AIR NEW ZEALAND: THE CURRENT STATE OF TOURISM

1. AIR NEW ZEALAND:THE CURRENT STATE OF TOURISM Ord Minnett Tourism Conference: November 2000

2. CONTENTS • OUR INVOLVEMENT WITH TOURISM • GLOBAL TOURISM AND AVIATION TRENDS • NZL TOURISM TRENDS • DRIVERS OF TOURISM TO NZL • THE ROLE OF GOVERNMENT • AIR NEW ZEALAND’S INITIATIVES

3. OUR INVOLVEMENT WITH TOURISM • Inbound • Transportation - The first point of contact with NZL, sets the mood for the trip, the face of NZL. • Product Development - Helping to create the motivation to travel and turning it into an actual experience, driving tourists to NZL. • Marketing - NZL and the Region as destinations. • 99% of visitors to NZL arrive by air. • We carry 760,000 passengers p.a. into NZL. • We spend NZD 202 million p.a. on offshore marketing and business management activities. • Outbound • We carry approximately 50% of the outbound passengers from NZL. • Domestic • We carry approximately 70% of the domestic passengers within NZL. • We spend a considerable amount stimulating and supporting domestic tourism. eg Gotta Go fares, regionally based campaigns and sponsorship such as the NPC and the Ellerslie Flower Show.

4. GLOBAL TOURISM AND AVIATION TRENDS • Improvements in technology will make longhaul travel easier and more accessible…..hence NZL will be more attractive to a larger market. • Regional experiences are more in demand by leisure traffic. Worldwide people have more leisure time and higher income, therefore more opportunity to travel. • In 1999 total global traffic increased 6.9%, capacity increased 5.5%. • Growth driven by price sensitive leisure traffic. • Intense competition will keep yields under pressure but fuel prices are forcing airfare increases. • Over the foreseeable future demand for aviation products & services will continue to double every 10-14 years. • Starting to see changing behaviour of airlines focusing on revenue quality not quantity. • Airlines are having to differentiate themselves as either full service or value based carriers. • Passenger traffic is expected to increase at an average annual rate of around 5% between 1999 and 2010, with freight growth being nearer 7% per annum. • Current year global forecasts are for a 6% increase in traffic and a 5% increase in capacity.

5. NZL TOURISM TRENDS • NZL as a long haul destination is a choice for the experienced traveller. • Alliance activity is giving us access to more potential travellers. • Inbound tourism is forecast to continue to grow with NZL gaining a larger share of the total market. • NZL’s share of world tourism has risen over the past 8 years from 0.21% to 0.25% in 1999. • Outbound tourism will still grow but the weak NZD has slowed forecast growth. • Domestic tourism will grow as some outbound travel will be converted to domestic travel.

6. DRIVERS OF TOURISM TO NZL • Events….Millennium, America’s Cup, Olympics and Rugby World Cup. • Developing market segments….MICE, fly / cruise. • Weak NZD making NZL a quality product which is very attractively priced. • Destination awareness via promotion by tourism, trade, sport and business. • 100% PURE NEW ZEALAND, Wool Board, Dairy Board, All Blacks, David Tua, Movie Industry.

7. THE ROLE OF GOVERNMENT • Tourism is an ideal industry to develop. The political, economic and social impacts are positive and it can be environmentally sustained if it is managed well. • We need the Government to : • Provide clear direction pointing to tourism as a sunrise industry. • Help co-ordinate the profile of NZL to provide a consistent and appealing message to the world. • Recognise what tourism brings to the economy and reinvest that in the industry. • AIR works closely with Tourism New Zealand as the two major investors and representatives for tourism marketing offshore.

8. Network development Offer design Customer demand generation Customer mix optimisation Customer service delivery Cost efficiency Strategy Objectives • Match the fleet to the network • Match service offers to individual market requirements • Maximise revenue at the network level • Flawlessly execute our service offer • Operate with cost advantage in every major market • Offer a competitive network to business travelers in Australasia at the alliance level • Focus our resources on the most profitable markets • Become preferred supplier, and build direct relationships with business travelers in our primary markets • Optimise channel mix and cost of sales in all markets AIR NEW ZEALAND’S INITIATIVES • Business Strategy • Consolidate regional strength with the enlarged Air New Zealand Group. • Develop a strengthened position from Asian and European markets in conjunction with SIA. • Capitalise on STAR membership with increased feed from existing markets, access to new markets and better global coverage. • Strategic Framework

9. AIR NEW ZEALAND’S INITIATIVES • Network Strategy • Focus on core routes based on Australasia and the Pacific Rim, in particular the key markets of Australia, Japan and USA. • Improve connections to alliance partners. • Australasian focus is on • The single aviation market. • Hub points in AKL, SYD and MEL to provide critical mass to routes by connecting domestic and international traffic. This strategy also provides more destinational options to the traveller with good connections. • Pacific Rim focus is on • LAX and beyond. • Best schedule to and through the Pacific. • Establishing a network of Asian gateways with AIR and Ansett to cover origin markets and European through traffic.

10. AIR NEW ZEALAND’S INITIATIVES • Marketing • Promote NZL and the South Pacific as destinations offshore. • Leverage brand and airline preference for AIR. • Convert motivation for travelling to actual travel via consumer interests / activities promotion, web-sites and products. • Capitalise on opportunities provided by MICE and events. • Align our activity with Tourism New Zealand strategy where appropriate. Help to build the “NZL Incorporated” image.