AIR - Air NZ.

[777]

Maybe this is a reason for the lacklustre last couple of days

http://www.smh.com.au/business/retail/cheap-cheap-ceos-need-not-apply-for-woolworths-top-job-20160222-gn04oi.html

Read down to the candidates.

[Beagle]

Really speculative article. I think he really enjoys his job at AIR. In my opinion one or two institutions have taken an overtly negative view of the global economic environment or the extra airline competition coming to N.Z. and there's been a glut of shares on the market. I'm going to ride it out. I expect analyst upgrades next week which other institutions will take note of, and then we'll have a better balance of buyers and sellers.

I'll be honest I don't understand the dichotomy between how the market has re-rated other airline stocks, American airline index is up circa 20% in recent weeks and how QAN with similar EPS numbers to AIR is somehow worth over $1 more ? All these others carriers are also facing their own set of challenges and competition and we live in the same global economic environment last time I checked, go figure ?

[Longhaul]

Maybe it's just one holder selling down their stake?

[Beagle]

Yes that would appear to be the case Longhaul. Plenty of supply of shares have been flooding onto the market lately so some institution or other, (that obviously doesn't read these forum pages), has decided to significantly reduce or exit their position.

[winner69]

AIR is a cyclical (consensus). As such valued over the whole cycle - ie expect low PEs when earnings are good and vice versa

However cyclicals do 'uptrend' as well in that the cyclical highs (and lows) do get higher reflecting increased profits over time

The puzzle with AIR at the moment is that this $3 mark is a real barrier. Peaked about here in 2007
When AIRs es was less than 30 cents (Roger can give real figure) - now eps heading ver 60 cents in F16 and even more in F17.

But $3 remains as a major resistance.

Sanity needs to prevail sometime ....yes?

[winner69]

Yes that would appear to be the case Longhaul. Plenty of supply of shares have been flooding onto the market lately so some institution or other, (that obviously doesn't read these forum pages), has decided to significantly reduce or exit their position.

Probably been held hostage by overseas fundies who see the world as a bit gloomy at the moment and perceive little airlines in some far flung part of he world as risky.

[Balance]

Probably been held hostage by overseas fundies who see the world as a bit gloomy at the moment and perceive little airlines in some far flung part of he world as risky.

The stockmarket is a popularity contest in the short term but a weighing machine in the long term.

Investors have to decide whether they are in the market to participate in a popularity contest in the short term or not.

The airline industry is a glamorous one but history shows that the beauty is not long lasting.

Can remember investors paying 10 times peak earnings back in the old days before deregulation but these days, 5 times is considered reasonable value.

Bit like the IT industry really. Apple trades on a forward multiple of 9.7 times - that's not a very demanding multiple.

So will it be different this time?

[Beagle]

AIR is a cyclical (consensus). As such valued over the whole cycle - ie expect low PEs when earnings are good and vice versa

However cyclicals do 'uptrend' as well in that the cyclical highs (and lows) do get higher reflecting increased profits over time

The puzzle with AIR at the moment is that this $3 mark is a real barrier. Peaked about here in 2007
When AIRs es was less than 30 cents (Roger can give real figure) - now eps heading ver 60 cents in F16 and even more in F17.

But $3 remains as a major resistance.

Sanity needs to prevail sometime ....yes?


Probably been held hostage by overseas fundies who see the world as a bit gloomy at the moment and perceive little airlines in some far flung part of he world as risky.

You answered your question with your next post. The compelling value will eventually shine through but who can predict when... I guess people have to decide for themselves if the turbulence is too much or whether they trust management to stay on board for the long haul. I'm a long haul bloke on this one. Over 30 years of investing has taught me its a very rare thing to find companies this well managed and on these compelling metrics. By any rational comparison with other airlines AIR looks incredibly good value.

[percy]

"companies this well managed and on these compelling metrics".
Always has been and always will be the recipe for success.
Affordable air travel means more people use planes more like buses.
My son-in-law works 17days on, four days off, near Hamilton. He flys home for his days off.
I went to Auckland for the day book buying a couple of weeks ago.
My retired mate and his wife fly to visit their daughters and their grand children in Auckland and Tauranga.
They fly down regularly to visit him and his wife.
My niece's husband flys down to work four days a week in Sydney.They live in Nimbin.
I meet a mining engineer in Pauanui who commutes to his job in Western Australia.
None of the above covers air travel for tourism.

[winner69]

You answered your question with your next post. The compelling value will eventually shine through but who can predict when... I guess people have to decide for themselves if the turbulence is too much or whether they trust management to stay on board for the long haul. I'm a long haul bloke on this one. Over 30 years of investing has taught me its a very rare thing to find companies this well managed and on these compelling metrics. By any rational comparison with other airlines AIR looks incredibly good value.


What do they say - share price (eventually) follows earnings

So Roger, just take advantage of "punters" folly as somebody posted yesterday

[percy]

What do they say - share price (eventually) follows earnings

So Roger, just take advantage of "punters" folly as somebody posted yesterday

When you can see the light,while others only see darkness,you have an unfair advantage.

Use it.!

And yes W69 as former poster Steve Fleming always pointed out ;
share prices always follow eps growth.Buy eps growth.

[babymonster]

well, I did manage to buy some more on Friday.

[axe]

Axe joined the club of cool cats on ST that hold AIR. PS thanks to Roger for posting the link to the conference call. It was a worth while hour. :)

7916

[Baa_Baa]

Notwithstanding all the good news and fine fundamentals, AIR was sell 3-4 weeks ago on the trusty weekly chart and the astute will be watching whether it holds the 'perfect touchdown' $2.74 close on the 200DMA Friday. Incredible how such a fine company can be a plaything for the alert traders focused on capital gains and capital retention. No offence intended to loyal shareholders, just a reminder that this has other forces in play than purely fundamental strengths.

[winner69]

All this talk of AIR facing headwinds reminded me of what Henry Ford once said -

“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it”

[Beagle]

Axe joined the club of cool cats on ST that hold AIR. PS thanks to Roger for posting the link to the conference call. It was a worth while hour. :)

7916

You're welcome. Anyone with a genuine and serious interest in AIR should invest the time. See post #4933 for the link folks.

[JohnnyTheHorse]

Fridays action looked like one insto very keen to get out. The big Friday aftermarket transaction may have been the balance - or we will see them selling hard again today.

[Zaphod]

Craigs update to $3.45 from $3.40. Consensus underlying profit before tax for 2016 now $845m. Consensus 2016 PE now 4.8 and 5.0 for 2017.

That PE is still low compared to the world-wide industry average. I had hoped that investment companies would have re-rated this a little more aggressively, but perhaps there's a psychological barrier that needs to be overcome!

[freddagg]

Craigs update to $3.45 from $3.40. Consensus underlying profit before tax for 2016 now $845m. Consensus 2016 PE now 4.8 and 5.0 for 2017.

Where did you see that Roger.
They downgraded to $2.89 on feb 25

[Beagle]

That PE is still low compared to the world-wide industry average. I had hoped that investment companies would have re-rated this a little more aggressively, but perhaps there's a psychological barrier that needs to be overcome!

Very low and significantly lower than Qan and I note Qan didn't give guidance for FY16. It continues to baffle me why the analysts are so negative on AIR's medium term prospects.

Fact is several months ago after the 2015 annual meeting I made the bold call that analysts were FAR too pessimistic on FY17 EPS estimates, (consensus at that point was 32 cps). Sure enough over recent months we've seen this steadily rise to 54.8 cps a whopping 71% increase, which seems far more realistic.

I will leave you good folks to decide what level of credibility you want to ascribe to consensus analyst forecast for FY18 earnings for AIR of 42.3 cps...but its worth noting they're basing their consensus valuation on a big fall off in AIR's earnings for FY18 and yet Australian analysts think FY18 earnings for QAN will exceed FY16 earnings of 64.3 cps...Hmmm.

[Beagle]

Where did you see that Roger.
They downgraded to $2.89 on feb 25
Must have old info off 4traders. Someone's upgraded from $3.40 to $3.45 but the consensus valuation has come down from $3.27 before the result to $3.18 afterwards despite a big increase in consensus FY17 EPS...go figure. Better to go off company guidance as I'm not sure any of the brokers has any more visibility on earnings than AIR management have.

[Jay]

US senator wants government to set airline seat-size rules

http://www.nzherald.co.nz/travel/news/article.cfm?c_id=7&objectid=11597134

Not sure this will ever take off (excuse the Pun), although, cannot go too much smaller no one will fit, or are we moving to stand up seats:)

[winner69]

Very low and significantly lower than Qan and I note Qan didn't give guidance for FY16. It continues to baffle me why the analysts are so negative on AIR's medium term prospects.

Fact is several months ago after the 2015 annual meeting I made the bold call that analysts were FAR too pessimistic on FY17 EPS estimates, (consensus at that point was 32 cps). Sure enough over recent months we've seen this steadily rise to 54.8 cps a whopping 71% increase, which seems far more realistic.

I will leave you good folks to decide what level of credibility you want to ascribe to consensus analyst forecast for FY18 earnings for AIR of 42.3 cps...but its worth noting they're basing their consensus valuation on a big fall off in AIR's earnings for FY18 and yet Australian analysts think FY18 earnings for QAN will exceed FY16 earnings of 64.3 cps...Hmmm.

Don't overlook 'home country' bias in these company valuations. With most coverage of AIR and QAN coming out of Aussie QAN picture always will look rosier.

Also bear in mind Australian companies over the years tend to be rewarded with higher PEs than NZ ones.

[Beagle]

Don't overlook 'home country' bias in these company valuations. With most coverage of AIR and QAN coming out of Aussie QAN picture always will look rosier.

Also bear in mind Australian companies over the years tend to be rewarded with higher PEs than NZ ones.

And yet the ASX200 has shown no overall return for the last 5 years !

[sb9]

Well, another action packed day with 7c swing after being as high as 2.80 settles down at 2.73 at close.

[Beagle]

http://www.airnewzealand.co.nz/press-release-2016-air-new-zealand-reveals-new-invercargill-lounge

http://www.msn.com/en-nz/travel/article/how-to-sleep-better-on-a-long-flight/ar-BBpQuLF?li=AAaeXZz&ocid=SL5MDHP

[skid]

http://www.airnewzealand.co.nz/press-release-2016-air-new-zealand-reveals-new-invercargill-lounge

http://www.msn.com/en-nz/travel/article/how-to-sleep-better-on-a-long-flight/ar-BBpQuLF?li=AAaeXZz&ocid=SL5MDHP

Along with Airbus which was mentioned more than once--Interesting article though ..I find the more you can create a ''cocoon like'' atmosphere ,the better--like they say, earplugs, eye covers..and I always bring a light beany as well to put on the head(all that air movement is aggravating) neck pillows help as well-I always put my stuff like that in the outside pocket where i can get to it easily(along with a small flashlight)--but nothing beats a roomy seat in a good spot.

[winner69]

That 'night time' experience on a Dreamliner is not pleasant .....eps when you know its day time outside

[Jantar]

That 'night time' experience on a Dreamliner is not pleasant .....eps when you know its day time outside
And the best way to combat jet lag is to sleep when it dark outside and stay awake when it is light outside. I get very P1553D off when cabin crew ask me to pull my window blind down when it is light outside and I want to see the view.

[winner69]

And the best way to combat jet lag is to sleep when it dark outside and stay awake when it is light outside. I get very P1553D off when cabin crew ask me to pull my window blind down when it is light outside and I want to see the view.

Totally agree - daytime is daytime.

Sunrises are brillant from up in the sky eh ......and I missed seeing the Gobi Desert recently.

Roger, you will find out what we mean on your big trip later in the year

[iceman]

I have traveled a few long hauls on Dreamliners over the last couple of years. In my view it is a far superior experience with thebetter air quality (less dryness) and quietness of the planes a major plus. Not so sure about the lighting or the dimming system on the windows but size of windows great. I would chose Dreamliners for long haul each time over other planes if I had a competitive choice when and where I wanted to travel.
I think these will serve AIR well.

[Beagle]

I have traveled a few long hauls on Dreamliners over the last couple of years. In my view it is a far superior experience with thebetter air quality (less dryness) and quietness of the planes a major plus. Not so sure about the lighting or the dimming system on the windows but size of windows great. I would chose Dreamliners for long haul each time over other planes if I had a competitive choice when and where I wanted to travel.
I think these will serve AIR well.

Thanks Iceman really appreciate your feedback. AIR will have nine in their fleet, (more than any other wide-body aircraft type), by Nov 2016. Apparently AIR have been getting widespread very positive customer feedback along similar lines from other customers too. Then there's the 24% cost savings and no deep cycle maintenance for the first 9 years. As they said on the call, there's tremendous potential for free cash flow later this decade as AIR will have a remarkably young average fleet age of 6 years by FY19. This suggests to me that AIR will be a high dividend yield share for the foreseeable future..unlike almost any other airline in the world.

[winner69]

Thanks Iceman really appreciate your feedback. AIR will have nine in their fleet, (more than any other wide-body aircraft type), by Nov 2016. Apparently AIR have been getting widespread very positive customer feedback along similar lines from other customers too. Then there's the 24% cost savings and no deep cycle maintenance for the first 9 years. As they said on the call, there's tremendous potential for free cash flow later this decade as AIR will have a remarkably young average fleet age of 6 years by FY19. This suggests to me that AIR will be a high dividend yield share for the foreseeable future..unlike almost any other airline in the world.

New planes are better than older ones - we expect that improvement of course

But no doubt some have to put up with the old clangers (some refitted) that AIR still fly recent flight Singapore and Hong Kong) Still laugh how I pissed the man sitting next to me off several times by turning on my overhead light - slightly misdirected and straight into his sleeping eyes. I just smiled sweetly and said 'operational issue I think'

[Snow Leopard]

Had an interesting experience on my return flight yesterday:

After we were all seated a group of about 16 passengers, for reasons unknown, decided not to take the flight.
So firstly their luggage had to be found and removed from the hold.
Also, given that they had all been seated up front, there was some re-arrangement of the remaining passengers, presumably to improve the balance.

Finally, as an added bonus, the captain announced that due to exceptional head winds our 5 hour flight would be nearly 6.

Talking of exceptional:
So $432M + Virgin + The Engine Shop (which I had forgotten about !) NPBT for a NPAT of $338M.

That beat even my biggest estimate and yet the world appears not to happy it about judging by the SP since.

So Full Year?
Given what AIR are saying I would guestimate at the moment $850M + $30M from Virgin (HY tax benefit replaced by actual operation improvement) + $20M (real guess) from the Engines R'Us for $900M total
After tax that would be $650M upwards.

Best Wishes
Paper Tiger

PS First half of FY17 currently looking good.

[JohnnyTheHorse]

Well today bucked the three day trend of opening high and then getting smashed throughout the day, indicating the bulls are starting to regain control short term. Lets see what happens tomorrow.

[winner69]

Vin -,post lunch actin kicking in

Positive this time eh

[JohnnyTheHorse]

Vin -,post lunch actin kicking in

Positive this time eh

Hope you not calling 3 bucks again.

[Beagle]

Had an interesting experience on my return flight yesterday:

After we were all seated a group of about 16 passengers, for reasons unknown, decided not to take the flight.
So firstly their luggage had to be found and removed from the hold.
Also, given that they had all been seated up front, there was some re-arrangement of the remaining passengers, presumably to improve the balance.

Finally, as an added bonus, the captain announced that due to exceptional head winds our 5 hour flight would be nearly 6.

Talking of exceptional:
So $432M + Virgin + The Engine Shop (which I had forgotten about !) NPBT for a NPAT of $338M.

That beat even my biggest estimate and yet the world appears not to happy it about judging by the SP since.

P.S. Nice to see some sanity return to the SP.

So Full Year?
Given what AIR are saying I would guestimate at the moment $850M + $30M from Virgin (HY tax benefit replaced by actual operation improvement) + $20M (real guess) from the Engines R'Us for $900M total
After tax that would be $650M upwards.

Best Wishes
Paper Tiger

PS First half of FY17 currently looking good.

