Welcome to the Air New Zealand 2022 annual results call. During the presentation, your phone lines will be placed on listen-only until the question and answer session. Please refrain from asking questions until that time. With that, I will now turn the call over to Air New Zealand General Manager of Corporate Finance, Leila Peters.
Thank you and good morning, everyone. Today's call is being recorded and will be accessible for future playback on our investor center website, which you can find at www.airnewzealand.co.nz/investorcenter. Also on the website, you can find our annual results presentation, shareholder review, full financial results, and media release. Speaking on the call today will be Chief Executive Officer Greg Foran and Chief Financial Officer Richard Thompson. I would like to take a moment to remind you our comments today will include certain forward-looking statements regarding our future expectations, which may differ from actual results. We ask you read through the disclaimer and in particular, the forward-looking cautionary statement provided on slide two of the presentation. I'll now hand the call over to Greg.
Thank you, Leila, Kia ora, and good morning everyone and thanks for joining us on today's call. I think I say this every August, but it's been another big year for Air New Zealand. Hiring and training staff, scaling our international operations back up, announcing our new cabin experience, and the hundreds of little things in between. When I reflect on the last financial year, it's incredible to think about what we have achieved and the steps taken to set Air New Zealand up for future success, despite operating in such a volatile and uncertain environment. Whenever I can, I take this time to recognize the resiliency and determination of Air New Zealanders. Attitude is a small thing that makes a big difference and I see this play out for our customers every time I'm out on the network.
Our teams show up every day with a smile, go out of their way for our customers, and move the business towards a brighter future. For that, I wanna say thank you again to our team. I also want to thank our shareholders for their ongoing support. By refueling us for our recovery through the recapitalization earlier this year, you've set us up for future success. Your patience and support over recent years is appreciated and in turn, we're doing everything possible to leverage the recovery of aviation and set the airline up for a strong future profitability. As you all have seen, we released Air New Zealand's 2022 financial results earlier this morning.
Despite a strong performance from our cargo business and an improving demand in revenue environment in the last quarter, we have reported a loss before other significant items and taxation of NZD 725 million. The statutory loss before taxation was NZD 810 million and the statutory loss after taxation was NZD 591 million. Richard will talk about the result in more detail later, but the loss reflects an environment in which international passenger flying was virtually nonexistent and domestic flying was significantly impacted by lockdowns and the arrival of Omicron. Pleasingly, the current landscape is quite different. Since the relaxation of travel restrictions and border re-openings in the fourth quarter, customer demand for travel has been stronger than it has been for over two years. This is fantastic, but it does bring about a different set of challenges.
Fortunately, we made the call early to start rebuilding our business in anticipation of borders opening. Before we had any certainty around the removal of travel restrictions or how demand would look after two years of limited travel, our teams began the huge task of reanimating our 777-300s and hiring back and training operational staff. However, it has been very difficult to anticipate demand. While we were confident the desire for travel remained strong, we didn't foresee how strongly demand would return nor scale up for that level of growth quickly enough. Adding to this, we've had a winter of significant sickness, not only for our staff, but across the entire aviation system, as well as the very challenging weather. Through all the chaos, we have focused on ensuring that we do the right thing for our people, our customers, and our shareholders.
That includes hiring additional support at our contact center, training and retraining crew as fast as possible, reinstating our COVID flexibility policy and providing special pandemic leave options for staff. To say it's been a busy year is a bit of an understatement, but I'm confident that the work done in 2022 has set a strong foundation to take our performance to the next level. With the NZD 2.2 billion recapitalization complete and New Zealand borders open, the airline is firmly in the revive phase of our recovery. As you can see, this has involved some hard mahi from teams across our whole business. It's an incredibly important stage. We've not been sitting around waiting for demand to recover. Instead, we've taken the opportunity to reimagine what our business could be and reinvent ourselves.
