from financing activities was reduction in capacity. Aircraft operations and passenger services $14 million. Cash inflows relating to foreign exchange costs were higher than in the 2008 financial debt hedges of $281 million were offset by net debt In the Domestic and Regional operations demand year. However, excluding the impact of foreign repayments of $204 million and dividend payments was down 3.7 percent on a 4.1 percent reduction exchange both decreased by 2 percent. totalling $63 million. in capacity. Despite intense competition the domestic operations received strong endorsement from Sales and marketing expenses reduced by FINANCIAL POSITION customers for the service improvements and 15 percent compared with the last financial Closing net cash was $1.6 billion, which is domestic airport innovations. year, excluding the impact of foreign exchange. 22 percent higher than 30 June 2008. In the 2010 Other expenses were inline at $261 million for financial year this balance will be significantly Cargo revenue was $374 million for the year, a the twelve months. reduced by progress payments for aircraft reduction of 10 percent on the 2008 financial year deliveries beginning in the 2011 financial year and despite benefiting from currency movements. The depreciation and amortisation cost decreased the recent strengthening of the New Zealand Dollar On 31 March 2009 Air New Zealand withdrew by 13 percent to $276 million. This was primarily resulting in cash outflows relating to debt hedges. its dedicated freighter service, which had been due to the change in the residual values of assets Net gearing, including capitalised operating leases, operating since 2005, to reduce exposure to the driven by the weakening New Zealand dollar has improved marginally from 45.3 percent in weak cargo market. This reduced cargo revenue combined with the sale and lease back of two June 2008 to 45.0 percent in June 2009. but overall profitability improved as a result of the Boeing 747-400 aircraft in August 2008. In termination of the service. converse, rental and lease expenses increased CONCLUSION by 24 percent as a result of the foreign exchange Air New Zealand’s ability to adapt its business Contract services revenue, including engineering, impact and the lease of the two Boeing 747-400s. rapidly in reaction to a wide range of market contract handling and training revenue, increased conditions has enabled it to maintain its strong by $44 million or 15 percent in the 2009 financial Net finance costs, excluding gains from derivatives financial position throughout an extraordinarily year. Of this increase $22 million can be attributed that hedge exposures in other periods, were challenging 2009 financial year. to foreign exchange and the remainder was primarily $88 million. This was an increase of $20 million, from increases in external engineering revenue from excluding the impact of foreign exchange, as lower While some certainty is provided by foreign Gas Turbines and the recently acquired Australian interest rates reduced the total interest income. exchange and fuel hedges that we have put engineering businesses, Tenix Aviation and Holding US dollar hedges became more expensive in place, demand remains a key variable that is Masling Industries. as the differential between US and NZ interest difficult to predict.T he same adaptability displayed rates increased. in the 2009 financial year will be imperative OPERATING EXPENSES FOREIGN EXCHANGE IMPACT throughout the 2010 financial year. Operating expenditure decreased 5 percent on Foreign exchange hedging gains for the period last year, after excluding the impact of fuel and the were $376 million. The $366 million gain shown net impact of derivatives that relate to exposures in the financial statements includes $10 million in other financial periods. of losses that hedge exposures in other Labour costs increased by $53 million, or financial periods. In the 2008 financial year 5 percent compared with the 2008 financial year, Air New Zealand’s losses relating to foreign to $1,019 million. Rate increases and performance exchange hedges were $121 million, resulting incentive pay offset savings from capacity in a $497 million year on year benefit. reductions and productivity improvements were The weaker New Zealand dollar had a positive eroded by the diseconomies of scale as a result of impact of $263 million on translation of foreign Change in profitability

The key changes in profitability are broken down in the table below:

2008 normalised earnings before taxation $197m

Passenger yield +$18m > Short haul yields improved by 0.5 percent > Long haul yields improved by 12.1 percent

Passenger traffic –$280m > Passenger demand was down 7.6 percent > Capacity reduced by 7.2 percent reflecting proactive capacity management in response to falling passenger demand > The resulting passenger load factor for the Group was 79.0 percent, down 0.3 of a percentage point on 2008 demand

Freight, contract services and other revenue –$59m > Lower freight volumes and termination of round-the-world freighter service offset increases in contract services revenue