Fascinating story PT. Ever seen the opening scenes from the movie Final Destination ? 16 people getting off for no disclosed reason would have really freaked me out !
With you on the full year profit forecast but I'm a little more bullish which probably won't surprise anyone on here :)

P.S. Nice to see some sanity returning to the SP. Maybe the "hot money" that was disappointed for whatever reason(s) best known to others, has finally been flushed out of the system ?

[winner69]

Hope you not calling 3 bucks again.

Next week for sure Johnny - 3 bucks it will be

[skid]

Had an interesting experience on my return flight yesterday:

After we were all seated a group of about 16 passengers, for reasons unknown, decided not to take the flight.
So firstly their luggage had to be found and removed from the hold.
Also, given that they had all been seated up front, there was some re-arrangement of the remaining passengers, presumably to improve the balance.

Finally, as an added bonus, the captain announced that due to exceptional head winds our 5 hour flight would be nearly 6.

Talking of exceptional:
So $432M + Virgin + The Engine Shop (which I had forgotten about !) NPBT for a NPAT of $338M.

That beat even my biggest estimate and yet the world appears not to happy it about judging by the SP since.

So Full Year?
Given what AIR are saying I would guestimate at the moment $850M + $30M from Virgin (HY tax benefit replaced by actual operation improvement) + $20M (real guess) from the Engines R'Us for $900M total
After tax that would be $650M upwards.

Best Wishes
Paper Tiger

PS First half of FY17 currently looking good.

Thats what we will be on to KL--I like the fact that there are only 2 seats by the windows (we,once again were lucky to be able to choose our seats (first 2 in a row near the front but just far enough from the bulkhead that crying kids and babies are not to close)
The AIR sale was not on so went with MAL but they have just started again ,(might of taken it if I had known) $1250(cheapest) compared to $1120 is still doable...but that choosing seats thing is the next best thing to an upgrade..its a big plus to know you are not in the middle of the middle....AIR to Vancouver..vs..MAL to KL---comparison coming up in late June...stay tuned

[Beagle]

Hope you not calling 3 bucks again.

Goes ex the 10 cent divvy next week, (not sure if its Wednesday or Thursday under the new T +2 settlement system) so I expect it will temporarily drop by a commensurate amount.

Folks will be aware that official company dividend reinvestment scheme remains suspended but I suspect many loyal shareholders will be planning their own scheme :)

[777]

Osaka it is....

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11599190


Well a restart anyway.

[Beagle]

Good that they're wringing some more mileage out of those old 767 workhorses. While fuel is cheap it makes sense to keep them flying IMO.

[Balance]

Update from one broker - valuation of $3.20.

Forecasts show peak earnings this year and declining next two years after that.

Dividend however to grow year on year - 22.5cps in 2018. So gross yield of 10.9%.

Report accepts however that situation is very fluid out there and many factors, both positive and negative, will come into play in the next 3 years.

Who really knows is kinda the essence of the summary!

[Beagle]

Update from one broker - valuation of $3.20.

Forecasts show peak earnings this year and declining next two years after that.

Report accepts however that situation is very fluid out there and many factors, both positive and negative, will come into play in the next 3 years.

Who really knows is kinda the essence of the summary!

In other words they have no more visibility than AIR's management are providing them with which is basically what I have been asserting and really undermines their DCF valuation models. Obviously they are adjusting their forecast for more competition in Fy17 as is everyone else. In my opinion one is better to simply compare current year PE of AIR, (I use 64 cps after tax incl of VAH earnings) and base my forward earnings on the theoretical ex divvy price (2.86-.10) = 2.76) FY16 PE is thus 2.76/.64 = 4.3 by my calculations. Compare with other airlines and adjust for how they're growing and factors specific to each airline. $3.20 looks very conservative to me and the stock is currently seriously under-priced in my opinion and trading cum the 10 cps fully imputed dividend due very shortly.
I think a fully imputed special dividend this year of 10 cps in addition to a final of a similar amount is an absolute certainty in September so dividend hounds will be well fed.

[Hoop]

AIR has announced huge profits and forecast to keep doing so for 2016, so why has Mr Market been so pessimistic?...Why is Mr Market ignoring the Fundamental reality?

Answer: Because it is a cyclical Stock and Mr Market sees signs pointing to the cycle reaching it's top level..

In the meantime before a cyclical reaches it's cyclic top it can go through bull market corrections...many cyclical sector indexes around the world are well off their highs at the moment due to the current global economy turning to show current weakness..AIR is not immune...Cyclical sectors are economically sensitive and therefore make good leading indicators to the varying state of the Global economy...

So how do we know whether the cyclical sector is going through another bull market correction or has in fact topped out of its cycle.... How can one invest in cyclical stocks without getting their buy/sell trigger fingers burnt off?
Cyclicals are known as notorious portfolio killers...they are volatile beasts and can make fast and huge (+300%) capital gains and equally they can do the opposite just as quick as well...

Cyclicals are hard to analyse because we investors do not know when the cycles tops or bottoms actually occur..
Long term TA and charting helps (sort of) as it outlines the frequency of the cycle oscillation but as Cyclicals are volatile, a sudden daily drop can be unforeseen..
Usually the usual FA methods don't help either, unfortunately the reason why Cyclicals are notorious portfolio killers are because the price quickly drops while the fundamentals are still great and the Fundee holds on dismissing Mr Markets actions as totally irrational..

There are some good Authors around which touch on the subject of valuing cyclical stocks...One is the University textbook Valuation Measuring and Managing the value of Companies published by McKinsey & Company. Their authors are their consultants in their respected fields...I have the older 5th Edition the 6th Edition is out...On page 755 Chapter 35 Valuing Cyclical Companies They research the data and behaviour of Management (CEO's) of Cyclical stocks...

One amazing find is the management is one major factor causing a company to be cyclical in nature...Quote: "......
Still, based on conversations with these executives, we believe that
the herding behavior is caused by three factors: First, it is easier to invest when
prices are high, because that is when cash is available. Second, it is easier to
get approval from boards of directors to invest when profits are high. Finally,
executives are concerned about their rivals growing faster than themselves
(investments are a way to maintain market share).
This behavior also sends confusing signals to the stock market. Expanding
when prices are high tells the financial market that the future looks great (often
just before the cycle turns down).
.....How could managers exploit their superior knowledge of the cycle? The
most obvious action would be to time capital spending better. Companies could
also pursue financial strategies, such as issuing shares at the peak of the cycle or
repurchasing shares at the cycle’s trough. The most aggressive managers could
take this one step further by adopting a trading approach, making acquisitions
at the bottom of the cycle and selling assets at the top. Exhibit 35.7 shows the
results of a simulation of optimal cycle timing. The typical company’s returns
on investment could increase substantially.
Can companies really behave this way and invest against the cycle? It is
actually very difficult for a company to take the contrarian view. The CEO must
convince the board and the company’s bankers to expand when the industry
outlook is gloomy and competitors are retrenching. In addition, the CEO has
to hold back while competitors build at the top of the cycle. Breaking out of
the cycle may be possible, but it is the rare CEO who can do it.

So Mr Market doesn't see AIR management doing the contrarian view (brown bold)..it seeing the continuing behavioural over and over again and history shows this behaviour causes that cyclical trend.

All valuating methods of Cyclicals have their flaws ...so the Simple way to value cyclicals in mho is just as good or bad as the more complicated rest....The easy concept is to draw one cycle oscillation and draw a the mean horizontal line through the oscilation...Often Investment commentators say use 10 years of data that is using the simplier of simple version rather than trying to estimate the length of the current cycle (Oscillation) which in reality often varies ..
They also say using ROIC can be better ..

Valuation: (see below)..To KISS I will use a rough back of the envelop valuation example using Full Year Basic EPS results over a 10 year period which as you can see contains two cyclical top periods and one and a bit (2006) cyclical low periods..therefore this 10year valuation will have some bias to the high side..

2006....9.6
2007...21.6
2008...20.7
2009....2.0
2010....7.6
2011....7.6
2012....6.5
2013...16.6
2014...23.8
2015...29.9
Average ......14.6 EPS

I not sure what the NZX50 PE Ratio is at the moment The CAPE is around 17.. So for analysis I will take the optimistic view because it's closer to Market sentiment as most market investors would view AIR results as excellent and using forward earnings would see even more rosier results (NOTE:...Fundees should never do Forward EPS with Cyclicals..but they always do:() therefore Market investors would view AIR as positive atm....Being more optimistic than pessimistic with the NZX market I will use PE Ratio at 20..using 20 could be wrong but it is also simpler for me to use mathematically for this example:D

So.....14.6 EPS X PE 20 = $2.92

Hmmm..very close to Mr Market optimistic value

Now if the Global economy continues to weaken Mr Market may value AIR back to sentiment neutral NZX50 PE Average at say 17 = $2.48

If a global recession evolves and the NZX50 enters into a bear market cycle at the depths of that bear market the PE Ratio will be <10 at say 8 with the current EPS average the valuation will be = $1.16 ........The sader news is that as AIR is cyclical the EPS is sensitive to recessions and therefore the 10 year Avage EPS will be lower so it could be less than the $1.16...

Ever wondered why Cyclicals can trail a sharemarket recovery back from Bear to Bull Market...All to do with Mathematics..

Cyclicals are scary..eh?

[sharp]

AIR has announced huge profits and forecast to keep doing so for 2016, so why has Mr Market been so pessimistic?...Why is Mr Market ignoring the Fundamental reality?

Answer: Because it is a cyclical Stock and Mr Market sees signs pointing to the cycle reaching it's top level..

In the meantime before a cyclical reaches it's cyclic top it can go through bull market corrections...many cyclical sector indexes around the world are well off their highs at the moment due to the current global economy turning to show current weakness..AIR is not immune...Cyclical sectors are economically sensitive and therefore make good leading indicators to the varying state of the Global economy...

So how do we know whether the cyclical sector is going through another bull market correction or has in fact topped out of its cycle.... How can one invest in cyclical stocks without getting their buy/sell trigger fingers burnt off?
Cyclicals are known as notorious portfolio killers...they are volatile beasts and can make fast and huge (+300%) capital gains and equally they can do the opposite just as quick as well...

Cyclicals are hard to analyse because we investors do not know when the cycles tops or bottoms actually occur..
Long term TA and charting helps (sort of) as it outlines the frequency of the cycle oscillation but as Cyclicals are volatile, a sudden daily drop can be unforeseen..
Usually the usual FA methods don't help either, unfortunately the reason why Cyclicals are notorious portfolio killers are because the price quickly drops while the fundamentals are still great and the Fundee holds on dismissing Mr Markets actions as totally irrational..

There are some good Authors around which touch on the subject of valuing cyclical stocks...One is the University textbook Valuation Measuring and Managing the value of Companies published by McKinsey & Company. Their authors are their consultants in their respected fields...I have the older 5th Edition the 6th Edition is out...On page 755 Chapter 35 Valuing Cyclical Companies They research the data and behaviour of Management (CEO's) of Cyclical stocks...

One amazing find is the management is one major factor causing a company to be cyclical in nature...Quote: "......
Still, based on conversations with these executives, we believe that
the herding behavior is caused by three factors: First, it is easier to invest when
prices are high, because that is when cash is available. Second, it is easier to
get approval from boards of directors to invest when profits are high. Finally,
executives are concerned about their rivals growing faster than themselves
(investments are a way to maintain market share).
This behavior also sends confusing signals to the stock market. Expanding
when prices are high tells the financial market that the future looks great (often
just before the cycle turns down).
.....How could managers exploit their superior knowledge of the cycle? The
most obvious action would be to time capital spending better. Companies could
also pursue financial strategies, such as issuing shares at the peak of the cycle or
repurchasing shares at the cycle’s trough. The most aggressive managers could
take this one step further by adopting a trading approach, making acquisitions
at the bottom of the cycle and selling assets at the top. Exhibit 35.7 shows the
results of a simulation of optimal cycle timing. The typical company’s returns
on investment could increase substantially.
Can companies really behave this way and invest against the cycle? It is
actually very difficult for a company to take the contrarian view. The CEO must
convince the board and the company’s bankers to expand when the industry
outlook is gloomy and competitors are retrenching. In addition, the CEO has
to hold back while competitors build at the top of the cycle. Breaking out of
the cycle may be possible, but it is the rare CEO who can do it.

So Mr Market doesn't see AIR management doing the contrarian view (brown bold)..it seeing the continuing behavioural over and over again and history shows this behaviour causes that cyclical trend.

All valuating of Cyclicals has flaws so the Simple way to value cyclicals in mho is just as good or bad as the rest....is to draw a cycle and take the mean...Often Investment commentators say use 10 years of data that is the simplier of simple as to try and fiqure out the length of a cycle (Oscillation) can vary..
They also say ROIC can be better ..but to KISS as an back of the envelop rough Valuation example I will use Full year Basic EPS over a 10 year period which as you can see with the EPS figures contains two cyclical top periods and one and a bit (2006) cyclical low periods..so using the 10year valuation maybe be a little bias to the high side..

2006....9.6
2007...21.6
2008...20.7
2009....2.0
2010....7.6
2011....7.6
2012....6.5
2013...16.6
2014...23.8
2015...29.9
Average ......14.6 EPS

I not sure what the NZX50 PE Ratio is at the moment The CAPE is around 17.. So for analsis I will take the optimistic view because it's closer to Market reality as most market investors see excellent results and forward earnings as even more rosier(Fundees should never do Forward EPS with Cyclicals) therefore Market investors would view AIR as positive atm....Being more optimistic than pessimistic with the NZX market I will use PE Ratio at 20..using 20 could be wrong but it is also simpler for me to use mathematically for this example:D

So.....14.6 EPS X PE 20 = $2.92

Hmmm..very close to Mr Market optimistic value

Now if the Global economy continues to weaken Mr Market may value AIR back to sentiment neutral NZX50 PE Average at say 17 = $2.48

If a global recession evolves and the NZX50 enters into a bear market cycle at the depths of that bear market the PE Ratio will be <10 at say 8 with the current EPS average the valuation will be = $1.16 ........The sader news is that as AIR is cyclical the EPS is sensitive to recessions and therefore the 10 year Avage EPS will be lower so it could be less than the $1.16...

Cyclicals are scary..eh?

Meh.

As long as AIR NZ pays good dividends and makes solid profits and does not overextend itself - I could not care less about the bumpy ride.

[Beagle]

If we are to assume intrinsic growth in AIR and accrued earnings aren't in fact happening, (not a hypothesis I concur with), but I will humour you Hoop and tweak your earnings data to include the full earnings cycle, (trough to peak) which regardless of any text book theories you may have read seems to make more common sense to any other approach, surely... then I would make the following observations :-

The period you've covered includes the GFC, arguably the greatest recession since the great depression of 1929. But be that as it may, lets leave your data period to include the full GFC and only tweak it slightly.

If we're going to take an average EPS that includes the full cycle then I would have thought you'd at least include the current year's earnings since we're most of the way through FY16 and management are confident of profits in excess of $800m, consensus analyst estimate 57 cps. So clipping off FY2006 which I note was pre GFC and including FY16 consensus EPS analyst estimate we get average EPS across the cycle of 19.3 cps and on an current market PE of 17 this gives us fair value of $3.28.

But seeing as the market is always looking forward if we include consensus FY17 earnings as well (54 cps) and exclude earnings to 30 June 2007, (still pre GFC so the ten year average still includes the full GFC period and includes what is arguably the top of the cycle FY16 and FY17) then we get average EPS right across the business cycle including all of the GFC and all of the current projected earnings for the peak years of FY16 and FY17 of 22.6 cps. Applying an average market PE of 17 gives fair value of $3.84

My contention is if you're going to take a ten year average as being representative of the full market cycle, (and try and make the weak case that there's no underlying growth in AIR's earnings over time) then the very least one must do is to include the peak years of the business cycle, (irrespective of any theoretical approach that suggests only historical earnings data is valid). Clearly to not do so is to
mask the real value by skewed data and an unreasonable and unrepresentative choice of underlying data that doesn't truly represent the average of the full business cycle earnings.

