AIR - Air NZ. [Archive] - Page 4

biker

22-02-2013, 03:08 PM

Okay - a few people patting themselves on the back because they 'foresaw' recent weakness - and come-on it is down like 5% - big deal....

That's too cynical for me. You can't deny the improvement in financial performance over the past 6 months - although all will be revealed in a months time. I won't rehash my prior posts because nothing has changed.

As to the recent shareprice decline I think both points mentioned are valid. The decline did coincide with the 787 problems - imho a temporary problem which shouldn't impact the -9.
The 787 will have no effect on AIR's financial performance in FY14, and only a marginal effect in FY15.

so shouldn't we be focusing on what matters... and ignoring the noise...

More important is NZ progress on cost cutting and in this regard news flow has been positive:

- Call centre rationalisation - i think I read $2m saved - straight to the bottom line
- Ground services contract Qantas out Menzies in - must be a good saving here would be a big contract

Other newsflow

- Emirates and Qantas denied co-operation on the trans-tasman
- CEO announces additional A320 to be added to domestic fleet this year - accelerating switch from 737

With concensus at 1.50 I think people are taking a wait and see approach with regard to the half year results. As you know I am a raging bull, and bought another 35k shares at 1.25 last week.

I expect a strong result and a significant increase in the half year dividend (possibly double last years) to perk investor interest.

Also we can look forward to an analyst day in March where the new CEO will be outlining his strategy.

With you on this modandm. I'm buying more anticipating a very good result, and little impact on timing of the 787-9's

biker

26-02-2013, 01:54 PM

Share price on the up today. The whiff of a good result on Thursday? Or a reaction to the VAH result?

golden city

26-02-2013, 08:06 PM

sudden jump.., more tommorow..

biker

27-02-2013, 11:40 AM

Still on the up. The market is anticipating a great result tomorrow. I hope it's not disappointed.
(IMO the market is still underestimating the result)

modandm

28-02-2013, 06:29 AM

sudden jump.., more tommorow..

more great contributions please...

Quick update - operating stats

Very good operating stats in Dec and Jan saw group yields YTD rise from -1.4% to now +1.3% - looks small but actually very significant. Means Dec and Jan yields were up 7-8% on prior period. My base case of 3% pax revenue growth in the first half has proved conservative (although above concensus). The end result was +4.6% from 4.3% RPK growth and 0.3% yield growth. Very pleasing! January result was strong and GS have suggested strong yield trends remain based on their surveys. Continuation of this stronger +7% yield for the rest of the year and RPK growth of 3.5% (unchanged estimate) would see total pax rev growth of 7% which is way above what the market expects and indeed what I expected. My bull case scenario with 4% pax revenue growth now looks to bearish. Driver of this improved yield is being attributed to demand and macro environment. Also capacity switches from lower yield routes (china, london, japan) to higher yield routes PER, HNL, LAX, SFO.

Just to give an idea - if 7% is the full year number AIR could make eps of 24c in 2013. Concensus is around 13-14c. My new estimate uses 5% and is 19.5c. Previously I was looking for 15-16c. Half year results will give me the chance to measure the effectiveness of my assumptions and refine this forecast again.

No other real news of particular interest - ongoing dramas with 787 aside.

Preview coming next

modandm

28-02-2013, 06:52 AM

Okay laying it all out there - lets see how right (or wrong) I can be...

in brief:

pax rev 1950 (+4.6% already known from op stats), cargo 158 (+5%), contract 156, ancillary 130 (+15%) = total revenue 2395.

labour 525 (fall), fuel 628 (estimate from fuel stats), maintenance 145 (down), ops 210 (+5%), pax serv 125 (up 3m), s&m 140 (flat), FX losses 20m (could be too low here), other 130 (from 125) = total costs 1922

EBITDRA 472, D&A -185 (up), rent -100 (down), EBIT 187, net interest cost 29m, for NORMALISED PBT of $158.5

This is the key number and compares with guidance of 120-140 PBT and analysts at between $130-145m. So I am a good 15m ahead of the bull on the street.

To finish up NPAT of 111 (can easily be different due to effective tax rate changes) and EPS of 10cps. Hoping for a 5c dividend (as a signal to a market which seems not to love AIR).

Areas of interest: forward demand and yield outlook/deployment of more capacity to USA, ancillary revenue growth, cost control, strategy guidance (more next month), dividend policy.

Final Comments: This is my best estimate based on good reasoning - if it comes out high I won't be too disappointed. There are many big numbers and 10m is almost a rounding error - what is important is the strong revenue growth trend that is in place and the cost control as a result of operational improvement, stable fuel prices, and a strengthening NZD. This sets up for a good FY 13 result.

Hope you enjoyed reading. Hopefully we will be popping champage and watching the SP race upwards over the next few months.:D

biker

28-02-2013, 10:47 AM

Terrific result. Congrats to holders!