In this new world, we believe differentiation will be hugely important, and we've worked hard to deliver new services and product offerings that will excite our customers. A lie-flat Skynest in the economy cabin was just a concept in 2020. We've worked hard to make this a reality and we know it will be a game changer. Likewise, we know we must find a more sustainable way to fly if we wanna thrive over the long term and maintain our social license to operate. That doesn't go away just because there is a pandemic. We've further advanced our exploration of electric, hybrid, and green hydrogen aircraft and set ourselves a clear pathway to our 2050 decarbonization goals. These are just a few examples of how our Kia Mau strategy is coming to life.
To help drive that momentum, we've also taken the bold step of changing how we work by going Agile. We call it Full Potential, because that is exactly what it's designed to do, get us to our full potential in terms of how we deliver for our customers, our people, our shareholders, and our country. With Kia Mau at the heart, we're committed to rebuilding a stronger, more nimble, world-leading airline. Now moving to slide six, and what we have observed in terms of customer demand across the past few months. Since the phased reopening of New Zealand's borders, bookings have been impressive and frankly, have far exceeded our expectations. The charts on the slide give you a sense of the momentum we've experienced in the last quarter of the year, both the domestic and international bookings.
As you can see, the dynamics in each of those markets are different. The domestic network has been impacted on and off with various lockdowns over the course of the year, but some quite significant highs when New Zealanders could travel freely around the country. This has continued and in recent months, demand has tracked fairly closely to pre-COVID levels. The mix of that demand is slightly different, with corporate travel in July just shy of 2019 levels and leisure demand even stronger than what it was before the pandemic. From a forward sales perspective, the trend is much the same. Demand remains high. Average fares are also reflecting increased costs. The macro headwinds of higher interest rates, higher inflation, and higher fuel. We're watching domestic demand very closely for signs of softening, but have not observed this to date.
As always, we'll continue to monitor the environment and be ready to respond if needed. Looking now at international bookings. When the borders began re-opening in March, we saw an immediate spike in demand. We're unsure if that level of demand will continue, but as you can see from the chart on the lower right, it has held relatively steady. The level of recovery has been about two-thirds of the 2019 bookings as we continue to build capacity back into offshore markets. Demand for travel to Australia and the Pacific Islands has been strong, beginning with the April school holidays, where we were proud to be connecting family, friends, and colleagues with each other again. The reanimation of our 777-300s has helped us service high demand on these routes.
From a long-haul perspective, the North American market has been the standout with good bookings from both New Zealand and abroad. All ports have seen strong demand, notably our New York direct service with our first direct flight to JFK on the 17th of September. Asia bookings are lower, which is to be expected given continued restrictions in some markets, particularly China. However, even these markets have seen increased bookings in recent weeks as restrictions have shown signs of easing. All in all, we are very pleased to see this level of demand return so quickly, demonstrating our fundamental belief that people still have a strong desire to travel and connect with each other. Turning now to slide seven and our plans for capacity as we continue to rebuild the network in FY 2023.
We've been fortunate that most of our fleet, with the exception of the triple seven three hundreds, have been in operation throughout the pandemic. Thanks to strong cargo demand and flights under government air freight schemes. This gave us a head start in relaunching international operations in April. We are expecting FY 2023 capacity levels that are about 75%-80% of 2019 levels. That's a bit more growth than we had anticipated back in March when we launched our recapitalization and reflects the stronger demand I touched on. It also reflects our expectation that we will have the remaining 777-300s flying by the end of FY 2023. The mix of that growth by route group is provided on the slide, along with some commentary that is fairly self-explanatory. I will just touch on the mix, which is compared against 2019 levels.
The growth will be more skewed to short-haul markets than long haul, which is in line with our medium-term network strategy to grow the domestic market and optimize our international network. While our business is emerging from the pandemic at pace, that does not mean we're immune to other challenges that the industry has faced in previous economic cycles. These are all things that are beyond our control. I would say that our team's experience in dealing with COVID while taking great care of our customers and planning for the future is a powerful skill set.
Tight labor markets, unprecedented levels of staff sickness, and the inclement weather conditions we saw across the country in July and August were tough on our customers with cancellations and delays across the network. You will have seen us proactively manage this, announcing that we're taking 1.5% of our planned capacity out of the system for the coming spring and summer months to give our customers increased surety over their travel plans. What gets measured gets managed, and our entire leadership team now has real-time access to queues at the airport, contact center wait times, and various other operational measures throughout our network. I personally joined the daily operational calls to hear about the challenges around the various ports, what our teams are struggling with and how we can set it right quickly.