My contention is that AIR is growing organically over time and a 10 year average PE is therefore an inappropriate measure to value AIR but for those that insist on this approach the value would appear to lie somewhere between $3.28 and $3.84. I think that the selection of the full peak cycle earnings to include FY17 earnings is a significantly more reasonable and representative approach to average earnings so fair value using this approach is $3.84. This assumes there is no underlying earnings growth in AIR shares and no benefit to AIR shareholders of accrued and undistributed earnings over the last decade which doesn't make common sense to me so the real value is north of $3.84.

To illustrate how invalid your historical earnings approach is I would warmly invite you to run the same analysis on QAN's last ten years historical earnings, (including their recent year loss of $2,800m) and report back on their valuation using your approach compared to the current SP. Go on, you know you want too...

Worth noting too that although management are articulating a plan of record growth along with fleet modernisation and simplification they're doing this contemporaneously with the payment of good level's of dividends which is in stark contrast to most of the other airlines in the world. Further, the attachment of full dividend imputation credits is unique to AIR making dividend payments ostensibly tax free in shareholders hands.

[Hoop]

If we are to assume intrinsic growth in AIR and accrued earnings aren't in fact happening, (not a hypothesis I concur with), but I will humour you Hoop and tweak your earnings data to include the full earnings cycle, (trough to peak) which regardless of any text book theories you may have read seems to make more common sense to any other approach, surely... then I would make the following observations :-

The period you've covered includes the GFC, arguably the greatest recession since the great depression of 1929..I can add the lesser recession 2001-2003 figures if you like :D :D

If we're going to take an average EPS that includes the full cycle then I would have thought you'd at least include the current year's earnings since we're most of the way through FY16 and management are confident of profits in excess of $800m, consensus analyst estimate 57 cps. So clipping off FY2006 which I note was pre GFC and including FY16 consensus EPS analyst estimate we get average EPS across the cycle of 19.3 cps and on an current market PE of 17 this gives us fair value of $3.28. No No No..Pay attention Roger...You do not forward analyse cyclicals..How many times do I have to write that....When it happens then you can do that not before, always assume Mr Market has already factored in this publicly media announced news hence Air is above NZX50 market (e.g PE Ratio 20)...If you think Mr Market has not then.. you use the same EPS figures but alter the Market sentiment e.g PE Ratio up from 20 to 23 but Its you word against Mr Market ...but Yes agree in principle so when it happens (FY result announcement) with the proviso that Market sentiment hasn't changed by then when looking forward into the near future ..further out after the next 2016 FY result out thus keeping up the same market sentiment (example: PE ratio at 20)

But seeing as the market is always looking forward if we include consensus FY17 earnings as well (54 cps) and exclude earnings to 30 June 2007, (still pre GFC so the ten year average still includes the full GFC period and includes what is arguably the top of the cycle FY16 and FY17) then we get average EPS right across the business cycle including all of the GFC and all of the current projected earnings for the peak years of FY16 and FY17 of 22.6 cps. Applying an average market PE of 17 gives fair value of $3.84 ..Yes agree that can happen if the Global economy keeps growing especially the consumer disposable part of the economy...however looking at the other side of the coin if NZX50 is in the middle of a bear market cycle then Market sentiment may be negative say PE Ratio 13....22.6 x 13 = $2.93...but I doubt that price as AIR's EPS is sensitve to economic factors if the Market is in the middle of a bear then one could assume the economy has already topped out and consumers decrease their disposable spending habits..

My contention is if you're going to take a ten year average as being representative of the full market cycle, (and try and make the weak case that there's no underlying growth in AIR's earnings over time) then the very least one must do is to include the peak years of the business cycle, (irrespective of any theoretical approach that suggests only historical earnings data is valid). Clearly to not do so is to
mask the real value by skewed data and an unreasonable and unrepresentative choice of underlying data that doesn't truly represent the average of the full business cycle earnings.
pay attention!!!..already added one top cycle 2007-2008 and another in progress now.. if anything I haven't compensated enough with a nearly full bottom cycle before 2006 giving a complete 2 oscillating cycles...remember Roger I'm using a quick rough example to illustrate the Valuation Method but I think nearly 2 cycle average is better represented than 1

My contention is that AIR is growing organically over time and a 10 year average PE is therefore an inappropriate measure to value AIR but for those that insist on this approach the value would appear to lie somewhere between $3.28 and $3.84.
Maybe AIR has Secular growth as most cyclicals aren't pure..some have long term down-sloping cycles negative Secular growth some cycles has the opposite....and to add complexity some have varying amount of both over the decades...

AIR's secular nature is uncertain because investors when there has been a long growth period all think that a cyclical is not cyclical anymore (and start using Forward earnings and other FA techniques again) or some more experienced investors wary of cyclicals may think after an abnormal growth period assume that a cyclic has developed some form of secular growth (secular up trending cycle)..Hence the long term share price high volatility (a cyclical's signature)

Personally...I can't form an accurate opinion as secular analysis needs long term NZ company data history spanning back many decades which is hard to come by and before the NZ market was regulated it was a land where cowboy's came to town shooting up the sheriff...there was a lot of creative accounting going on back then....However AIR went bust so history sees it as a cyclical with negative secular growth...Is it different this time??..maybe but with all the competition entering into NZ airspace I wouldn't be all surprised if AIR overall is now starting to losing market share again (negative secular growth)....

Roger ..cyclical stocks are very hard to analyse..just when you think you have a handle on it something comes out of the blue and knocks down the cycle prematurely, your investing hard work, and wounds your portfolio...e.g GFC or 9/11..That's why many investors stay well clear of them...

.................................

[mikeybycrikey]

Regardless of the specifics of the future profits for Air NZ and how to calculate the appropriate average profit and PE over the entire cycle, it is pretty clear that with the reduced price of oil, competition and therefore risk have increased.

I will accept that the profit for FY 16 is likely to be around 57 cps as suggested by Roger, helped along by the 30cps HY16 result.

However I wouldn't be so sure about the FY17 result. 54cps is possible but not a certainty by any means.

It was really brought home to me how much competition AIR faces with the sight of four Emirates A380s sitting at Auckland Airport the other day. Good publicity shot for the TV news but also a great way of portraying the extent of the competition. Thee are a lot of seats on those planes.

If I were travelling to Europe, the non-stop flight Auckland-Dubai would look pretty appealing.

AIR may be well run and tourism may be growing, but AIR need to be performing exceptionally well to capitalise on that growth and keep their existing market share. Emirates and Chinese airlines are going to be working hard to fill seats into AKL, along with American(?) starting to fly here later in the year. Running empty planes is expensive!

I would also caution against expecting the good times to continue for too long. The profit margin of 57 cps is roughly 14%. This is exceptionally high for an airline and I would expect over the full cycle it would be about half of that, maybe less.

Airlines are risky. Airlines in a low oil climate are even riskier. Caution ahead. I'm hoping for the good returns to continue but I'm certainly wary.

[Beagle]

Keeping it simple stupid, the KISS principle one of my personal favourites

Okay Hoop, enough theoretical's already... Time to see how AIR stacks up against some if its peers that I follow (all data off consensus analyst FY16 estimates per 4 Traders taken today).

AIR PE 4.90, Yield 11.28* (*grossed up for value of imputation credits)
QAN PE 6.07, Yield 1.64%
American Air PE 6.29, Yield 1.0%
Delta PE 7.29, Yield 1.15%

AIR undervalued on a comparative basis relative to its peers ?...you be the judge.

Mikeybycrikey - One of those A380's was a one off and they're using an older smaller plane on the direct Dubai route. AIR are expanding too last time I looked :)

[mikeybycrikey]

Hoop and Roger,
Maybe if 10 years isn't enough, we could always go back 20 years. Should get a nice well-rounded picture of several business cycles, including the bankruptcy in 2001.

As a holder, I'd like to agree with Roger's rosy viewpoint, but I can't help reading many of his posts as saying "this time is different". That doesn't usually end well for an investor.

[Beagle]

Oh why don't we go back to the Erebus disaster as well...(sarcasm intended). Here's an idea, why don't we look at the calibre of management now and current and reasonably foreseeable earnings.
AIR look cheap compared to their peers and last time I checked we all live in a similar global marketplace...

[JohnnyTheHorse]

Your afternoon action starting to kick in Winner. 295 by the end of the day, maybe even 3 bucks by tomorrow eh

[Snow Leopard]

Tell you what Roger - if you want to relax read last years Singapore Airlines Report (http://www.singaporeair.com/pdf/Investor-Relations/Annual-Report/annualreport1415v1.pdf).

224 pages of information - including 2 devoted to their wines.


Best Wishes
Paper Tiger

[sb9]

Your afternoon action starting to kick in Winner. 295 by the end of the day, maybe even 3 bucks by tomorrow eh

Don't want to jinx this, hopefully that one or two big sellers have gone.

I certainly think it'll be $3 before it goes ex-div next week.

[Jay]

Surely, if the dividend yield is around the 10-11%, it won't stay there, either the dividend will reduce or the share price will increase.

[skid]

Just be careful guys --cyclicals are very susceptible to the ''Jinx Theory'' (which is very close to the ''short term pattern forming theory''

I personally think your giving far to much respect to the big $3 milestone---last time it passed it both ways without even waiving.

[Beagle]

Tell you what Roger - if you want to relax read last years Singapore Airlines Report (http://www.singaporeair.com/pdf/Investor-Relations/Annual-Report/annualreport1415v1.pdf).

224 pages of information - including 2 devoted to their wines.


Best Wishes
Paper Tiger

Thanks for the link PT. I will definitely have a good look when my head stops hurting. Current year PE 17.6 on EPS of 65 cps and a SPD of $11.50. Still one supposes the current year dividend yield provides some respite from the high PE - 3% and then there's the trading on more than 10 times NTA to admire compared to AIR on 1.6 times NTA Hmmm, I thought airlines were horribly cyclical...best we keep this from our friend Hoop eh... Apparently the world as we know it is ending and we're heading into the GFC Mk2 didn't you know :D

[Traderx]

There are three primary themes that support a strong AIR currently

Rising demand (Popularity of NZ, global interconnection of people and trade) - SUPPORTIVE MACRO TREND
AIR has a big distribution advantage for the NZ market through its Brand, Airpoints progamme and domestic network - MOAT
Low price of oil but highly valued product = pricing power retained, despite cratering cost of sales - RAPIDLY EXPANDING MARGIN

disc - small long

[Longhaul]

Really appreciate the contrasting points of view from Messrs Robert and Hoop. Seems someone out there has pressed the big green BUY button the last two days.

[winner69]

Don't want to jinx this, hopefully that one or two big sellers have gone.

I certainly think it'll be $3 before it goes ex-div next week.

...and a few days after the initial fall ex-div it will be back to $3 again.

Good stuff eh

[Snow Leopard]

Thanks for the link PT. I will definitely have a good look when my head stops hurting. Current year PE 17.6 on EPS of 65 cps and a SPD of $11.50. Still one supposes the current year dividend yield provides some respite from the high PE - 3% and then there's the trading on more than 10 times NTA to admire compared to AIR on 1.6 times NTA Hmmm, I thought airlines were horribly cyclical...best we keep this from our friend Hoop eh... Apparently the world as we know it is ending and we're heading into the GFC Mk2 didn't you know :D

NTA was around $10.50 at report time so that is a ratio nearer 1.1 (one point one) than 10.

When you look at it properly you will spot lots of interesting differences between them and your favourite airline.

Best Wishes
Paper Tiger

PS Airlines ARE 'horribly' cyclical - even Singapore Airlines

[Beagle]

A good mate put it to me last week that he reckoned he'd seen saner people on the inside of the lock up dementia wards he manages than those selling AIR shares at $2.73 cum the 10 cent divvy.
At the time I thought that was quite a big calll but with the benefit of more analysis that looks like a pretty fair summation to me.

PT - must have been the sore head blurring my vision. PE's are straight off 4 traders consensus analysis so that parts spot on and not really conducive to a cyclical company is it ?...guess they're on a different part of the cycle then seeing as they exist in an apparently different global economic environment :) Strange beasts these cyclical's aren't they, no wonder so many people are scared of them !

Of course for those of us that are simple show me the money kind of guys, AKA dividend hounds looking for a regular decent feed, thankfully life is somewhat simpler.

Yes, absolutely I am looking forward to reading the Singapore annual report so thanks again.

[skid]

A good mate put it to me last week that he reckoned he'd seen saner people on the inside of the lock up dementia wards he manages than those selling AIR shares at $2.73 cum the 10 cent divvy.
At the time I thought that was quite a big calll but with the benefit of more analysis that looks like a pretty fair summation to me.

PT - must have been the sore head blurring my vision PT. PE's are straight off 4 traders consensus analysis so that parts spot on and not really conducive to a cyclical company is it :)

Couta does make some big calls:)

[Raz]

Air does not have the scale to attract the big institutions, that is why its metrics are not reflected in the SP in comparison. Although good to see the SP step up prior to ex-dividend.

[winner69]

Saw this somewhere today but can't remember where - seems appropriate to this thread

"Investing is a funny thing. It is as much about sentiment and confidence as it is about fundamentals and value"

Prob means there is no right or wrong answer except today the market is right

[BC_Doc]

http://www.nzherald.co.nz/air-new-zealand/news/article.cfm?o_id=5&objectid=11599625

Air NZ and Air India the last ones left in this long and IMO unneccesarily drawn out law suit

[Hoop]

Saw this somewhere today but can't remember where - seems appropriate to this thread

"Investing is a funny thing. It is as much about sentiment and confidence as it is about fundamentals and value"

Prob means there is no right or wrong answer except today the market is right
Got both at the moment...the 2 rights, Winner
There's a feel good sentiment out there as well as good financial fundamentals..also the Market that AIR trades in (NZX) is one of the few markets that is still in it's Bull Market cycle..that suggests any rally is less likely be the sucker type..however in keeping with Rogers thoughts about me, there is the Global Airline market that influences AIR and that market has a negative primary tide so that bear market may override the AIR/NZX bull relationship..

But in the meantime TA indicators are starting to fire buy signals as AIR reaches its acid test (the 2.96 - 3.00 resistance zone).

[JohnnyTheHorse]

But in the meantime TA indicators are starting to fire buy signals as AIR reaches its acid test (the 2.96 - 3.00 resistance zone).

My favourite ducks have certainly all lined up again, but lets see how this resistance zone pans out. Should get an indication late afternoon when the large buyer/s (Asian?) start kicking in.

[Beagle]

http://www.stuff.co.nz/business/77564154/air-new-zealand-adds-25-jobs-in-nelson-facility

[Hoop]

As one can see from the chart AIR has been totally boring...flatlining....The share price is the same as this time last year and is trading within a "not worth the effort" small 10% trading range apart from a couple of unsustainable breakouts both ways...Meanwhile the NZXgross50 (Div not incl) has increased 8% since this time last year..making AIR an underperformer..and a years worth of wasted opportunity for holders of AIR to take advantage of the ongoing NZX50 Bull Market..

Why has AIR unperformed in 2015 with the well published news of future excellent/stella profit and cash flows?

One possible answer is seen on the long term charts...Looking further back on the AIR chart (not shown) is the meteoric rise of nearly +300% within 2 years up from ~mid 80c (July 2012) to ~$2.25 (June 2014)
After that huge rally a large (-20%) bull market correction (breather) took place dropping the price back to ~$1.80 (October 14th 2014 to test the trend line) before a very quick rally (~+50% in 6 months) increased the price from ~$1.90 to ~$2.97 on March 2nd 2015...Since then as seen on the chart AIR has been in a prolonged breather consolidating that market expectation...so it seems back between 2012 to 2014 the market was anticipating huge profits in the future and commenced the huge market 2 year revaluating process which followed..

Some present Positives and Negatives

1...TA indicators are unreliable when share prices flatline for an extend period of time..some TA indicators cope flatlines better than others..TAers turn to using the more sensitive Oscillators and the chart below I have included Twiggs Money flow and the well known and respected Chaiken Oscillator both are negative indicating AIR has bearish tendencies..TAers don't like unreliabilities and uncertainties so most would gravitate to better more TA friendly up trending stocks..