Labour –$48m > Rate increases offset savings from capacity reductions and productivity improvements

Fuel –$5m > Fuel usage was reduced by 10 percent, to 8.1 million barrels > The average US dollar in-to-plane cost of fuel, excluding hedges, decreased by 15 percent year on year > This decrease has been more than offset by the movement in fuel hedging of $375 million

Maintenance –$23m > Additional maintenance activity and the consolidation of recently acquired engineering businesses which generate external revenues

Aircraft operations and passenger services +$14m > Aircraft operation and passenger service costs decreased on the back of capacity reductions and fewer passenger numbers

Sales and marketing +$ 51m > Lower sales and marketing due to capacity reductions and lower cost of sale

Depreciation and lease costs +$25m > Depreciation costs were reduced by increased residual values, driven by the weakening New Zealand dollar

Net finance costs –$20m > Reduced interest revenue as a result of lower interest rates and a higher cost of holding US dollar hedges due to the weaker New Zealand currency

Net impact of foreign exchange movements +$272m > The weaker New Zealand dollar had a negative net impact on translation of foreign income and cost compared to last year > This impact combined with the movement in foreign exchange hedging gains resulted in a net benefit from foreign exchange movements compared to last year 17 Gain on acquisition of subsidiaries +$10m > Acquisition of Tenix Aviation

Other –$7m

2009 normalised earnings before taxation $145m

–$138m > Net impact of derivatives that hedge exposures in other financial periods Air new Ze a l nd Sh a reholder review

2009 earnings before taxation $7m FINANCIAL Summary

FINANCIAL PERFORMANCE

12 MONTHS TO 12 MONTHS TO 30 JUNE 2009 30 JUNE 2008

$M $M

Operating Revenue Passenger revenue 3,734 3,808 Cargo 374 416 Contract services and other revenue 501 443 4,609 4,667 Operating Expenditure Labour (1,019) (966) Fuel (1,687) (1,122) Maintenance (327) (247) Aircraft operations (423) (412) Passenger services (275) (254) Sales and marketing (295) (330) Foreign exchange gains/(losses) 366 (128) Other expenses (261) (261) (3,921) (3,720) Earnings Before Finance Costs, Depreciation, Amortisation, Rental Expenses and Taxation 688 947 Depreciation and amortisation (276) (318) Rental and lease expenses (334) (270) Earnings Before Finance Costs and Taxation 78 359 Net finance costs (71) (55) Profit Before Taxation 7 304 Taxation credit/(expense) 14 (86) Net Profit Attributable to Shareholders of Parent Company 21 218 Interim and final dividend declared per share (cents) 6.5 8.5 Net tangible assets per share (cents) 147 145 Supplementary information Earnings before Taxation (per NZ IFRS above) 7 304 Reverse net (gains)/losses on derivatives that hedge exposures in other financial periods: Fuel derivatives 130 (129) Foreign exchange derivatives 9 20 Interest rate derivatives (1) 2 Normalised Earnings before Taxation 145 197 Normalised Earnings after Taxation 118 146

Normalised Earnings represents Earnings stated in compliance with NZ IFRS after excluding net gains and losses on derivatives that hedge exposures in other financial periods.

CASH FLOWS

12 MONTHS TO 12 MONTHS TO 30 JUNE 2009 30 JUNE 2008

$M $M

Cash inflows from operating activities 4,704 4,854 Cash outflows from operating activities (4,349) (4,192) 355 662 Rollover of foreign exchange contracts relating to operating activities 131 81 Net cash flow from operating activities 486 743 Net cash flow from investing activities (216) (290) Net cash flow from financing activities 14 (221) Increase in cash and cash equivalents 284 232 Cash and cash equivalents at beginning of the year 1,289 1,057 Cash and Cash Equivalents at End of the Year 1,573 1,289 FINANCIAL POSITION

AS AT 30 JUNE 2009 30 JUNe 2008

$M $M

Bank and short term deposits 1,573 1,289 Trade and other receivables 362 447 Inventories 143 123 Derivative financial assets 143 208 Income taxation 7 7 Other assets 47 38 Total Current Assets 2,275 2,112