You can see from our on-time performance that we continue to have blips but I am confident we now have the tools to manage this more proactively. With that, I will pass you over to Richard.
Thank you, Greg, and kia ora to everyone on the call. Turning now to slide 10, I'd like to touch on just a few items. Operating revenue was NZD 2.7 billion, an increase of almost 9% on the prior year, reflecting a strong cargo performance of just over NZD 1 billion, with passenger revenue remaining fairly flat year-on-year as a consequence of the pandemic. For some context, domestic capacity as a proportion of pre-COVID levels was around 60%. In international, which includes short-haul international flying to the Pacific Islands and Australia, was around 15%. Greg has already touched on the loss for the year, and we reported a statutory net loss after taxation of NZD 591 million. Gearing and cash levels have improved substantially as a result of the capital raise and favorable working capital movements.
However, we continue to be focused on improving other credit metrics as we navigate the current macroeconomic environment and our recovery. As a result, we have not declared a final dividend for the 2022 financial year. Looking now at our profitability waterfall chart on slide 11, you can see the decline in profitability this year is driven by an increase in the cost base as we held on to certain reintroduced costs during both the Tasman bubble suspension and the extended Auckland lockdown, anticipating that we would need those resources later on. As a consequence, labor costs grew ahead of anticipated capacity growth as we hired and retrained staff and also reflected two one-off staff bonuses made during the year.
I will touch on fuel in a later slide and the increases related to costs such as maintenance and passenger operations are explained in the commentary on the right-hand side, which largely have to do with the ramp-up in operations in the second half of the financial year as borders reopened. Ownership costs decreased due to impairment in the prior year of some 777 aircraft, which drove lower depreciation expense in addition to some aircraft exits. Finally, the improvement in our share of associates refers to our joint venture with Pratt & Whitney, the Christchurch Engine Centre. This growth reflects both increased volumes going through the shop this year, as well as a mix of the work skewed more to heavy checks than in the prior year. Turning now to slide 12.
Cargo continued to be a significant contributor to revenue with just over NZD 1 billion in financial year 2022. This growth was partly related to more cargo-only flights, which grew 19% versus the prior year, and yield growth of 4%, reflecting high demand and fewer international carriers operating into the New Zealand market. In addition, a continuation of government aviation support programs contributed NZD 403 million towards the cargo revenue figure. The MIEC scheme was extended several months ago, but reliance on the scheme has been reducing across routes where borders are more freely open. It is expected the scheme will cease entirely no later than March 2023.
While we believe strong underlying demand for air freight versus sea shipping will continue in the near term, we are expecting the level of cargo revenue in FY 2023 to reduce from FY 2022 as we see increased air passenger operations to, from, and within New Zealand. The contribution of cargo to our overall network post-pandemic remains fundamental and is a key part of our strategy to optimize our international network. We are excited about the future opportunities in this part of our business, which will be driven in part by investments in digital systems focused on optimizing the mix of passenger and cargo weight on a flight-by-flight basis, as well as infrastructure investments that allow for more automation. Turning now to slide 13. Reported CASK, that's cost per available seat kilometer, increased 9.1%, largely driven by fuel price.
Excluding the impact of fuel prices, foreign exchange, and reduced third-party maintenance, plus the discontinuation of the aviation support subsidy, CASK decreased slightly by 0.6%. This movement was partly a function of operating a greater proportion of long-haul cargo only flying than normal, which comes with a lower CASK. You may recall mention of this temporary effect during the interim results call this year. As we look forward to the current financial year, we expect this to correct as the proportion of cargo flying reduces with higher levels of international passenger services. Turning to slide 14, fuel costs were NZD 560 million for the year, increasing 80%. The increase was largely driven by a 92% increase in the price of Singapore jet fuel, partially offset by NZD 96 million of hedging gains.