2...AIR is triggering some Buy signals (expected) as it is reaching towards the top of its trading range (~$2.96) The Bollinger Bands are squeezing (see purple arrows) indicating a change (which direction is not clear but the oscillators do suggest a a slightly greater chance its down rather than up).

3...AIR is still in its Bull Market cycle so investors "should" treat any trading range breakout rally as genuine and not the sucker type, even though the previous attempt failed (reached new high $3.26 (top))

4...NZX50 market which AIR is a part of is also in its bull market cycle...one of the very few indexes in the world to perform to a new high recently..this will attract more investors to buy rather than sell (+ve momentum) which after a month of negative values has just turned positive again (1st March) for AIR

Disc: Have small holding of AIR.

7925

[Beagle]

For those that asked me today at Lunch when AIR goes ex the 10 cent divvy I can confirm under the new T+2 settlement terms of the NZX it goes ex on Thursday 10th.

[Joshuatree]

Its all on the NZX
DIVIDENDS

Upcoming Dividends



Ex Dividend
Period
Amount
Supp.
Imputation
Payable
Currency


10/03/2016
Interim
10.000c
1.765c
3.889c
18/03/2016
NZD


Thanks Hoop. Perennial disappointing stock of the year. Just glad with my margin of safety entry re $2.40. Imagine holding all that time @ the current price.. I see Craigs new T/P $2.89. Hope she holds up for the holders who bought around these prices; X div, which I'm very happy to take as a small consolation. Its hard to think that AIR will rise much more after these great results and good news stories. Will hold for now and hope points 3 and 4 guide AIR up a little more.

[vin]

Next week for sure Johnny - 3 bucks it will be

Agreed! Was looking pretty good. Be interesting to see how this week goes.

[Beagle]

Not sure on your reference point Hoop but she's sitting in my balance sheet 31 March last year at $2.72 ex divvy, (average cost price well south of that), so by my calculations over the last 49 weeks its shown a capital return of 5.9% and a final dividend of 9.5 cps in Sept 2015 which is another 3.5%, 9.4% total shareholder return YTD and I expect it'll recover the forthcoming dividend fairly quickly.

Not a stellar year I would concur, (despite the stellar result) but AIR is extremely well placed going forward and trades on truly compelling metrics.

[Joshuatree]

Certainly has a great yield for holders for the time being.

[kizame]

AND... Very low PE, if it breaks $3.00 which is long term resistance,could be a nice steady climb to $5.27 imop

[Joshuatree]

Yes and by then the Era of the Electric Plane will have been ushered in and ;well $10 and rising; the sky is the limit:t_up:

[kizame]

You seem a bit sceptical JT, with continuing inflows matching the current year,I think it will be rerated.

[Snow Leopard]

Anybody want to help buy a new plane? (http://www.stuff.co.nz/business/industries/77605344/kiwi-regional-airlines-plans-to-crowdfund-2-million-for-new-plane)

Best Wishes
Paper Tiger

[kizame]

Anybody want to help buy a new plane? (http://www.stuff.co.nz/business/industries/77605344/kiwi-regional-airlines-plans-to-crowdfund-2-million-for-new-plane)

Best Wishes
Paper Tiger

Good on him, but I would not like being the target of AIR,he will be very restricted with where he can fly.

[Hoop]

Not sure on your reference point Hoop but she's sitting in my balance sheet 31 March last year at $2.72 ex divvy, (average cost price well south of that), so by my calculations over the last 49 weeks its shown a capital return of 5.9% and a final dividend of 9.5 cps in Sept 2015 which is another 3.5%, 9.4% total shareholder return YTD and I expect it'll recover the forthcoming dividend fairly quickly.

Not a stellar year I would concur, (despite the stellar result) but AIR is extremely well placed going forward and trades on truly compelling metrics.


As one can see from the chart AIR has been totally boring...flatlining....The share price is the same as this time last year and is trading within a "not worth the effort" small 10% trading range apart from a couple of unsustainable breakouts both ways... ..........

The reference point is mentioned on the very first line of my post... highlighted it in bold letters

[Marilyn Munroe]

kiwi-regional-airlines-plans-to-crowdfund-2-million-for-new-plane"]Anybody want to help buy a new plane?

Best Wishes
Paper Tiger

The world is awash with money looking for a good return. I find it hard to believe that Evan's Swampy Hollow Airlines could not do a deal with a lease company if it had a good proposal. Include me out of the crowd funding.

Boop boop de do
Marilyn

[Beagle]

The reference point is mentioned on the very first line of my post... highlighted it in bold letters

Yes fair enough and its up from $2.00 in late 2014 at the time of the ASM. For those fortunate / wise enough to attend it was pretty obvious the company's profit growth was on a steep climb with or without the oil price tailwind.

The market world-wide is pricing in airline stocks like the oil price tailwind component of earnings isn't repeatable. I think from a competition and yield perspective AIR is better off with $70 oil anyway.

Much is made of AIR's high capex and they're paying out most of their cash flow to modernise and grow their fleet. Other companies on the NZX are rewarded for growth with or without, (usually without) contemporaneous EPS growth, often while incurring large losses, but those same people expect AIR to grow at its fastest rate in 75 year history without investing in new capex ?...go figure.

PE / cash flow are dirt cheap compared to other airlines and the growth in RPK is outstanding compared to other asia / pacific airlines, (double the industry rate) and yield compression with low oil prices has been modest.

Happy holder and unlike the vast majority of other airlines we're being paid well to enjoy future growth. I think patience will be rewarded.

[Snow Leopard]

Jetstar in the firing line I see (http://www.stuff.co.nz/business/industries/77629440/jetstar-passengers-fuming-after-regional-flights-cancelled).
This would never happen with a proper airline.


You read that Singapore Air Annual Report yet, Roger?


I think Airbus have confused me with either Tony Fernandes or Christoph Mueller.


Best Wishes
Paper Tiger

[RTFQ]

For years Emirates have wanted to be the first airline to fly around the world. The Aussies have blocked them to date. I wonder if this direct flight from Dubai to Auckland is intended to pressure Qantas, their code share partner into relaxing their position against a Syd - Lax service.
NZ has free skies policy and once the Dubai flights are here it won't be long before they operate Akl - Lax.
This might be why the share price took a significant hit after that announcement.
Thoughts???

[skid]

For years Emirates have wanted to be the first airline to fly around the world. The Aussies have blocked them to date. I wonder if this direct flight from Dubai to Auckland is intended to pressure Qantas, their code share partner into relaxing their position against a Syd - Lax service.
NZ has free skies policy and once the Dubai flights are here it won't be long before they operate Akl - Lax.
This might be why the share price took a significant hit after that announcement.
Thoughts???

Just as a side bar(although useless to the debate) we flew on a Pan Am ''round the world'' flight back in 1978---Well,maybe its not useless--look what happened to Pan Am.


It will be interesting to watch and see if that bollenger band breakout pans out--always happy to be in on a learning experience.

The TA vs FA always keeps this thread interesting

[777]

For years Emirates have wanted to be the first airline to fly around the world. The Aussies have blocked them to date. I wonder if this direct flight from Dubai to Auckland is intended to pressure Qantas, their code share partner into relaxing their position against a Syd - Lax service.
NZ has free skies policy and once the Dubai flights are here it won't be long before they operate Akl - Lax.
This might be why the share price took a significant hit after that announcement.
Thoughts???

They need approval from the US as well.

[Beagle]

Jetstar in the firing line I see (http://www.stuff.co.nz/business/industries/77629440/jetstar-passengers-fuming-after-regional-flights-cancelled).
This would never happen with a proper airline.


You read that Singapore Air Annual Report yet, Roger?


I think Airbus have confused me with either Tony Fernandes or Christoph Mueller.

Best Wishes
Paper Tiger
Jetstar's regional service is turning into a complete fiasco. No back-up planes when their ancient Q300's need unscheduled maintenance and no back-up staff when staff get sick, (something that inevitably happens from time to time).

Not yet on the Singapore report PT, been too busy having a great time socialising with other ST members :)

[winner69]

For years Emirates have wanted to be the first airline to fly around the world. The Aussies have blocked them to date. I wonder if this direct flight from Dubai to Auckland is intended to pressure Qantas, their code share partner into relaxing their position against a Syd - Lax service.
NZ has free skies policy and once the Dubai flights are here it won't be long before they operate Akl - Lax.
This might be why the share price took a significant hit after that announcement.
Thoughts???

Hi Romeo Tango Foxtrot Quebec

Love your name as you obviously somebody very close to AIR or the industry,

Nice one

[winner69]

Anythings possible I suppose ...one day

http://www.economist.com/blogs/gulliver/2016/03/bench-pressed?cid1=cust/noenew/n/n/n/2016037n/owned/n/n/nwl/n/n/n/email

No doubt AIR who competently whiteboard multifunctional architectures a lot are on the case.

They on the ball are AIR

[777]

Hi Romeo Tango Foxtrot Quebec

Love your name as you obviously somebody very close to AIR or the industry,

Nice one
Takes me back to school where the teacher told us to" Read The F..... Question"

[Snow Leopard]

Jetstar's regional service is turning into a complete fiasco. No back-up planes when their ancient Q300's need unscheduled maintenance and no back-up staff when staff get sick, (something that inevitably happens from time to time).

Just like Air New Zealand really - sometimes things go wrong beyond an immediate fix.

12 years old =ancient.
So AIR must have some prehistoric airplanes then :p


Not yet on the Singapore report PT, been too busy having a great time socialising with other ST members :)

I would have thought that you would be keen to understand those other airlines that you keep moaning about the relative valuations of compared to AIR. You might begin to understand the why then.

Go do your homework and no more drinkies till you have finished it :(.

Best Wishes
Paper Tiger

[Beagle]

My head is still too sore for in depth reading but its not so sore as to forget the 29 brand new ATR72-600 turboprop aircraft joining the AIR N.Z. fleet by 2020 and the fact that their average aircraft age will be down to a remarkably young 6.2 years by FY19:p..but I will consider myself told off by the headmaster and try and refrain from any more drinking for a while :)

P.S. The average age of AIR's Q300's is only 8.4 years as at 30 June 2015, (source 2015 annual report) and last time I checked AIR had good contingency plans to handle sick pilots whereas Jetstar...oh dear :ohmy:
.

[Beagle]

Anybody want to help buy a new plane? (http://www.stuff.co.nz/business/industries/77605344/kiwi-regional-airlines-plans-to-crowdfund-2-million-for-new-plane)

Best Wishes
Paper Tiger

Very loose use of the term "new". :p Speaking of fiasco's and relic's I saw him on T.V. 3's breakfast programme talking to Paul Henry the other day with his begging bowl out. P.H. gave him plenty of stick and rightly so I felt.
Admitted they'd had 4 CAA audits since commencement of operations...wonder why so many audits ? and then there was the withdrawal from operations for unscheduled maintenance. Suppose its just as well at least the CAA are doing a thoroughly professional job then isn't it !!
I can't help but wonder if people really understand the risk ?...would you buy your partner a 30 year old car with no ABS brakes or dynamic stability control or any of the other current safety devices and protections and tell them to use that to take the kids to school and back every day ?

[stoploss]

Very loose use of the term "new". :p Speaking of fiasco's and relic's I saw him on T.V. 3's breakfast programme talking to Paul Henry the other day with his begging bowl out. P.H. gave him plenty of stick and rightly so I felt.
Admitted they'd had 4 CAA audits since commencement of operations...wonder why so many audits ? and then there was the withdrawal from operations for unscheduled maintenance. Suppose its just as well at least the CAA are doing a thoroughly professional job then isn't it !!
I can't help but wonder if people really understand the risk ?...would you buy your partner a 30 year old car with no ABS brakes or dynamic stability control or any of the other current safety devices and protections and tell them to use that to take the kids to school and back every day ?

You might get one for you partner , but maybe not to take the kids in ....:)

[dobby41]

would you buy your partner a 30 year old car with no ABS brakes or dynamic stability control or any of the other current safety devices and protections and tell them to use that to take the kids to school and back every day ?

A lot of people do.
How about a 15 year old car - lots of safety stuff from today not there then.
And cars don't get the maintenance and upgrades aircraft do.

[Beagle]

You might get one for you partner , but maybe not to take the kids in ....:)

ROFL - She can definitely take one of them in it !!

[Marilyn Munroe]

For years Emirates have wanted to be the first airline to fly around the world. ........
NZ has free skies policy and once the Dubai flights are here it won't be long before they operate Akl - Lax.
Thoughts???

I am sure Emirates would love to fly on from the Shakey Isles or the Land of Underarm Bowlers to the city of the stars.

However American Carriers have a fox in the hen house reaction to encroachments by sand state airlines. Lots of squaking and fluttering of wings. Their brought and paid for hand maidens in the US Congress squak and flutter along in sympathy.

Boop boop de do
Marilyn

Ps an afterthought; Actually getting the Americans to agree to this would be a worthy task for the men from the Ministry of Transport instead of their usual drinking tea and confiscating passenger water bottles.

[Snow Leopard]

... I can't help but wonder if people really understand the risk ?...would you buy your partner a 30 year old car with no ABS brakes or dynamic stability control or any of the other current safety devices and protections and tell them to use that to take the kids to school and back every day ?

The differences between an airplane and a car are subtle, so it is understandable if you can not tell them apart.

So provided the airframe has not done too many hours in the air (by the way I am talking about an airplane here, not your 1986 Porsche 911 Turbo) and it has not exceeded the prescribed number of take-off and landing cycles (airplane again, still not the Porsche) and it has a full maintenance history (could be either now) it is better than a new one (read on)

One of the well known engineering phenomenon is that new things are unreliable, there are a surprising number of early life failures.
Things then settle down and on the whole give you many years of fairly trouble free enjoyment.
Then after a certain point the unreliability starts to increase.

This holds true for airplanes, cars and even people.

Best Wishes
Paper Tiger

[Joshuatree]

PT Love your witty philosophy and its so true re new things esp people:sleep:

I read awhile back re someone having their Morris Oxford circa 1965 retrofitted with airbags.Thats some relationship:).

[winner69]

PT Love your witty philosophy and its so true re new things esp people:sleep:

I read awhile back re someone having their Morris Oxford circa 1965 retrofitted with airbags.Thats some relationship:).

Good one

Should prompt you to get your a into gear and actually install that update.

[Joshuatree]

No wit there sadly. Update is always followed by another :t_up:

[winner69]

No wit there sadly. Update is always followed by another :t_up:

Think I better leave the last word with you - only get into trouble if I say more

[Beagle]

Then after a certain point the unreliability starts to increase.

Paper Tiger

Ever wondered why AIR generally sell their aircraft at about the 18 year point ? Maybe they're interested in providing a reliable service ?

P.S. Is it a car, is it a plane, or is it a helicopter...the answer lies within...just for you PT, enjoy https://www.youtube.com/watch?v=7-1pXbW5wVg You see it is easy to be confused :) Wonder how they will be going at the 20 year point ?

[skid]

It is almost mind boggling how reliable these massive machines that go up in the air and transport people to far away places really are.
and there is no doubt that some may be better than others. But in todays world of mandatory maintenance just how many are actually dangerous?
And if they are ,is it from over use,or from some design glitch that has not been discovered yet?

All food for thought,,but the real question is just how many have decided not to fly with an airline because they think the planes are unsafe.
For the sake of argument--lets narrow that down to planes coming to NZ..(so we dont go wandering off to some local Indonesian airline)
If we look at stats ,is this a debate that is going to affect the bottom line?--(Talking strictly safety ,not fuel savings etc.)

[sb9]

Let's see how today goes as being the last day before it goes ex-div tomorrow.

[777]

Age of aircraft is not as important as the maintenance regime of an airline. Yes, as an aircraft gets older it requires more maintenance but that is just extra cost. Then the balance of this cost versus the purchase of a new aircraft becomes the equation that airlines have to deal with.

[mondograss]

There's also the efficiency of new aircraft, there's only so much you can do to improve that on an older aircraft.

