AGIFORS Airline Operations Washington 2-6 May 2004

The year in review……… 1 On target to deliver a profit of +$200m NZD ( $135m USD) 7 of the 15 A320’s on order are in operation and in record time Another round of restructuring, this one radical. Almost all of the senior executives including the CEO do not have an aviation background Airline split into 3 operating units Link Airline - regional turbo prop sectors Pacific Airline - single aisle serving destinations <5 hours from base International Airline - twin aisle serving destinations >5 hours from base

The year ahead……… 2 Full delivery and entry into service of remaining A320’s Retirement of a number of B733’s Selection of new 300 seater aircraft to replace ageing B767’s Refurbishment of B744 aircraft with lie flat seats and in seat entertainment Legal challenge to reverse a Commerce Commission not to allow Qantas to take a 25% stake in the airline

The challenges ahead……... The biggie - “Open Skys”, deregulation and the challenges of the new Low Cost Carriers and fifth freedom airlines. New Zealand has one of the most open and deregulated airline operating environments anywhere in the world. Almost any airline can operate to/from and within the country. In airlines, Qantas and Air New Zealand operated the Trans Tasman routes between New Zealand and Australia with a roughly 50/50 split of traffic. Average airfares were $400 per sector ( 260USD )

The challenges ahead……... In 2004, that same piece of ocean is now served by 12 airlines. The average low end fare now is $169 one way ( $110USD for a 3 hour sector ) with specials starting at $119 ($77USD ) To deal with this extreme drop in revenues and yields, greater levels of costs needed to be removed from the business, across all divisions and the airline needed to become more innovative and proactive A new product “Tasman Express” was launched that delivered higher levels of service than that of a LCC, ( free food and alcohol) but well below a full service airline.

The challenges ahead……... OTP becomes even more critical as the airline strives to extract more utilisation out of its aircraft ( and thus generate greater revenue streams ) as well as deliver to our customers expectations To deliver improved OTP, and to enable better management of our operating costs, our operations centre is being revamped. All the key decision makers across the operation, will now be co-located on the same floor in a single building. Our key operations tools, AirOps, AirCrews and AirFlight, are all being upgraded to the latest versions to allow us to actively utilise the new generation of operations Decision Support tools

The challenges ahead……... We are working actively with Sabre and some other airlines to develop similar tools for crew Decision Support We are developing a Payload Optimisation process that will include the ability to profit model in advance, as well as on the day we continue to work with the SIMair team to develop a schedule robustness tool to ensure our future schedules have a fair chance of succeeding on the day plus doing our day job, keeping the airline flying!!

AGIFORS Airline Operations Washington 2-6 May 2004 Thank you.