Fuel consumption increased 14% in the year due to a 15% increase in capacity flown, resulting in an additional NZD 41 million of volume related costs. The stronger US dollar also contributed to $16 million of the fuel cost increase. On slide 15, I thought I'd touch on fuel hedging, as we usually get questions on our approach to this in times of elevated jet fuel prices. In short, our approach to fuel hedging is driven by our treasury policy, which in turn is based on a core principle that we utilize hedging as a tool to give the business time to adjust and to continue to assess the best strategies to protect against fuel price risk. Our hedging policy remains unchanged and includes key principles such as the tenor of hedges going out no further than 12 months, typically, and 18 months under certain circumstances.
We hedge according to a declining wedge structure, meaning that the greatest volume of hedges are within the next three months and then that declines as you move further out from the current period. This largely aligns with our customer booking curves, but also takes into account the lead time needed to make meaningful adjustments to capacity and/or airfares to reflect the fuel price environment. As a reminder, we usually only hedge Brent crude and therefore fuel cost is exposed to volatility in the crack spread between the crude and jet fuel price. This has fluctuated significantly this year. In the past six months, we have utilized call options exclusively to allow immediate participation should fuel prices trend downward. Although, we may elect to use different instruments as prices change.
Based on current expectations for the network, we are approximately 56% hedged for the first half of the 2023 financial year and 25% hedged in the second half. Now that we have greater clarity of the level of capacity we expect to operate this year, we have reinstated a fuel cost sensitivity chart to provide a better understanding of the potential impact of price and foreign exchange changes given our current hedge position. Moving on to slide 16. This provides an overview of operating cash flows over the past two years, adjusted to exclude some pandemic-related items such as government subsidies, grants, and other forms of support, as well as PAYE deferrals and repayment. What is encouraging to see in the chart is the strong cash flow performance in the fourth quarter.
As Greg highlighted earlier, this is supported by the positive booking activity, which we are continuing to see now further elevated by yield strength. Turning now to slide 17. Following the completion of the recapitalization in May, our balance sheet and liquidity position has been restored. You can see the impact of the various transactions on the chart, which include the repayment of the NZD 850 million Crown loan. It's worth noting that we continue to retain NZD 200 million of redeemable shares on issue to the Crown, which are treated as debt on the balance sheet. We will look to repay this at some point, potentially in the next 12-18 months, but are happy to maintain this additional source of liquidity as we navigate our way through the recovery and the potentially uncertain macroeconomic environment.
Turning now to slide 18 and our future fleet investment. You can see the expected phasing of the aircraft capital expenditures through to 2028, with no commitment at this stage beyond that. As we've discussed previously, our fleet networks and sustainability teams have been engaging heavily with manufacturers and startups on future hybrid and electric aircraft, focused particularly on our domestic network, which will result in some future commitments to replace the Q300 fleet, but nothing at this stage. As the chart and table reflect, we will be receiving the first four domestic A321neo aircraft this year out of a total of seven. After some delay due to COVID, we are very pleased to be getting these aircraft, which will replace older Airbus 320s and provide cost-efficient capacity growth.
There are 46 additional seats on the A321 relative to the A320, and these provide cost-efficient growth key to the domestic network growth assumptions we've made. Looking at our wide bodies. As you know, we have an order for eight Boeing 787 aircraft. The expected timing of the delivery of the first few aircraft has been adjusted to reflect our current view of likely delivery dates. Following discussions with Boeing as they work through production rates, the first two aircraft are now expected to be delivered in financial year 2025 rather than 2024. The associated CapEx has therefore been adjusted to reflect this timing. The total forecast spend to FY 2028 that you see reflected in the purple bars on the chart is $3.1 billion based on an FX rate of 0.62.
This compares to our projections as part of the capital raise of NZD 2.7 billion. I would note that there isn't any additional projected spend in there. The movement is largely a function of the significant strengthening of the US dollar since March. Turning now to slide 19, there are several components to the other investment profile we regularly touch on, but are far more fluid from year to year as the mix can change depending on the cadence of different projects. One such area discussed when we launched the recapitalization is the expectation of an interior retrofit program for our current fleet of 14 Boeing 787s. The oldest aircraft in that fleet is around eight years old, so getting close to the end of the life of the interior seat product.