[777]

There's also the efficiency of new aircraft, there's only so much you can do to improve that on an older aircraft.


The argument was limited to safety.

[Beagle]

Yes, "In theory" you can keep an aircraft flying forever with rigorous maintenance as most components are life cycled to various intervals for overhaul. Whether that's practical and whether that maintenance is truly rigorous is another matter entirely. As I posted earlier, Kiwi regional airlines has been the subject of four Civil Aviation audits already. This seems highly unusual for such a young company and it is interesting to note that their plane had to be taken out of service for unscheduled maintenance, which could well of been because of concerns uncovered in one or more of those audits. (They usually only audit that frequently when there's concerns). Just as well we can rely on the CAA to do their job rigorously isn't it !!

Small airlines running really old plane(s) is not a new business model by any means...whether its one you want to support is another thing.

[Raz]

The differences between an airplane and a car are subtle, so it is understandable if you can not tell them apart.

So provided the airframe has not done too many hours in the air (by the way I am talking about an airplane here, not your 1986 Porsche 911 Turbo) and it has not exceeded the prescribed number of take-off and landing cycles (airplane again, still not the Porsche) and it has a full maintenance history (could be either now) it is better than a new one (read on)

One of the well known engineering phenomenon is that new things are unreliable, there are a surprising number of early life failures.
Things then settle down and on the whole give you many years of fairly trouble free enjoyment.
Then after a certain point the unreliability starts to increase.

This holds true for airplanes, cars and even people.

Best Wishes
Paper Tiger

How do airlines determine if metal fatigue has developed in air planes? Airlines are really relying on the manufacturer's maintenance programs. The manufacturers design the aircraft to be trouble-free for a certain period of time. There are maintenance actions to preclude any catastrophic failures, but that's not to say that the aircraft might not experience metal fatigue before those times…. When you get to a certain point in the aircraft's lifespan, you need to inspect or replace certain parts. At a point you are going to have a situation where the actual knowledge on a plane after so many pressure cycle on the the entire system is limited. It turns more into a risk management exercise where replacement of parts will most likely not cause the catastrophic failure but the simple fatigue not know will cause the failure. Have a chat to aircraft engineers and they will all tell you of their concerns sign off on older airplanes for a reason, inherent risk from metal fatigue not detected is on the rise.

[mondograss]

The argument was limited to safety.

I was responding to your comment about the "equation" the airline has to consider. The airline however has to balance the equation on more than just maintenance so it's pointless to only look at one consideration in isolation because you just can't separate it out with any empirical certainty.

The only way to evaluate public safety concerns I'd have thought would be to find some stats on passenger numbers before and after publicly notified incidents and see how things change. I suspect Malaysian has had a bit of a lean time lately for example.

[RTFQ]

Aircraft components these days are replaced "on condition " and are not lifed. Metal fatigue is not normally an issue with modern aircraft. Corrosion is the biggest fear for airline maintenance programs as AIR recently found when Boeing started using environmentally friendly primers.

Most modern aircraft run an onboard data monitoring system, recording some 2000 parameters and this data is fed back to the companies maintenance computer at short intervals. If a trend develops, say the oil pressure in an air conditioning actuator has changed 2 psi in the last 4 days then a maintenance alert is generated predicting a failure in say four months. This has no consequence to the continued operation. The airline then plans maintenance so there is no down time for the aircraft.

This is what Malaysia had but wasn't using on their short haul fleet.

[Beagle]

Let's see how today goes as being the last day before it goes ex-div tomorrow.

Can't help but speculate how quickly it recovers the 10 cent divvy...one day, a few days or a few weeks ? Big institutional holders are not used to airlines paying divvies so its probably immaterial to them...meanwhile the rest of us will be planning how to reinvest it :)

[sb9]

Can't help but speculate how quickly it recovers the 10 cent divvy...one day, a few days or a few weeks ? Big institutional holders are not used to airlines paying divvies so its probably immaterial to them...meanwhile the rest of us will be planning how to reinvest it :)

I would say it'll recover divvy amount within few days. And good thing with this one is its paid out within week by next Friday, you can't beat that, right?

I think lot of us will be enjoying those well earned divvies this month and next month as NZ companies start paying them out.

[Beagle]

I would say it'll recover divvy amount within few days. And good thing with this one is its paid out within week by next Friday, you can't beat that, right?I think lot of us will be enjoying those well earned divvies this month and next month as NZ companies start paying them out.

Agreed and no you can't to the best of my knowledge beat that for timliness. I'm pleased the Govt wants its dividend money quickly aren't you :)

[Jantar]

.....
All food for thought,,but the real question is just how many have decided not to fly with an airline because they think the planes are unsafe.
For the sake of argument--lets narrow that down to planes coming to NZ..(so we dont go wandering off to some local Indonesian airline)
If we look at stats ,is this a debate that is going to affect the bottom line?--(Talking strictly safety ,not fuel savings etc.)
There are some airlines I choose not to fly with for safety reasons if I can avoid them. But it isn't because of aircraft safety, its because of pilot training.

Some airlines choose and train pilots in manner we expect here in NZ: A young person learns to fly at a local aero club or commercial flight school. They gain a private Pilot's licence, then a commercial Pilot's licence, an instrument rating, possibly an instructor's rating, then they build their hours actually flying. After they have 800 -1000 or so hours hands on flying they will work for a local flying company or, if they are lucky direct to a small commuter airline. after 2000 hours maybe they will advance to a link airline (Mt Cook), and at around 5000 hours to a major airline. This is what happens in NZ, Australia, USA, Canada, Britain, Germany etc. and pilots are expected to be able to actually fly the plane if they need to. I am very happy to fly on any of these irrespective of the type or age of the aircraft.

Then there are places that copy our system for the first 250 hours, then do all remaining training and experience in a simulator. When they are deemed ready they go straight into the right hand seat of a 777 or similar. Airlines that follow this method are Emirates, Etihad, India, France and a few others. Mainland Air in Dunedin trains many overseas pilots for that first 250 hours, and I have seen a large range of abilities in the students that gain their CPL there, even to the point of intervening with one of their students who was on his first cross country as his approach and landing at our local airfield was dangerous (He didn't eventually pass). These airlines are my second choice.

Then there are airlines that skip even that first 250 hours of actual flying, and all training is done in the simulator. The first time a trainee pilot actually sits in an aircraft is likely to be as a Second Officer on an A320, or even an A380 full of passengers. It is mainly Asian airlines that use this method. Some actually make their trainee pilots pay for this whole training, both simulator, and while flying as second officer with passengers, and don't go on the payroll until they are promoted to First Officer. I do not fly on these airlines if there is any alternative.

There are a few who try to mix pilots with at least one trained in the traditional methods and one in the simulator method. Singapore is one of those.

On my last trip to Europe I could have saved over $500 by flying on one of my non-preferred airlines. I chose to pay a bit extra and fly Air NZ and Lufthansa. Next year when I travel to Vienna I will do similar.

[Beagle]

There are some airlines I choose not to fly with for safety reasons if I can avoid them. But it isn't because of aircraft safety, its because of pilot training.

Some airlines choose and train pilots in manner we expect here in NZ: A young person learns to fly at a local aero club or commercial flight school. They gain a private Pilot's licence, then a commercial Pilot's licence, an instrument rating, possibly an instructor's rating, then they build their hours actually flying. After they have 800 -1000 or so hours hands on flying they will work for a local flying company or, if they are lucky direct to a small commuter airline. after 2000 hours maybe they will advance to a link airline (Mt Cook), and at around 5000 hours to a major airline. This is what happens in NZ, Australia, USA, Canada, Britain, Germany etc. and pilots are expected to be able to actually fly the plane if they need to. I am very happy to fly on any of these irrespective of the type or age of the aircraft.

Then there are places that copy our system for the first 250 hours, then do all remaining training and experience in a simulator. When they are deemed ready they go straight into the right hand seat of a 777 or similar. Airlines that follow this method are Emirates, Etihad, India, France and a few others. Mainland Air in Dunedin trains many overseas pilots for that first 250 hours, and I have seen a large range of abilities in the students that gain their CPL there, even to the point of intervening with one of their students who was on his first cross country as his approach and landing at our local airfield was dangerous (He didn't eventually pass). These airlines are my second choice.

Then there are airlines that skip even that first 250 hours of actual flying, and all training is done in the simulator. The first time a trainee pilot actually sits in an aircraft is likely to be as a Second Officer on an A320, or even an A380 full of passengers. It is mainly Asian airlines that use this method. Some actually make their trainee pilots pay for this whole training, both simulator, and while flying as second officer with passengers, and don't go on the payroll until they are promoted to First Officer. I do not fly on these airlines if there is any alternative.

There are a few who try to mix pilots with at least one trained in the traditional methods and one in the simulator method. Singapore is one of those.

On my last trip to Europe I could have saved over $500 by flying on one of my non-preferred airlines. I chose to pay a bit extra and fly Air NZ and Lufthansa. Next year when I travel to Vienna I will do similar.

What a brilliant and illuminating post and explains in graphic detail how accidents like the 2014 Air Asix x one happen when pilots actually have to try and fly the aircraft on one engine.
Then there are the airlines that do inadequate psychological profiling of their pilots as well as flying over known war zones...MALeficence on their part ?

One of the rare times I flew on Jetstar we had a Chinese pilot that in full daylight and perfect clear blue skies and no wind had to fly a go around at the full length Christchurch airport because he couldn't land on the first approach :eek2:....I guess he hadn't done the Christchurch approach in his simulator training.

[RTFQ]

One of the rare times I flew on Jetstar we had a Chinese pilot that in full daylight and perfect clear blue skies and no wind had to fly a go around at the full length Christchurch airport because he couldn't land on the first approach :eek2:....I guess he hadn't done the Christchurch approach in his simulator training.[/QUOTE]


A bit harsh, the fact the he erred on the side of safety and went around is to be commended. It could have occurred because, the preceding aircraft was tardy in vacating the runway, birds crossing in front or one of many other environmental hazards that pilots are faced with.

[Beagle]

He blamed ATC for keeping him too high. That gave a high reading on my B.S. meter is all I'm saying. Jantar's point is extremely well made for those that are concerned with safety and like to minimise the possibility of death.

[mikeybycrikey]

A bit harsh, the fact the he erred on the side of safety and went around is to be commended. It could have occurred because, the preceding aircraft was tardy in vacating the runway, birds crossing in front or one of many other environmental hazards that pilots are faced with.

Yep. This. I've never really thought that the view out of my postage stamp sized window on the side of the plane as it tries to land at 250 km/h should really be used to judge the pilot.

My Air NZ pilot had to go-around again on a perfectly fine tropical day in Papeete when I was there are few weeks ago. I'm sure it happens pretty frequently and not just to Chinese Jetstar pilots.

Maybe it's worth looking at this from Airline Ratings: http://www.airlineratings.com/news/630/who-are-the-worlds-safest-airlines-for-2016
Or even this: http://www.jacdec.de/airline-safety-ranking-2015/

Both of them rank JetStar highly.

[Jantar]

There was a great training video on You Tube relating to flight training, but I see it has been pulled by American Airlines (their copyright). It did highlight the differences in flight training methods, and showed that the basic ability to actually fly an aircraft should be paramount.

My son is a first officer for Qantas, generally flying the Canberra - Brisbane route. But before he even started his professional flight training I had him solo in a glider, and flying around the mountains of the South Island using only a low definition chart and no electronic nav aids. His first airline was a small local one in Darwin where he was flying into small strips in the outback, and no mountains to use as visual references and no ILS systems at any of his destinations. As a result, when he applied for Qantas Link in his flight assessment he was able to manage situations that no simulator trained pilot could do.

[Tony Two Gloves]

Wow! - Some big sellers at $2.92 want out before the Divvy........

[Beagle]

I suppose I should be grateful the flight actually took off and wasn't cancelled due to engineering or staff issues either like so many others have been lately about 1 minute before the final check in time.

[Leftfield]

High times for Cathay Pacific...... bodes well for AIR
http://www.bloomberg.com/news/articles/2016-03-09/cathay-beats-profit-expectations-in-2015-helped-by-travel-demand

[Snow Leopard]

High times for Cathay Pacific...... bodes well for AIR
http://www.bloomberg.com/news/articles/2016-03-09/cathay-beats-profit-expectations-in-2015-helped-by-travel-demand

They have done well given the environment they operate in. It is possible, nay probable, that they will do a little better next year.

This is their actual announcement (http://www.cathaypacific.com/dam/cx/about-us/investor-relations/announcements/en/2015_annual_results_announcement_en.pdf).

Their annual report is about a month away - I am sure Roger will look forward to reading it when it comes out.

Best Wishes
Paper Tiger

[Hoop]

High times for Cathay Pacific...... bodes well for AIR
http://www.bloomberg.com/news/articles/2016-03-09/cathay-beats-profit-expectations-in-2015-helped-by-travel-demand
Don't wish too hard ..you might get AIR chart to look like CP's
https://chart.finance.yahoo.com/z?s=0293.HK&t=1y&q=&l=&z=l&a=v&p=s&lang=en-NZ&region=NZ

[Leftfield]

Don't wish too hard ..you might get AIR chart to look like CP's
https://chart.finance.yahoo.com/z?s=0293.HK&t=1y&q=&l=&z=l&a=v&p=s&lang=en-NZ&region=NZ

Ouch....!!

However, as Graham and Buffet note, Mr Market is not the only way to measure a companies success, and the market is often out of step with financials.

[Beagle]

They have done well given the environment they operate in. It is possible, nay probable, that they will do a little better next year.

This is their actual announcement (http://www.cathaypacific.com/dam/cx/about-us/investor-relations/announcements/en/2015_annual_results_announcement_en.pdf).

Their annual report is about a month away - I am sure Roger will look forward to reading it when it comes out.

Best Wishes
Paper Tiger

Far more interested in QAN's one TBH...being the closest regional competitor and all but seeing as Singers a quality operation happy to digest that in due course.
What to do with the juicy dividend...reinvest in more shares or reinvest in AIR flights :cool:

[Raz]

There are some airlines I choose not to fly with for safety reasons if I can avoid them. But it isn't because of aircraft safety, its because of pilot training.

Some airlines choose and train pilots in manner we expect here in NZ: A young person learns to fly at a local aero club or commercial flight school. They gain a private Pilot's licence, then a commercial Pilot's licence, an instrument rating, possibly an instructor's rating, then they build their hours actually flying. After they have 800 -1000 or so hours hands on flying they will work for a local flying company or, if they are lucky direct to a small commuter airline. after 2000 hours maybe they will advance to a link airline (Mt Cook), and at around 5000 hours to a major airline. This is what happens in NZ, Australia, USA, Canada, Britain, Germany etc. and pilots are expected to be able to actually fly the plane if they need to. I am very happy to fly on any of these irrespective of the type or age of the aircraft.

Then there are places that copy our system for the first 250 hours, then do all remaining training and experience in a simulator. When they are deemed ready they go straight into the right hand seat of a 777 or similar. Airlines that follow this method are Emirates, Etihad, India, France and a few others. Mainland Air in Dunedin trains many overseas pilots for that first 250 hours, and I have seen a large range of abilities in the students that gain their CPL there, even to the point of intervening with one of their students who was on his first cross country as his approach and landing at our local airfield was dangerous (He didn't eventually pass). These airlines are my second choice.

Then there are airlines that skip even that first 250 hours of actual flying, and all training is done in the simulator. The first time a trainee pilot actually sits in an aircraft is likely to be as a Second Officer on an A320, or even an A380 full of passengers. It is mainly Asian airlines that use this method. Some actually make their trainee pilots pay for this whole training, both simulator, and while flying as second officer with passengers, and don't go on the payroll until they are promoted to First Officer. I do not fly on these airlines if there is any alternative.

There are a few who try to mix pilots with at least one trained in the traditional methods and one in the simulator method. Singapore is one of those.

On my last trip to Europe I could have saved over $500 by flying on one of my non-preferred airlines. I chose to pay a bit extra and fly Air NZ and Lufthansa. Next year when I travel to Vienna I will do similar.