Trade and other receivables 34 28 Property, plant and equipment 2,337 2,534 Intangible assets 39 40 Investments 62 49 Derivative financial assets – 6 Other assets 298 254 Total Non-Current Assets 2,770 2,911 Total Assets 5,045 5,023

Trade and other payables 374 480 Revenue in advance 721 822 Interest-bearing liabilities 172 158 Derivative financial liabilities 282 84 Provisions 34 27 Other liabilities 176 136 Total Current Liabilities 1,759 1,707

Revenue in advance 114 109 Interest-bearing liabilities 1,107 1,167 Derivative financial liabilities 25 3 Provisions 164 116 Other liabilities 38 45 Deferred taxation 233 299 Total Non-Current Liabilities 1,681 1,739 Total Liabilities 3,440 3,446 Net Assets 1,605 1,577

Issued capital 2,237 2,227 Reserves (632) (650) Total Equity 1,605 1,577

The summary financial information has been derived from, and should be read in conjunction with, the Air New Zealand Group Annual Financial Statements (the ‘Full Financial Statements’). The Full Financial Statements, dated 27 August 2009, are available at: www.airnzinvestor.com. The summary financial information cannot be expected to provide as complete an understanding as provided by the Full Financial Statements. The accounting policies used in these financial statements are attached in the notes to the Full Financial Statements. 19 Air new Ze a l nd Sh a reholder review 5

Air New Zealand receives Air Transport World ‘Public Relations Award’ for the management of external communications during a challenging year. This is only the second time the award has been given in eleven years.

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Air New Zealand was Airline Business ‘Airline named overall winner of Strategy Award – the 2009 Loyalty Awards Technology’ received for Chief Information Officer for the most innovative Air New Zealand achieved redefining the domestic Julia Raue was named frequent flier programme. Enviro-Gold accreditation, airport experience. 2009 Computerworld the highest rating under the Awards CIO of the Year. Qualmark Green responsible tourism criteria. Board of directors

John Palmer, Chairman

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Roger France, Deputy Chairman Grabaseat won the Philips Innovation Award at the Tourism Industry Awards.

Paul Bingham

Dr Jim Fox

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Jane Freeman

Judges’ Choice Trophy awarded for an outstanding frequent flyer programme at the Loyalty 2009 Awards.

Warren Larsen

John McDonald ShareHOLDER ENQUIRiES

Shareholder Communication

Air New Zealand’s investor website www.airnzinvestor.com provides shareholders with monthly operating statistics, financial results, stock exchange releases, corporate governance, annual meetings, investor presentations, important dates and contact details. Shareholders can also view webcasts of key events from this site. Shareholders who would like to receive electronic news updates can email Investor Relations on [email protected]

Share REGISTRAR

Link Market Services Limited Level 12 120 Albert Street Air New Zealanders Auckland, New Zealand recently stripped off and slapped PO Box 91976, Auckland 1142, New Zealand on the body paint to illustrate that our Email: [email protected] Website: www.linkmarketservices.com airfares have... New Zealand Phone: (64 9) 375 5998 Fax: (64 9) 375 5990 Australia Phone: (61 2) 8280 7111

Investor relations office

Private Bag 92007 Auckland 1142 New Zealand Phone: 0800 22 22 18 (New Zealand) (64 9) 336 2287 (Overseas) Fax: (64 9) 336 2664 Email: [email protected] Website: www.airnzinvestor.com

FULL ANNUAL FINANCIAL REPORT At Air New Zealand we like to take

a straight forward honest approach contents The full Annual Financial Report is available by visiting - it's the way we do business. 01 EARNING REWARDS our website www.airnzinvestor.com IN TESTING TIMES 02 CEO UPDATE or 06 HAPPY TRAVELS You may elect to have a copy sent to you by contacting 08 AGILITY IN ACTION Investor Relations. 10 REGIONAL RECIPE 12 FUEL EFFICIENCY 14 FINANCIAL COMMENTARY 18 FINANCIAL SUMMARY Thisreport was printed using mineral oil free vegetable based inks on paper from third party certified forests and manufactured under the strict Eco Management and Audit Scheme and ISO environmental 14001 systems. Insight Creative Limited, Auckland/Sydney. 08/09 AIR098