We're still working through the dates when these aircraft will undergo retrofit, but currently expect that program to begin no earlier than mid-calendar 2024, and it will be staggered over several years. The estimated CapEx associated with that program at current FX rates is approximately NZD 450 million. Engine maintenance is lumpy and dependent on the utilization of aircraft within each fleet. Accordingly, engine maintenance spend will increase compared to the past two years. Note that the associated spend on an engine shop visit provides an enduring benefit over a number of years, typically around five years or so. Investments in digital infrastructure are a core feature of our Kia Mau strategy, as Greg has already mentioned.
We expect a portion of our CapEx over the medium term will go towards systems that improve operational resilience and generate cost efficiencies, including advancements in the way our people interact with the airline and our customers and remove friction points. Finally, I'll briefly comment on properties and infrastructure spend, which is expected to be elevated from historical averages over the next four to five years as we undertake some significant reinvestment in our 1960s-era engineering base and cargo facilities in Auckland, as well as relocate the company's head office. These are once in a generation investments, so the CapEx associated with them is not expected to repeat once complete. I'll now pass you back over to Greg, who's going to discuss the outlook and leave you with some closing remarks.
Thanks, Richard. Looking now to the outlook. With borders now open to the majority of the airline's markets, Air New Zealand expects the 2023 financial year to represent the first full year of uninterrupted passenger flying since the beginning of the pandemic. Total flying capacity for the 2023 financial year is expected to be in the range of 75%-80% of pre-COVID levels. On this basis, the airline anticipates a significant improvement in financial performance relative to the financial year 2022. Given the degree of uncertainty regarding volatility in jet fuel prices, the risk of a global recession and other macroeconomic factors, including inflationary pressure on costs, no earnings guidance will be provided at this time. Finally, I'd like to end my remarks by simply saying that I have never been more encouraged about the future of Air New Zealand.
We have a fantastic network that is focused on serving our customers and where they want to fly. We're in the latter stages of fleet renewal with a simplified and modern aircraft that are a great match for the missions we fly. We have a culture that is underpinned by incredible people who are empowered to be themselves, do the right thing, and focus on how we can continuously improve on what we offer our customers. With our Kia Mau strategy, we have a clear roadmap to help us deliver on our three key profit drivers and move from revive to an airline that is thriving and reaching its full potential. Thank you for your time today and listening as we've shared our results. I know you will have questions, so operator, please open up the line.
Thank you. If you have a question at this time, please press star one one on your telephone. Please stand by while we compile our Q&A roster. Our first question comes from the line of Andy Bowley with Forsyth Barr. Your line is open. Please go ahead.
Thanks, operator, and good morning, Greg, Richard, and Leila. First question from me is just around the outlook commentary and I recognize there's a lot of moving parts here and a fair bit of uncertainty. I can understand and sympathize with the reluctance to provide any guidance. Maybe if you could give us maybe some context around the significant improvement in financial performance for the year ahead. You know, can you be profitable in light of where fuel prices are, if they are sustained for the remainder of the next 12 months and in light of what the demand profile is you're seeing at the moment?
Richard speaking, thanks very much for the question. It's a difficult question, and one of the reasons why we haven't put a sort of definitive guidance in the market for the year. What I would say is that with 75%-80% of the capacity back in the network and domestic running at roughly 100% of pre-COVID, we are expecting a significant improvement in profitability. The challenge, I guess, we've had over the last eight weeks is that fuel prices fluctuated from anything between the mid $140 US dollar level down to as low as $120. Actually, as we speak this morning, the jet fuel price overnight is back up at $141. It is, you know, a fluid environment on the fuel cost side.
I think per Greg's earlier points on the revenue side, we're in a relatively favorable environment, or certainly an environment where we're seeing some good yield improvement. If I just go through the three major segments there. Domestic has probably been the slowest of the three to pick up in terms of yield strength, just as we've worked through the Omicron outbreak that we experienced over April and into May. We're starting to see now demand catching up with the capacity that we've got in the market. Clearly internationally, there are relatively sort of few operators other airline operators into the New Zealand market, certainly over northern summer 2022, the current period, and the upcoming summer period, northern winter 2022.