Most of this agrees with what I have been told by pilots except no one has ever confirmed Emirates or Singapore in this context to me, actually explicitly exclude them from this process... where do your sources for these two airlines come from?

[Jantar]

When my son was working as an instructor at one of our aviation colleges some of his pupils were Emirates cadets. For Singapore, that information came from a pilot who flew for them: That they preferred Western trained pilots, but did employ Asian trained ones as the traditionally trained pilots are getting harder to attract. However they would try and ensure at least one western trained pilot on every flight deck.

[Baa_Baa]

Ouch....!!

However, as Graham and Buffet note, Mr Market is not the only way to measure a companies success, and the market is often out of step with financials.

I'd rather tune into the market, it is more in touch with capital value. That Graham/Buffet example is fine if you're wallowing in the filthy lucre and don't give a toss about capital losses, as the chart shows. An 'investment' horizon of forever probably helps as well. Shares aren't like bricks and mortar with tenants paying rent (divi) imho, there is an option with shares to quickly quit a company and ride out the capital downsides others will suffer (often quoting investment Oracles) in cash, or invested somewhere else. Then, sure buy back when you think the SP has turned up and the yield is attractive with capital gains upside. AIR has topped out, hard as that may be to see for the indoctrinated. It will follow the globals sentiment regardless of underlying fundamentals, and the globals are looking seriously ugly. jmho.

[barleeni]

I haven't quantified it, but of late there seems to be a lot of air traffic over Napier, Jetstar flys here now, but it seems AirNZ has more flights not less as a result. Maybe all the talk of 'competition' in the media is stimulating more people to look into flying, and rather than being a negative for AirNZ it may be a positive as its promoting more people to take interest and fly?!?! As Roger eludes to adding competition to the marketplace is not really an issue if demand is increasing faster than AirNZ can keep up with anyway??

And just also... the last time I walked into Napier Airport to jump on an flight (AirnZ maybe 3 weeks ago at 6:30am) the first thing I heard on the intercom was "Jetstar regrets to inform that our flight to XXX has been delayed" I giggled to myself and then realised I hadn't even considered or looked at Jetstar pricing for the flight to Auckland I was about to catch. I guess that shows my overall lack of enthusiasm for them and there service. My flight was of course on time......... actually we were early but had to circle the Airport at Auckland as we were too early and they were too busy too accept us..

[Beagle]

Baa Baa...regardless of whether you think the SP has topped out or not, the fact remains that its looking very good for dividends for the foreseeable future and with circa 30 cps fully imputed that's over 14% per annum and at the same time AIR are making serious inroads into modernising their fleet and growing their network. Growth with a very high dividend yield and while growing profits, that's a pretty novel concept on the NZX isn't it !

[Mickey]

Baa Baa...regardless of whether you think the SP has topped out or not, the fact remains that its looking very good for dividends for the foreseeable future and with circa 30 cps fully imputed that's over 14% per annum and at the same time AIR are making serious inroads into modernising their fleet and growing their network. Growth with a very high dividend yield and while growing profits, that's a pretty novel concept on the NZX isn't it !
AIR is certainly one of the crown jewels in my portfolio at the moment. As you say Roger - AIR is an extremely well run business with top notch leadership and I can only see it going from strength to strength. I'll be looking to top up as buy opportunities present themselves.

[Nasi Goreng]

I think AIR might have a good day today after OCR cut. Just over 24 hours to grab a divi.

[BC_Doc]

I think AIR might have a good day today after OCR cut. Just over 24 hours to grab a divi.

Think you may find its too late to grab the divi.....today is the ex-div date. Which is why the SP is 10cents lower automatically on the NZX

With the record date of 11/3/16 and T+2 in effect, close of business yesterday was when you needed to be holding to receive div. Share will trade ex-div as of open this morning.

[winner69]

Think you may find its too late to grab the divi.....today is the ex-div date. Which is why the SP is 10cents lower automatically on the NZX

With the record date of 11/3/16 and T+2 in effect, close of business yesterday was when you needed to be holding to receive div. Share will trade ex-div as of open this morning.

ANZ Sec probably will adjust yesterday close by 13.9 cents

[Nasi Goreng]

Think you may find its too late to grab the divi.....today is the ex-div date. Which is why the SP is 10cents lower automatically on the NZX

With the record date of 11/3/16 and T+2 in effect, close of business yesterday was when you needed to be holding to receive div. Share will trade ex-div as of open this morning.

I had it in my diary for tomorrow which was clearly wrong. I am holding so will get the dividend anyway. Onwards and upwards.

[Beagle]

Reserve bank's unexpected cut and signalling potentially more to come will turbocharge people's desire to hold high dividend yielding stocks. I expect many stocks to benefit including AIR.
It seems that finally Mr Wheeler has seen sense.

[Longhaul]

Reserve bank's unexpected cut and signalling potentially more to come will turbocharge people's desire to hold high dividend yielding stocks. I expect many stocks to benefit including AIR.
It seems that finally Mr Wheeler has seen sense.

Bernard Hickey also says ANZ expects 2 more cuts this year to 1.75%.

https://twitter.com/bernardchickey/status/707686910408273920

Who would want to park money in the bank?

[percy]

Bernard Hickey also says ANZ expects 2 more cuts this year to 1.75%.

https://twitter.com/bernardchickey/status/707686910408273920

Who would want to park money in the bank?

Better to own a bank than having money in the bank.!

[Mickey]

FYI

Qatar Airways has confirmed it will launch a nonstop service from Doha to Auckland by the end of the year.
The announcement ends speculation whether the Gulf airline would go ahead after its Dubai-based rival Emirates launched at short notice its own non-stop service to Auckland last week.


Qatar’s new daily service to Auckland will start on December 3 and will also assume the mantle of the world’s longest flight at around 18 hours.


The airline is a member of the Oneworld alliance, which will enable Qatar to join forces with American Airlines in a round-the-world deal through Auckland. American will resume flying to New Zealand with a San Francisco-Auckland service from June.

[Longhaul]

Roger, you might be able to help here....

What is the split of revenue between domestic and international flights? Had a quick look through the half-year docs but didn't see it.

[Beagle]

Thanks for asking what is a good question and you are right it doesn't appear they provide this analysis in the financial statements.
Looking through the analysts presentation however they disclosed they flew 2,465m RPK's domestically for an average yield of 27.5 cents per RPK which gives total sales of $677.9m.
Total passenger sales for the half year were $2.3b, (total sales incl freight and other were $2.698b).

Therefore domestic passenger revenue was 29.5% of total pax revenue and 25.1% of total revenue for the most recent half year.

Interestingly, $1.597b of the total revenue of $2.698b (59%) originated from N.Z. sales so us Kiwi's are a fairly parochial bunch as I may have suggested previously.

Hope that analysis helps with you thinking mate.

Interestingly just as an aside, its no wonder AIR are ordering heaps of the ATR600 aircraft as a pilot told me it costs very little extra to fly a sector with these 68 seater aircraft than it does with the 19 seat Beech 1900D's they're discontinuing shortly. Talk about a difference in seat mile costs ! Apparently the ATR600's are a really good bean counters aircraft :)

[winner69]

Roger, you might be able to help here....

What is the split of revenue between domestic and international flights? Had a quick look through the half-year docs but didn't see it.
For the last 6 months

Long haul $1.0 billion 44%
Short Haul $1.3 billion 56%

Higher long haul % in 2nd half

In AIR lingo short haul includes Trans-Tasman and I think Pacific Islands

Doesn't include cargo etc

[Robomo]

Its also interesting to note that the ATRs are now flying slower, presumably to reduce fuel consumption and general wear and tear. Auckland to Palmerston North a few years ago was advertised as 1 hour, then until a year or so ago it was 65 minutes, now its 70 minutes. Not really enough to make any significant difference to the average traveller but it does give some padding if the flight departs late (easy to speed up a bit and get there on time) and lower costs if all is going well with depature times.

[Raz]

Its also interesting to note that the ATRs are now flying slower, presumably to reduce fuel consumption and general wear and tear. Auckland to Palmerston North a few years ago was advertised as 1 hour, then until a year or so ago it was 65 minutes, now its 70 minutes. Not really enough to make any significant difference to the average traveller but it does give some padding if the flight departs late (easy to speed up a bit and get there on time) and lower costs if all is going well with depature times.

Yes have notice on regionals, if you do it for work on a regular basis you sure notice and no the dividend does not make up for it:-)

[Beagle]

Trick trivia question for the day to make sure you're all awake. What's the longest domestic flight operated by AIR N.Z. ?

[Kelvin]

Trick trivia question for the day to make sure you're all awake. What's the longest domestic flight operated by AIR N.Z. ?

By distance Auckland - Dunedin?
By flight time Wellington - Invercargill?

[Beagle]

By distance Auckland - Dunedin?
By flight time Wellington - Invercargill?

Awwwhhh...you're too good mate. Whatever brand of coffee you drink to be so wide awake in the morning I want some :)

[Mickey]

United Airlines (UAL.N (http://www.reuters.com/finance/stocks/overview?symbol=UAL.N)) and Air New Zealand (AIR.NZ (http://www.reuters.com/finance/stocks/overview?symbol=AIR.NZ)) have struck a revenue-sharing agreement, the companies said on Friday, as airlines boost flights to New Zealand's fast-growing tourism market.

http://www.reuters.com/article/us-air-new-zealand-jointventure-unitedho-idUSKCN0WC2K6

"To have a strong home market carrier like United Airlines working with us to grow this market through its extensive sales and distribution channels in the U.S. will provide a significant boost to inbound tourism," said Air New Zealand's CEO Christopher Luxon in a statement.

[winner69]

By distance Auckland - Dunedin?
By flight time Wellington - Invercargill?

Would AKL - Queenstown be further? Or do they take a short cut

Just asking

[Beagle]

Queenstown listed as 1027 km's 1hr 50m and Dunedin 1057 km's 1hr 55m. Wellington - Invercargill 767 km's 2 hr 05m - ATR600.

[Jantar]

Would AKL - Queenstown be further? Or do they take a short cut

Just askingQueenstown is both north and west of Dunedin, so much closer to Auckland.

A few years ago when a group of Glider pilots were attempting to set a world distance record here in New Zealand the longest straight leg distance they find was Te Anau to Te Araroha (East Cape) at just over 1600 km.

[Kelvin]

Awwwhhh...you're too good mate. Whatever brand of coffee you drink to be so wide awake in the morning I want some :)

Nothing special with the coffee I drink, just started out as an aviation fan before becoming a share market investor (starting out in AIR).

[Beagle]

United Airlines (UAL.N (http://www.reuters.com/finance/stocks/overview?symbol=UAL.N)) and Air New Zealand (AIR.NZ (http://www.reuters.com/finance/stocks/overview?symbol=AIR.NZ)) have struck a revenue-sharing agreement, the companies said on Friday, as airlines boost flights to New Zealand's fast-growing tourism market.

http://www.reuters.com/article/us-air-new-zealand-jointventure-unitedho-idUSKCN0WC2K6

"To have a strong home market carrier like United Airlines working with us to grow this market through its extensive sales and distribution channels in the U.S. will provide a significant boost to inbound tourism," said Air New Zealand's CEO Christopher Luxon in a statement.

Good stuff and I was hoping this would happen.

[winner69]

At least some of price since going ex has been recovered.

Back to 291 sooner than later I think.

[sb9]

At least some of price since going ex has been recovered.

Back to 291 sooner than later I think.

Not today winner, bit of weakness in price.

[Snow Leopard]

Not today winner, bit of weakness in price.

Fridays often down days for AIR of late.

A good day to buy if you think it is worth the risk.

Best Wishes
Paper Tiger

[Beagle]

Meanwhile over at the roo tail airline the buy-back has commenced and is now in full swing :(

[Joshuatree]

Craigs have kept AIR on their high conviction list despite it under performing the index since inclusion. A snippet why.

We expect oil prices to stay low over the medium-term. This will be anongoing tail wind for AIR. Management have locked in additional hedgingat low prices for the 1H17 period
Tourism markets are buoyant, and Auckland Airport is experiencing hugepassenger growth (9.3% in January). AIR are expanding, and newinternational routes are profitable on a standalone basis
With 80% of the domestic market, AIR will benefit from passenger growth viaother international airlines on its domestic network
Operationally AIR is performing well and benefiting from new fuel efficientaircraft and cost savings
Cargo revenue remains strong and AIR’s relationship with freight forward and exporters limit the impact of competition in this space
The valuation remains attractive: AIR is trading on a FY16 PE of 5.3x, or anFY17 PE of 6.1x. This is well below its long term average of 11.3x

[Beagle]

Craigs approach seems a little odd ? I don't disagree with what they're saying (and thank you for posting a brief synopsis JT), and can certainly understand them keeping it on their high conviction list, (it'll be no surprise to anyone its also on mine), but on the other hand they have dropped their target price significantly to $2.89 ? Why keep something on your high conviction list when its so close to one's 12 month SP target ? (expected final and special dividend circa 20 cps notwithstanding). Go figure ?

[skid]

They may be a well run airline,but they sure dont have much of a conscience --My wife had a ticket going to Canada in a few months time--When her Dad suddenly took a turn for the worse -they not only are charging the change of date fee ,but a whalloping extra cost of ticket as well--because its not on special any more,apparently,milking it for all its worth---Thanx guys...you really know how to build brand appreciation:mad ;:

Compassionate fares are only available on domestic flights ---If your father is in another country ....Tough.


Ok most airlines dont offer help any more --still a shame (had to have my rant)

[Beagle]

I am a little surprised that compassionate fares are not available on an international basis. Its seems a little incongruous to have one policy for compassionate domestic airfares and to not have these on an international basis ? Surely they don't think everyone's close family live in N.Z. ?

It is a very difficult time of life to stare down the barrel of losing one's parent and I for one think we need to balance the need to make a profit with a decent sense of humanity toward people who find themselves in genuinely unfortunate circumstances so as a corporate one is not seen to have lost one's morality of being a good corporate citizen. You have my sincere sympathy Skid and I hope your wife's father is okay.

[workingdad]

Well said, couldn't agree more, some people's lack of empathy one can only hope often takes a sudden about turn when they are on the other side of a situation in the need for compassion

[kura]

I recall back when my Mum died & family came over from Aust for funeral at short notice, that funeral director gave them a letter to give to airlines for some reduction in fares (though don't recall actual outcome )

[kiora]

They may be a well run airline,but they sure dont have much of a conscience --My wife had a ticket going to Canada in a few months time--When her Dad suddenly took a turn for the worse -they not only are charging the change of date fee ,but a whalloping extra cost of ticket as well--because its not on special any more,apparently,milking it for all its worth---Thanx guys...you really know how to build brand appreciation:mad ;:

Compassionate fares are only available on domestic flights ---If your father is in another country ....Tough.


Ok most airlines dont offer help any more --still a shame (had to have my rant)

Did you have travel insurance Skid?We were booked to travel overseas last year but family member came down with terminal illness.We had paid for tickets on Kiwibank Credit Card that has travel insurance included in their policy if you pay for the travel expense on their credit card
We provided a doctors certificate & Air NZ refunded tax componant of the tickets and Kiwibank Travel Insurance refunded tickets less $200 excess.Any help?

[Raz]

I am a little surprised that compassionate fares are not available on an international basis. Its seems a little incongruous to have one policy for compassionate domestic airfares and to not have these on an international basis ? Surely they don't think everyone's close family live in N.Z. ?

It is a very difficult time of life to stare down the barrel of losing one's parent and I for one think we need to balance the need to make a profit with a decent sense of humanity toward people who find themselves in genuinely unfortunate circumstances so as a corporate one is not seen to have lost one's morality of being a good corporate citizen. You have my sincere sympathy Skid and I hope your wife's father is okay.

Sorry to hear about this Skid, it certainly one of those large moments in life, could not say it better than Rodger.

It is not just about being compassionate and doing the right thing, its also good business. A good well thought out policy in this area will result in loyalty with a customer who will sing your praises to all they meet. You only have to go part way....All of us in private business can think of occasions where we have gone out of our way and it usually is paid back in spades.