We've seen a supportive yield environment, which certainly gives us some confidence in the short term, probably over the next trimester, that, you know, yields are keeping pace with some of the cost pressures we're seeing. I think it's, as I say, very hard to give assurances that we can get back to profitability this early in the year, with the, you know, the fluctuations we've seen in input costs in particular, fuel.
That's fair enough. Thanks for that thorough answer, Richard. Now, second question around cargo. You talked previously about wanting to hold on to some of the cargo profit uplift as a result of COVID. Richard, in your commentary, you alluded to several initiatives to assist cargo in the post-COVID world. Maybe if you could just talk to or about the how you anticipate the competitive position in cargo in a post-COVID world will evolve, particularly as subsidies roll off.
Sure. As we highlighted in the commentary this morning, of the billion-dollar cargo revenue that we've achieved this year, over NZD 400 million of that was related to the MIEC contracts and to a lesser extent, the IFAM contracts out of Australia. As we mentioned, that'll be significantly lower this year, and by the end of the financial year will run off. That's 400 of the billion currently. The sort of core cargo business, post MIEC, we still expect to, you know, perform strongly going forward. We've got good, strong market positions. As you would have read in the newspaper over recent months, there are a number of other international carriers who are taking some time to reestablish operations and get back into the New Zealand market.
If I just summarize that briefly, you know, the Tasman, we expect over the next 12 months total market capacity to be probably three-quarters of what it was pre-pandemic. In the Pacific Islands, a similar figure. North America, 80%-90% of what it was pre-pandemic. In Asia, quite different by market. There's very few mainland China carriers operating at the moment. In fact, the three main ones haven't published schedules for the November through March period. Singapore Airlines, who we partner closely with, are operating at two-thirds of their FY 2019 capacity. I think a combination of all those factors does continue to provide a supportive yield environment for the cargo business.
Yes, the subsidies will roll off over the course of the year but underlying demand for the next 12-18 months, I think still robust.
Great. Maybe just lastly, in relation to those government subsidies, what level of support are you anticipating for FY 2023?
I mean, it is dependent upon the passenger demands, Andy, in certain markets. As you would imagine, some of the Asian ports where there's still some border restrictions are where we're still having some of that subsidy support. I could say that it's relatively minor versus previous few years, so not a lot.
Okay. Great. Thanks, Leila. Thanks Richard and Greg.
Thank you. Our next question comes from the line of Andrew Steele with Jarden. Your line is open. Please go ahead.
Good morning. The first one for me is just on passenger mix. Since the reopening of borders, have you seen any meaningful shift in the types of passengers that are booking and the lengths of booking curves?
I'll have a go at that one Andrew, and Greg might have some additional comments. If we look at, again, the three different markets domestic, we are still seeing three segments domestically, the leisure segment, international connecting passenger segment and corporate. At this relatively early stage, we're seeing the leisure segment continue to outperform pre-COVID levels. I think we mentioned last year that it was running sort of 115-120% ahead of pre-COVID, and we're still seeing that currently. The corporate segment is probably two-thirds, 70% of what it was pre-COVID, albeit yields is higher than it was in FY 2019 for that segment. We are starting to see actually strong positive recovery in international connecting passengers on domestic.
More leisure than we would have probably expected, and a recovery in the other two segments. Internationally, the mix is, you know, predominantly leisure travel, both in the short-haul international markets and long-haul, and we're seeing a good recovery in that. I think booking curves probably on average are slightly shorter, currently, than they were pre-pandemic, but nothing notable or no notable differences.
Yeah, I think I agree with that, Richard. As I get around and talk to the teams, I think it's fair to say no specific change in mix. What we are seeing is that as borders open, Kiwis definitely wanted to get out and book and travel and that was not just domestically but internationally. I think we can look with confidence towards a pretty reasonable tourist season this coming summer for New Zealand as people are booking to come to this country. No discernible mix, and we're encouraged by how we've kicked the year off.
Great. Thank you. Just the next one from me is on your capacity guidance for international long haul. A number of the, your sort of, I guess, key destinations still have either, you know, full border restrictions or some form of restriction. You know, within that international long haul guidance, what are you assuming, I guess, for Asian capacity specifically and what are the assumptions underlying that?
Yeah, Andrew, I think Asian capacity is obviously significantly lower than it would otherwise be in 2023. The North American market, we're running at close to, you know, 85%-90% of pre-COVID capacity. Into Japan, we're, by the end of the year, likely to get back to 50% or 60% of where we were. Into the North Asian market, Shanghai in particular, to a lesser extent Hong Kong, it's a little difficult to tell at the moment. But our planning assumption is that we're, you know, likely to be at 30%-35% of where we were pre-COVID in those markets currently for passenger services. We've still got a number of cargo-only operations which are continuing throughout the year into Shanghai and out of Christchurch into southern China.
From a passenger perspective, sort of an element of educated guesswork in that currently.
Not really expecting anything out of China until post-Chinese New Year, so we're not necessarily assuming anything sort of this side of Christmas.
Thank you. Just one last one from me. Given the ramp-up in capacity, where do you expect your staff numbers to be on a full-time equivalent basis, versus pre-COVID? What is your assumption for underlying wage inflation for FY 2023?
If I start with the first of those. Staff numbers, FTE that in at the end of the 2022 financial year was a bit over 9,000. We're at 9,200 or thereabouts. We'd hired back over the course of the last financial year, just under 1,000 people. And of that, 700 or thereabouts were air crew, sort of tech, a combination of tech crew, and cabin crew, and airport staff. Frontline operations. Another 100 or so are in the crew, sort of tech, a combination of tech crew, and cabin crew, and airport staff, those sort of frontline operations. Another 100 or so are in the global sales teams. Then the balance was sort of a smattering of staff increases across different areas in the business.
That got us to 9,200 at the start of the year. By the end of FY 2023, everything going to plan, we will be, as a business, at just under 90% of our pre-COVID staffing levels. I think we've mentioned in previous dispatches that there are 1,500 staff, just under 1,500 staff coming back into the business over the next 12 months. 1,400 of which are frontline, operational staff and then a small proportion of back office staff or resources. That's numbers roughly.
Just before you get onto the inflation component. What we do is we sit down literally every single Monday and go through what the hiring is going to be required based on the flying schedule. You can see that most recently we took 1.5% out of our seats, and that was to ensure that we could line up what we wanted to fly with what we could fly, to create surety for customers, particularly around the all-important Christmas period.
These people that are coming back are based on when triple sevens are available, when we think we're going to require them based on the revenue that we've seen coming in, and it's all designed to ensure that, if you like, we can run the business as close to a Swiss watch as what we can and create a really resilient product for our customers.
I think it's probably worth noting that certainly in the last two or three months, we have significantly bolstered the ranks in the contact center in response to some of the challenges that we've experienced over the last trimester as demand's recovered. The customers' needs to speak to call center staff has exceeded what we had anticipated.
In terms of what we're allowing for inflation and wages, Richard.
That's a complex topic in the current environment. As we've mentioned before, we have a sort of general mandate, if you like, across the business for 4%, so labor cost inflation generally across the business in the coming financial year. There are exceptions to that mandate. In some areas of the business, particularly the lower paid workforces, we've made a concerted effort over the last six months to increase base levels of pay among the lowest paid staff in the organization.
In some of the specialist work groups in engineering, and pilots to some extent, we have wage price growth in excess of that 4% mandate, which are either specific to the sort of collective employment agreements we've got in place with those parts of the business, and/or have been offered in exchange for specific productivity improvements. I think that's probably all I'd say on labor. In terms of non-labor cost inflation across the business, we are seeing increases in air navigation charges, landing charges, supplies and materials costs, that in some instances are, you know, consistent with that 4%, 3%-4% assumption, and in some instances a little higher than that.
Thank you. That's all from me.
Andrew.
Thank you. Again, if you have a question at this time, please press star then one one on your touchtone telephone. Our next question comes from the line of Marcus Curley with UBS. Your line is open. Please go ahead.