[skid]

Did you have travel insurance Skid?We were booked to travel overseas last year but family member came down with terminal illness.We had paid for tickets on Kiwibank Credit Card that has travel insurance included in their policy if you pay for the travel expense on their credit card
We provided a doctors certificate & Air NZ refunded tax component of the tickets and Kiwibank Travel Insurance refunded tickets less $200 excess.Any help?

She has the standard insurance that comes with visa Platinum --They said to give it a go but its a bit of a long shot.(obviously death is easier in terms of paperwork)but his condition is serious enough that I think we could logically say that it is not in the category of ''anyone could do it''--Her father is in the hospital so Im sure paperwork could be achieved)

Thanx for the info Kiora,and everyone --sometimes you just have to get that stuff out--I guess my main issue was that on top of the change of ticket fee,she has also been hit by the increase of price of the ticket. This more expensive price is completely understandable for those who have decided to simply fly on short notice--Im sure all tickets are more expensive if you want to go within a week--but in this case it seems she is getting penalized for having to go for this particular reason(about 50% of the ticket price before the change of ticket fee)

Guess I just thought that a case like this would qualify as different than the normal business formula, and, as was stated,one would think that in terms of general perception,they would get as much out of this sort of thing,as sponsoring a rugby team etc.(guess you cant make a glossy ad on this sort of thing)

We are not destitute,so are lucky in that sense,..others would have suffered more

anyway ..no since harping on ..people have expressed their thoughts and thats appreciated---If a change occurs ,Ill post...cheers

PS -you can apply for compassionate consideration if your relative is A-in New Zealand..and B-is less than 80 yrs old (if they are over 80 apparently your not supposed to care about them anymore)

[kyanar]

I am a little surprised that compassionate fares are not available on an international basis. Its seems a little incongruous to have one policy for compassionate domestic airfares and to not have these on an international basis ? Surely they don't think everyone's close family live in N.Z. ?

It is a very difficult time of life to stare down the barrel of losing one's parent and I for one think we need to balance the need to make a profit with a decent sense of humanity toward people who find themselves in genuinely unfortunate circumstances so as a corporate one is not seen to have lost one's morality of being a good corporate citizen. You have my sincere sympathy Skid and I hope your wife's father is okay.

I thought it a little curious that they wouldn't be available on international flights so I had a quick look around. From what I can see, most airlines don't actually offer any sort of compassionate fare at all - though many will offer additional flexibility on existing or new bookings for compassionate reasons. In fact, Air New Zealand is the only Australiasian carrier left that actually has compassionate fares (Qantas, Jetstar, Virgin Australia, and the foreign carriers going trans-tasman including Fiji and Emirates don't), and as of 2014 that was "under review", meaning at some point it's possible that it'll just go away.

[stoploss]

Seeking all Hobbit fans! Air New Zealand (https://www.facebook.com/AirNewZealand/) have kindly donated a Collectable Air New Zealand Boeing 777-300 ER model - complete with ‘The Desolation of Smaug’ livery. Scale 1:200. Please see our Silent Auction room for the actual model plane details. Photo similar to actual model only.


https://fbcdn-sphotos-a-a.akamaihd.net/hphotos-ak-xlt1/v/t1.0-9/12801510_10207640724270348_3312192062127375141_n.j pg?oh=8e1f2d00a434519df56d26215e1811fc&oe=578B28D4&__gda__=1468786461_39d777973f64ca3db1687329f077ad6 2
(https://www.facebook.com/photo.php?fbid=10207640724270348&set=gm.1764094087160638&type=3)



Roger local school fair tomorrow , you want me to put a bid in for you ??

[Beagle]

I'm not a Hobbit fan mate but thanks for thinking of me.

Just thinking out loud. I wonder with all this booking on the internet stuff whether somewhere we've lost the people part of the human connection between a good travel agent and the staff they know at the airline. I can't help wondering if you had a good travel agent and they had a good contact at AIR, (the right person to speak too), whether something couldn't have been done.

[skid]

I thought it a little curious that they wouldn't be available on international flights so I had a quick look around. From what I can see, most airlines don't actually offer any sort of compassionate fare at all - though many will offer additional flexibility on existing or new bookings for compassionate reasons. In fact, Air New Zealand is the only Australiasian carrier left that actually has compassionate fares (Qantas, Jetstar, Virgin Australia, and the foreign carriers going trans-tasman including Fiji and Emirates don't), and as of 2014 that was "under review", meaning at some point it's possible that it'll just go away.

Small update--when they told us what the ''increase in fare was''(not including the change date fee)I got on the internet and checked what the fare was for the new dates(not a special)...it was less than what they were charging....so now we are on the opposite side of the ledger from a compassionate discount......Good little money maker for them,this family illness.

Fair point Roger--It was flight center--we will find out more on Monday (our agent wasnt there yesterday ,but the person we talked to assured us that they made no additional commission).

[sb9]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11604971

Is this the reason for AIR's sp weakness today, on a day when the market is very strong.

[Beagle]

Yes there's no new news in there but it weighs on sentiment.

[andrewdixon1000]

AIR NZ in another story today: http://www.stuff.co.nz/business/77852707/air-new-zealand-and-virgin-australia-announce-biofuel-project
Looking into biofuels again with Virgin.

[Snow Leopard]

AIR NZ in another story today: http://www.stuff.co.nz/business/77852707/air-new-zealand-and-virgin-australia-announce-biofuel-project
Looking into biofuels again with Virgin.

http://www.hospitalityinfocentre.co.uk/Fats%20&%20OIls/Pictures/oil_extravirgin.jpg
Best Wishes
Paper Tiger

[skid]

Im beginning to think the best way to manage your AIR shares is to know someone who works for The Herald.

[Beagle]

AIR NZ in another story today: http://www.stuff.co.nz/business/77852707/air-new-zealand-and-virgin-australia-announce-biofuel-project
Looking into biofuels again with Virgin.

Welcome to the forum Andrew.

Curious timing to try and stimulate investment in biofuels ?

[Hoop]

http://www.hospitalityinfocentre.co.uk/Fats%20&%20OIls/Pictures/oil_extravirgin.jpg
Best Wishes
Paper Tiger

Bugger the environment...Use coal its cheaper

http://bentcorner.com/wp-content/uploads/2010/06/michalkwolekcoaldrivenairplane.jpg

[sb9]

Heard Mr Hosking on ZB say this morning that AIR NZ is to make a big announcement tomorrow. Not sure re subject matter though, anyone know what it might relate to?

[Joshuatree]

That hosking will receive 1st class seats every time he slips in a good word about AIR?

[babymonster]

the bio-fuel news?

[Zaphod]

Welcome to the forum Andrew.

Curious timing to try and stimulate investment in biofuels ?

Perhaps with oil prices declining as they have, AirNZ don't want to be seen to now be ignoring the environmental impacts of the additional aircraft they have deployed? If they did nothing they would sure to be slammed in the press, although I am sure they will anyway.

[Beagle]

Perhaps with oil prices declining as they have, AirNZ don't want to be seen to now be ignoring the environmental impacts of the additional aircraft they have deployed? If they did nothing they would sure to be slammed in the press, although I am sure they will anyway.

I think they're looking at rolling out a fleet of electric cars and ground support machinery shortly mate...at a time when the economics of same have probably never looked worse. But its good PR and they'll need that to placate the masses when they announce a truly stunning result in late August.

[winner69]

I had it in my diary for tomorrow which was clearly wrong. I am holding so will get the dividend anyway. Onwards and upwards.

You get your divie in a day or two

Buy some more - cheaper now than before ex-divie date when you were keen to buy

[Nasi Goreng]

I might be tempted if it drops a bit more. I would be surprised if it broke down below the trading range but if Winner bails at around $2.69, that would be a bullish sign to me based on how the price action has gone vs your $3 calls.

[Raz]

I might be tempted if it drops a bit more. I would be surprised if it broke down below the trading range but if Winner bails at around $2.69, that would be a bullish sign to me based on how the price action has gone vs your $3 calls.

Yes, this trading to make a decent return on AIR shares is rather high maintenance.

[winner69]

I might be tempted if it drops a bit more. I would be surprised if it broke down below the trading range but if Winner bails at around $2.69, that would be a bullish sign to me based on how the price action has gone vs your $3 calls.

No no - 269 is the next buy (or maybe cheaper)

Then it'll go to 3 bucks plus again

Hard work as Raz says but pretty risk free - follow those charts

[sb9]

https://nzx.com/companies/AIR/announcements/279344

Impressive numbers...

[Kelvin]

Jetstar Regional doesn't seem to be having an adverse effect on Air NZ domestic passenger numbers...

And where's Hosking's big announcement? I doubt we will see any big announcement today...

[Beagle]

Yep, happy with that.

[777]

Jetstar Regional doesn't seem to be having an adverse effect on Air NZ domestic passenger numbers...

And where's Hosking's big announcement? I doubt we will see any big announcement today...

Electrification of ground equipment as suggested.

[stoploss]

Yep, happy with that.

Hi Roger , think I asked something similar before , but passenger numbers up and RPK up . However the bottom line when it says "Group-wide yields for the financial year to date were down 0.7% on the same period last year. Short Haul yields were down 0.2% while Long Haul yields were up 2.1%. Removing the impact of foreign exchange, Group-wide yields were down 4.7%."

How does this translate to real cash with a group yield down 4.7 % Are they making more or less $$$$$ than last year ?

[Mickey]

And where's Hosking's big announcement?

Unless it was this......

Air New Zealand opens new Brisbane lounge
A new Koru Club lounge opens today at Brisbane International Airport as part of Air New Zealand's $100 million lounge network development. The new 771sq m facility caters for nearly 200 passengers customers with 70% more seating. It wraps around the corner of the terminal and features high ceilings, large windows and views back to Brisbane city and into the lower terminal. Spaces in the new lounge include a cafe area with a self-service food buffet and beverage station, a children's play area and family space, quiet nooks, business table and bathroom facilities. It will also be available for Virgin Australia Velocity customers, other Star Alliance member airlines and business class travellers on Etihad.

[Beagle]

Hi Roger , think I asked something similar before , but passenger numbers up and RPK up . However the bottom line when it says "Group-wide yields for the financial year to date were down 0.7% on the same period last year. Short Haul yields were down 0.2% while Long Haul yields were up 2.1%. Removing the impact of foreign exchange, Group-wide yields were down 4.7%."

How does this translate to real cash with a group yield down 4.7 % Are they making more or less $$$$$ than last year ?

A LOT more is the quick answer. If you'd like me to unpack it more I'm happy to oblige later when I have more time.

[stoploss]

A LOT more is the quick answer. If you'd like me to unpack it more I'm happy to oblige later when I have more time.

No that's fine .For a simple guy I just need it in simple terms.
Seems like they have the cheque book out ... For your services to AIR NZ Roger I hope you get an invite to the event when they uncork some of these quality vintages ....

http://www.stuff.co.nz/business/77923886/top-dollar-for-three-decades-worth-of-new-zealands-premier-red-wine

[777]

Here it is

http://www.stuff.co.nz/business/industries/77931092/air-new-zealand-to-have-countrys-largest-electric-vehicle-fleet

[Beagle]

Here it is

http://www.stuff.co.nz/business/industries/77931092/air-new-zealand-to-have-countrys-largest-electric-vehicle-fleet

Fantastic...so they have expended million of dollars of shareholders money on a fleet of electric vehicles when the economics of same have never looked worse...and they save in a whole year what amounts to half a tank of fuel into one Dreamliner for one flight. Sorry Mr Luxon but I am most underwhelmed. You should have paid that money out as a better interim dividend.

I suppose the counter argument is AIR are showing sustainability leadership, are perceived to be a good corporate citizen and its very good for public relations, staff morale and the companies image generally. I suppose in the context of a company with turnover looking to grow to $5.5 billion the positive effects outlined in the counter argument have some chance of being of rational economic sense.

Might make for a good discussion point at the next annual meeting.

[Kelvin]

Yes, that's an underwhelming "big" announcement

Was hoping for something exciting like "we are keeping the 767s around for longer" or "we are announcing AKL- Hobart/Taipei/Manila" or "We are moving to an all ATR fleet for regional operations"

[Joshuatree]

Fantastic responsibility taken though re climate change ; leading for others to follow; full marks.

[brend]

Fantastic responsibility taken though re climate change ; leading for others to follow; full marks.

not really though? All they are doing is giving that perception that they are doing something about climate change.

They save half a tank of dreamliner fuel..this is nothing compared to the the fuel the planes use and emit.

BMW's even??? I'm trying to think about how the sales team needs these vehicles and how they use them --- no idea? Does the sales team go around to corporate clients?

[Longhaul]

Fantastic responsibility taken though re climate change ; leading for others to follow; full marks.

I guess the question is "what is the value of this good PR?" Clearly it's not a good investment for the sake of saving fuel or reducing carbon outputs considering how much they must burn through in a year.

They could just cancel one flight and be twice as effective (fuel savings wise).

[Beagle]

They save 65,000 litres a year and the company burns over 1 billion litres of fuel a year...sorry but that doesn't compute on the face of it but I guess every journey starts with a single step.

Corporate image, public perception, staff morale, public relations I can understand but the core numbers and economics themselves don't appear to make sense. I guess Brend we have to trust the guys making the big bucks know more than us other lowly, low visionary bean counters.

[BDL]

Good on you Air NZ for taking the initiative and doing this on your own. That is good corporate leadership.
We now need a government to help encourage more of this shift to the future, instead on sympathy for dinosaurs like Fonterra.

[winner69]

These environmental initiatives driven by their strategic intent of synergistically conceptualizing next-generation technologies.

Good on them

Greens leader James Shaw was impressed with what Luxon said at a breakfast function at Te Papa this morning.

[stoploss]

not really though? All they are doing is giving that perception that they are doing something about climate change.

They save half a tank of dreamliner fuel..this is nothing compared to the the fuel the planes use and emit.

BMW's even??? I'm trying to think about how the sales team needs these vehicles and how they use them --- no idea? Does the sales team go around to corporate clients?

Yea it's not a lot when you consider how much they have to dump each year when a emergency landing is called for .....

[winner69]

Roger - from what he was saying this morning in a speech this morning at a Sustainability breakfast Chris going to spend heaps more on environmental stuff (second hand feedback from an attendee)

That Sir Jonathan Porritt seems to have a big influence on Chris

[Zaphod]

Jetstar Regional doesn't seem to be having an adverse effect on Air NZ domestic passenger numbers...

IMO the likely outcome of Jetstar's entry is to grow the pie through provision of additional seats at cheaper fares, rather than converting NZ customers en masse.

There has however been some down gauging of regional aircraft (i.e. ATR72 to Q300) on some sectors where JS and NZ depart at close proximities.

[Beagle]

Pays not to put people on a pedestal then doesn't it mate...

[Hoop]

They save 65,000 litres a year and the company burns over 1 billion litres of fuel a year...sorry but that doesn't compute on the face of it but I guess every journey starts with a single step.

Corporate image, public perception, staff morale, public relations I can understand but the core numbers and economics themselves don't appear to make sense. I guess Brend we have to trust the guys making the big bucks know more than us other lowly, low visionary bean counters.

An over the top lets be environmentally friendly attitude at the shareholders expense, to create a clean image mirage from an industry which is the major polluter to this planet....

The more activity from this industry = extra pollution....this may attract authorities to start rattling the international cage ...maybe the reason for these airline industry guys saying we are trying to be responsible about Carbon emissions so no need to restrict us

It's nothing more than a media con job...Hence the reason why I posted that satirical steampunk picture

[Beagle]

Agreed 100% Hoop and yes I picked up on the satire.
Such initiatives give a massive reading on my corporate B.S. meter but the public seem to lap up this kind of environmental public relations image stuff so I guess that's what counts in the bigger scheme of things.

Last I checked the green party had close to 10% of the vote and even ACT are now transforming into some kind of Green party try hard so anything that resonates with this bigger than expected group of consumers is probably good for the company.

I guess I am a naughty capitalist and just wanted a bigger dividend to fuel my 6.4 litre Hemi powered SRT8 Chrysler's rampant thirst...bad dog..in the corner with me.

[Hoop]

Agreed 100% and yes I picked up on the satire.
Such initiatives give a massive reading on my corporate B.S. meter but the public seem to lap up this kind of environmental public relations image stuff so I guess that's what counts in the bigger scheme of things.

Last I checked the green party had close to 10% of the vote and even ACT are now transforming into some kind of Green party try hard so anything that resonates with this bigger than expected group of consumers is probably good for the company.

I guess I am a naughty capitalist and just wanted a bigger dividend to fuel my 6.4 litre Hemi powered SRT8 Chrysler's rampant thirst...bad dog..in the corner with me.

Nice!!!!!!!!!!:D:D...To stop the Greens glaring at you in contempt..I recommend you follow the AIRNZ strategy ...fit a dummy solar panel on the roof :D

[Beagle]

Nice!!!!!!!!!!:D:D...To stop the Greens glaring at you in contempt..I recommend you follow the AIRNZ strategy ...fit a dummy solar panel on the roof :D

LOL I like your sense of humour.

[TFA]

Full marks to AIR. Their leadership and marketing is world class. This is just another example that is consistent with their sustainability goals that they have said they wish to achieve. They are walking the talk as they always have done under the Fife-Luxon era. The intangible value adds to their brand will be worth substantially more than the directly measurable ROI's of projects like this.

[winner69]

In his speech this mornng Luxon apparently talked about needing to put sustainability at the heart of Air NZ's strategy for the next 75 years.

That shows real commitment eh - stretching goals out that far implies they can ignore emissions for the forseeable future.

Good story though but like most corporates just a story that gives some the warm fuzzies.

[winner69]

How many of you have read this?

Air NZ Sustainability Report 2015

http://www.airnewzealand.co.nz/assets/PDFs/J004845-Sustainability-Report-2015_FINAL-ART-NEW_MEDRES.pdf

[777]

Yeah I can imagine this happening.

Providing our shareholders with an opportunity to reinvest dividend payments in the new Gividend platform, which will support organisations addressing social and environmental challenges

[Joshuatree]

...... but I guess every journey starts with a single step.

.
Thats so right and we have to all of us start to join the dots re our future here. Bio Fuel blend in future maybe/hopefully.

[Beagle]

How many of you have read this?

Air NZ Sustainability Report 2015

http://www.airnewzealand.co.nz/assets/PDFs/J004845-Sustainability-Report-2015_FINAL-ART-NEW_MEDRES.pdf

Yes I've skimmed it already and Its certainly an interesting read.
I guess the starting point is when you burn over 1,000,000,000 litres of aviation fuel annually the morally decent thing to do is to be exploring new technology and new efficiencies wherever possible.
I totally get where they are coming from in regard to certain things like:-

1. Modernising their fleet with the most efficient aircraft and technology currently available. In this regard I note they're looking to have one of the youngest fleets in the world by FY19 at a remarkable 6.2 year average age.
The new ATR600's of which they have more than a couple of dozen on order are class leading ultra efficient turboprops. Also as discussed many times AIR were the first airline in the world to order the ultra efficient new 787-9 Dreamliners and will have 9 of them in their fleet by November 2016 which will make them the most prolific wide-bodied type in AIR's fleet. They have three more on order and another six options as well which I expect will be exercised in due course.

2. Retrofitting the latest technology to existing aircraft - Fine examples of this was AIR were first ion the world with the advanced upturned winglet they retrofitted to most of their A320 fleet saving approx. 4% fuel burn and they're kitting out their ATR fleet with the very latest advanced GPS navigational systems that will allow them to follow very tightly controlled and accurate flight paths and use smart and efficient landing approaches, (another $25m investment).

3. Smart technology and apps such as boarding passes on your cell phone, eliminating wastage.

4. Simplifying systems and procedures. Its seems clear management are on a broadly based efficiency drive throughout the business to enhance processes, systems efficiencies and the way they generally do things so the airline runs like a well oiled and efficient Swiss watch.

Its good they're showing leadership and responsibility as much as possible and trying to be as kind to the environment as possible too and its fair to say that when you combine for example the circa 24% extra seat mile efficiency of a Dreamliner with smart flight path's smart approaches e.t.c. it does make a meaningful difference.

Some of their strategies don't resonate with me and are either above my pay grade, too high brow or I ponder whether they really have a satisfactory return on capital invested and yesterday's electric car fleet acquisition is a good example of that but if they don't show sustainability leadership who will ?

The reality though is until mankind finds some clean way to produce the circa 150,000 horsepower required to power an efficient new aircraft like the Dreamliner airlines will be huge polluters there's no getting away from that ugly fact but at least they're doing what they can with all the currently available technology and I certainly respect them for that.

At a personal level, I agree with JT that we all need to take some account of our own environmental footprint. As for us we were early adopters of a hybrid car for my wife's general run-around vehicle and have owned a hybrid for 10 years now and we have lots of trees on our 1 acre bush clad section so I don't feel too guilty enjoying that Hemi powered V8 of mine from time to time :)

[dobby41]

Some of their strategies don't resonate with me and are either above my pay grade, too high brow or I ponder whether they really have a satisfactory return on capital invested and yesterday's electric car fleet acquisition is a good example of that but if they don't show sustainability leadership who will ?

With some things the 'feel good' and being thought of highly by the punters is hard quantify the return.
Some of these things are little more than clever marketing.

[777]

Also as discussed many times AIR were the first airline in the world to order the ultra efficient new 787-9 Dreamliners and will have 9 of them in their fleet by November 2016 which will make them the most prolific wide-bodied type in AIR's fleet. They have three more on order and another six options as well which I expect will be exercised in due course.


There are 15 777-200/300's currently in the fleet.

[Beagle]

Agreed 100% dobby41. The reality is being seen to be as green as possible is good for business because a lot of people care about the environment.

777 - Yes but they list them as separate aircraft types. Their 7 777-300's for example carry 332 pax v only 312 pax for the earlier 200's of which they have 8 and are I understand, somewhat less efficient on the seat mile basis.

[Beagle]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11607138

Jetstar finally concede to alter their unfair online trading practices only after the overt threat of litigation.

[skid]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11607138

Jetstar finally concede to alter their unfair online trading practices only after the overt threat of litigation.

Yep,some of those online booking systems are enough to drive you bonkers (really devious) Air asia was the worst--(not only with insurance (pre ticked) but seats as well . Both you had to undo what they did by default(after you figured it out,.. which was no easy task)

Now back to AIR--change of ticket--we've already figured out that ''Compassionate grounds''cuts no ice-----now its just trying to figure out how ''change of date +price increase'' works.
Fees--thats easy--Its what they say---increase in price--They seemed to have picked that out of thin air---Its not the price of the ticket when bought(it was on sale)--It doesnt appear to be even the ''normal'' price when bought----Its not the advertised price now(setting aside any sale)---They seemed to have chosen a price higher than any of those--Guess that shows they will do what they can to exploit that sort of situation(like they tried before with the same thing as Jet star,before changing) ..Sorry..No more moral high ground for this chap in the case of this outfit.

[Beagle]

http://exploreyourbackyard.co.nz/?utm_medium=omd-display-ad&utm_source=omd-paid&utm_campaign=16MarDomesticDOC16

Nice new marketing initiative, explore your own backyard in association with the Department of Conservation...opps is that AIR management appearing to be Greenies again :)

[winner69]

With some things the 'feel good' and being thought of highly by the punters is hard quantify the return.
Some of these things are little more than clever marketing.

I would hazard a guess that for the majority of people booking flights how environmental 'friendly' an airline is is way down on the list of what's important when choosing who to fly with.

And if it is important to some I'm sure those people would see this 'clever marketing' for what really is - a cynical way to be seen as being green

[winner69]

Does AIR use free range chicken / pork / bacon on their menus?

[sb9]

Looks out for those divvies coming your way tomorrow people, I bet they are one of first few to pay if not the only one :t_up:

[axe]

I would hazard a guess that for the majority of people booking flights how environmental 'friendly' an airline is is way down on the list of what's important when choosing who to fly with.

And if it is important to some I'm sure those people would see this 'clever marketing' for what really is - a cynical way to be seen as being green

http://www.newzealand.com/int/

100% pure New Zealand is the message from Tourism New Zealand. I see there is an AIR NZ "find and book flights" on the front page.
Environmentally friendly Air New Zealand is the most logical choice for the tourists coming to NZ to enjoy our pristine environment.

So yes it is a marketing tactic from Air NZ with bio fuels and electric ground vehicles but it ties Air into Tourism NZ's very large international marketing campaign.

[winner69]

http://www.newzealand.com/int/

100% pure New Zealand is the message from Tourism New Zealand. I see there is an AIR NZ "find and book flights" on the front page.
Environmentally friendly Air New Zealand is the most logical choice for the tourists coming to NZ to enjoy our pristine environment.

So yes it is a marketing tactic from Air NZ with bio fuels and electric ground vehicles but it ties Air into Tourism NZ's very large international marketing campaign.

Yes - as they say "At Air New Zealand we’re acutely aware our success is inextricably linked to the success of New Zealand. Similarly, a successful New Zealand needs a significant and thriving Air New Zealand."

[Beagle]

Yes - as they say "At Air New Zealand we’re acutely aware our success is inextricably linked to the success of New Zealand. Similarly, a successful New Zealand needs a significant and thriving Air New Zealand."

You could even say the two are vertically integrated :) I've always been impressed with AIR's marketing and I think there's some very clever people in that department.

[RTM]

Looks out for those divvies coming your way tomorrow people, I bet they are one of first few to pay if not the only one :t_up:

Still waiting.........Got my MMH and a BNZ Bond payment...

[sb9]

Still waiting.........Got my MMH and a BNZ Bond payment...

Got mine credited this evening into my bank a/c, thanks AIR :D

[Bjauck]

Agreed 100% dobby41. The reality is being seen to be as green as possible is good for business because a lot of people care about the environment.... $moke and mirrors? I imagine Air NZ want them to care a little but not too much, so that they still jump on a plane to whizz around the World and buy produce that needs to be air freighted into the country.
https://en.wikipedia.org/wiki/Environmental_impact_of_aviation

[iceman]

Looks like you are describing Green Party MPs Bjauck


$moke and mirrors? I imagine Air NZ want them to care a little but not too much, so that they still jump on a plane to whizz around the World [/url]

[blockhead]

Today's thought ?

What to do with "the nice juicy dividend" ??

Back in AIR @ pre div price ??...perhaps not, then where ?

[Beagle]

It was nice to see a reasonable increase in the SP yesterday along with the dividend. To be honest I was a little underwhelmed with the size of the dividend 10 cps but understand that they're making a huge investment in efficient new aircraft over the next few years. From memory on the whole green thing, C.L. told the 2014 annual meeting they're setting the airline to be profitable if and when $120 oil comes along again, which I suppose is inevitable at some stage.

In the short run now that all the good news on the recent half year result is out along with full year guiance it wouldn't surprise me to see some consolidation around the current level however what continues to impress is how resilient the airline's performance is, seen even in February's operating stat's at a time when some thought we were on the verge of another GFC or at least a second leg to the first one.

I remain of the view that AIR is highly likely to pay a special along with its final this year. AIR is in good shape, has retained around 67% of its first half earnings so its balance sheet is stronger by 20 cps in cash than six months ago and the recent small pop upwards in the currency will make the capex this year a little less expensive.

Blockhead - Market looks close to fully priced with the odd exception. This and scales look like good opportunities to me or maybe better still just reinvest back into AIR in terms of enjoying some travel :)

[forest]

Hi Roger, analysing can be done with many different approaches, looking at the P/E as you have done and AIR indeed looks a bargain. I decided to look at the ASB web side and took an 9 year average of the free cash flow.
9 year average of FCF = $24mil. If one takes the present market cap of app $3.2bil then by my calculation the 9 year P/FCF equals app 132. That doesn't look so appealing. However future FCF is hopefully a lot better. What are you expectations of the FCF for the next few years?
Cheers,

[Beagle]

Hi Forest,

AIR are expanding their fleet at the fastest rate in their 75 year history and by FY 19 they are forecasting their average fleet age to come down to 6.2 years, was nearly 8 years in 2014 IIRC so quite a dramatic modernisation programme is effected because of the rapid fleet expansion with new aircraft.

I am sure you can imagine this programme is capital intensive and consensus analyst forecast off 4 traders for capex is as follows last year and for the next 3 years, comparative figures for Qantas, also provided
FY15 $1.18b $1 share (QAN $1.35b 65 cps)
FY16 $901m 80 cps (QAN $1.38b 67 cps)
FY17 $856m 76 cps (QAN $1.36b 66cps)
FY18 $962m 86 cps (QAN $1.45b 70cps)

If we take off circa $450m per annum in depreciation you can see the net cost of a fairly dramatic investment in fleet expansion and modernisation.

FCF IMHO is better suited to companies that aren't on such an extensive fleet expansion and modernisation programme but for what its worth management did comment in the conference call in February 2016 that there's tremendous potential for free cash flow later this decade. As you can see from QAN comparative figures, they're neither expanding or modernising their fleet at anything like the rate AIR are and indeed this year are forecasting RPK growth of circa 5%, whereas AIR's forecast is 12% this year and 8-10% next year.

The short answer is AIR are reinvesting back for growth and QAN is rebuilding its somewhat stretched balance sheet and is therefore still using old fuel hungry planes like the 747-400 which are okay now but will really hurt them when fuel goes back up.

I tend to focus on operating cash flow per share, (about $1 per share) and let management who are far smarter than I decide on capex and run the airline how they see fit.

[forest]

Thanks for your view on this, I think cap exp might be a little higher then normal (a few hundred $mil) in the coming years, and it is likely money well spend. But for AIR it is also likely that cap exp (maybe $500mil plus) is a yearly occurrence and should be taken into any valuation.

[Beagle]

No worries Forest. Another way to look at this is and give it more clarity is to look at the depreciation rate itself.

If AIR weren't expanding or modernising their fleet then they would need to replace it at the same rate as its been depreciated. i.e. depreciation is the amortisation of the fleet over its useful life, generally 18 years per aircraft. In this instance AIR would therefore have to spend about 450m on capex each year to match its depreciation expense.

Remember that consensus analyst forecast this year is circa $850m before tax, (I am around $950m) but this is after accounting for $450m depreciation...i.e. underlying profit before tax and depreciation is $1,400m in my estimate.

Depending upon what management want to do with the airline, (if they just want to leave the airline the same size and allow average fleet age to gradually return from 6.2 years to half life, 9 years) it could be a truly massive cash flow generator from FY19 onward. Maybe the Govt might like that ?

[Robomo]

12.5% drop in share price for Virgin, right on 5 pm local time Friday 18 March. Over 5 million shares traded, much higher than usual. No apparent reason for this drop, and nothing in the Media or on Hotcopper. Seems strange given the stunning positive results released just a week ago. The only negative in the results was the lack of guidance for the coming year. But 12.5% drop in one day???

It will be interesting to see if this has any effect on the AirNZ share price on Monday, given they own 26% of VAH.

[Beagle]

Probably index rebalancing mate and probably recover fairly quickly.

[skid]

Update on the wifes AK-Vancouver AIR flight---She got 2 seats so was lucky but froze the whole way---Is that bad customer service or just a bad plane?-(maybe they were warm in another area)--The same thing happened when we flew that route 3 years ago----Thats a pretty basic thing to get wrong---Has any one else had that problem?

[RTFQ]

[QUOTE=skid;612403]Update on the wifes AK-Vancouver AIR flight---She got 2 seats so was lucky but froze the whole way---Is that bad customer service or just a bad plane?-(maybe they were warm in another area)--The same thing happened when we flew that route 3 years ago----Thats a pretty basic thing to get wrong---Has any one else had that problem?[/

The temp is controlled by the Cabin staff. This is often rationalized by other passengers complaining its too hot. From my experiences "the squeaky door is the one that gets the oil"

[Beagle]

My wife often complains its too hot or too cold and I'm usually feeling the exact opposite in exactly the same environment...just saying.