Good morning. Can I please start with, yeah, maybe just a point of clarification, Richard. I know you went down the path of, you know, trying to give some color on passenger yields. I just wondered, you know, within that forward booking chart that you have, or yeah, can you actually specifically speak to, you know, what's happening within the yields within the domestic and international components? In other words, you know, in forward bookings, how much are yields up in domestic and international, in the forward booking?
Hi, Marcus, it's Leila. We're not going to obviously get into the specifications of what the yields are in the forward bookings, but I think Richard touched on it in his prepared comments and in some of the Q&A. The international yields, given the cost of those flights, operating those flights has substantially increased with fuel and other costs, is certainly higher than it would be on domestic. We're not gonna give sort of averages and things like that because they can be misconstrued.
You mean publicly misconstrued?
Because it will depend on the period that the bookings are for, Marcus.
Okay.
What I would say, Marcus, is that for the next sort of three or four months, we've got some good insight into forward booked revenue. We are confident that yields are sufficient to compensate for the inflationary cost pressures and elevated fuel prices in the current environment.
Maybe just changing to staff again. I just could you provide instead of talking about inflation. Could you just talk a little bit about, you know, the average cost of people, you know, looking into this year relative to pre-COVID? I know that, you know, you obviously have potentially exited some of your more higher cost people, reintroducing potentially some lower costs. You know, when you look back to where you were pre-COVID, you know, where do you think the average staff cost will turn out this year on a per person basis?
Yeah. Well, actually, it's not difficult to answer. Just as I alluded to before, by the end of the year, everything going to plan, we will be at just under 90% of our pre-COVID staffing levels. It's been. By then, it will have been four years or more than four years since calendar year 2019. We've had two years during that period of sort of wage freezes across the business. But I think it's reasonable to assume that in the current input cost environment, that while you've got just under 90% of your previous staff levels, you know, it's possible you get back to very close to sort of pre-COVID cost levels, given the four intervening years and then the inflationary pressure we've seen over the last six, eight months.
Does that help?
Absolutely it does. Yep, great. Just looking a little further ahead, could you talk a little bit to, you know, where you see, let's call it maximum capacity in FY 2024, you know, based on the, you know, the fleet that you're planning on having?
Yeah. I'd just go back to the comments that we made in the context of the capital raise and the sort of the investor presentation that went with that. You'll recall we said at that time, and this was in March, ahead of borders reopening, that by FY 2025, we expected to get back to roughly 90% of our pre-COVID capacity levels with a mix change. So less long-haul international flying than we had pre-COVID, but more domestic flying than we had pre-COVID, and we stand by that. The only color I would add to that is clearly the recovery, as Greg alluded to in his comments, has occurred with a bit more, it has occurred faster than we were anticipating in March.
It's possible, a bit of water to go under the bridge, but it's possible what we were expecting in 2025, we could achieve as early as 2024.
Great. Finally, you know, with the border reopening and the strong working capital improvement, you know, yeah, is it worth mentioning or talking to, you know, your views around, you know, when you could restart dividends? Is that still?
Too early to say, Marcus. We'll keep it under very close watch, obviously.
Disappointing to think it's still FY 2026.
Marcus, as obviously we mentioned earlier, it will depend on the earnings recovery for the airline and ensuring that we have the appropriate balance sheet strength going through. As Richard said, we'll be monitoring it really closely, but too soon to say now whether 2026 is the right time or potentially earlier.
I think there's two things or three things, Marcus, there just to keep an eye on. Clearly, the gearing and liquidity metrics have improved substantially in the last three or four months, which is very pleasing to see. The other critical element to the capital structure there, or at least the factors that we take into account in sort of assessing the appropriateness of resuming dividends or not are our earnings and debt to earnings metrics in particular. To Leila's point, FY 2023, all our focus will be ensuring good, strong recovery in those earnings metrics.
Okay. Thank you.
Thank you. I'm showing no further questions at this time, and I would like to turn the conference back over to Leila Peters for any further remarks.
Thank you again for joining us this morning. We really appreciate you listening in for your time and for your interest in and support of Air New Zealand. If anyone would like to schedule a call or a meeting for follow-up questions, please, direct those to Kim Cootes in our investor relations team or myself. Thank you again.
This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.