Yes indeed, and more to come.
Great to see the international airline in the black which will help cushion the effect of any possible increased market share by Jet Star in the domestic market although new marketing initiatives will hopefully stem this.
2 more efficient 777s will replace the 2 remaining 747s next year.
Greater emphasis on marketing generally which is needed, as long as it is progressed very cost effectively.
Go the National Airline!!

golden city

28-02-2013, 11:40 AM

good result, but dividend not as high as i expected

modandm

28-02-2013, 11:42 AM

Slightly below my expectations (was close on EBITDRA) - mostly because I had overestimated RPK growth and pax revenue by 20m. Need to look into this... Dividend hike a bit weak.

Regarding the stronger yields - the CFO put this down to a disappointing prior Dec-Jan, not sure that this is reflected in op stats. Will be keeping a close eye on them going fowards.

Guidance from CFO is we should interpret as more positive than prior which was 'more than double PBT'. But then my expectations were already to nearly tripple - but this now looks a stretch (unless yields stay high). Base case of 15-16c earnings in FY13 remains in place... need to see continuing stronger yields to have this rise further. FY14 can expect to be better again as FX gains come through and network changes and capacity growth take effect.

Can expect a rally up to 150 over the next few weeks I would expect after brokers start upgrading.

I guess the disappointment is that this is not as big a shock as last time. It seems this is a stock where you get paid to be patient and people will set a price based on what the company delivers today - I wish people would value it on a decent multiple and for growth. This stock trades on a PE of 7x 2014 i(ex virgin!) - QAN VAH SQ etc trading on 12-15x FY14! That would see NZ at 240-300. Lets see what the analysts come out with - a few have had itchy fingers and have been looking to increase price targets.

Additional 777s not a surprise (should have exercised options they had awhile back but chickend out) CEO says we want to grow, CFO says these replace 747s.. Dont like the new CEO so far - a lot of buzzwords, he is a sales expert though so what do you expect. The CFO is the brains operationally.

FX looks good effectve rate over 80c for 2nd half and 50% hedged at 82.9c next year - so can expect effective of over 83c for next year.

Will rework the model extensively and come back to you on valuations.

biker

28-02-2013, 12:28 PM

Can't complain too much I guess - have made over 50k tax free today...[/QUOTE]

Which means you hold a million shares?

28-02-2013, 12:34 PM

Can't complain too much I guess - have made over 50k tax free today...Wow - that explains why you do so much research on this share. Well deserved.

QOH

28-02-2013, 01:07 PM

Can't complain too much I guess - have made over 50k tax free today...

Well done on your research, I finally got out of them today at exactly the price I paid for them in Feb 2011.
Was sitting on a big paper loss at one time.

Soolaimon

28-02-2013, 02:41 PM

Well done on your research, I finally got out of them today at exactly the price I paid for them in Feb 2011.
Was sitting on a big paper loss at one time.
I also bought back then and have held on but will probably hold till divi then bail.

percy

28-02-2013, 06:26 PM

modandm.Well done.

noodles

28-02-2013, 08:18 PM

Well, I've ignored Buffett today.

modandm

01-03-2013, 04:45 AM

Further thoughts on the result:
The reason I was $20m over for pax revenue was because of a 2 day difference in the accounting period vs 2011. Apart from that results were ahead of my estimates at EBITDRA but fleet costs (Depn & lease) were slightly above my estimates. I am more pleased now because it has not been costs which supressed the result vs my estimate just an accounting difference. Adjusting for the difference the result would have been a PBT of around 150 so still below my estimate due to higher fleet costs but not so far off.

Ancillary revenue growth and contract revenue disappointed while cargo was above expectations. We can safely assume continued 5-10% growth in cargo revenue as yield improves and as new 777s are added.

Positive takeaways:
- The buyback suspension was temporary (insider dealing policy) and is only 25% complete so we can expect additional share repurchases
- Acceleration of growth with new A320 and 777 which will replace 744 (previously 787s were to replace 747 so net growth) - should support further earnings growth and margin expansion in 2014-15
- Pulling of HKG-LHR should contribute $20m to profit in 2014 as capacity deployed to stronger demand routes, AKL-HKG now a stronger route with Cathay as a partner - daily 777
- Luxton spoke a bit on sales execution - clearly his strength and something AIR has been weak at - many changes behind the scene in China, and Japan are driving better outcomes and this is starting to come through in operating stats and through ability to increase capacity - tokyo and Shanghai now daily which is excellent progress
- Yield improvements in last few months CFO says "we don't expect a retracment" - in other words the strong yield improvement (circa 7% yoy) can continue in the second half
- Clearly AIR are looking at new international routes - probably from mid 2014 when capacity becomes available

Changes to model and full year result estimate

I now look for 2% RSK growth for the 2nd half (lower) - because RSK growth was strong in the last quarter of FY12 so don't want to be too bullish. My yield estimate has moved up dramatically after the last 2 op stats and on comments and I now look for 6% improvement (this is what is exciting the likes of Marcus Curley at GS if you read his work). This is below the last 2 months which have been 6.9 and 7.1 so I do think 6% is a fair assumption and can tweak this month by month as we go forward.

The combination of these results in a very postive 8% pax rev growth for the 2nd half which combined with best estimates of other revenue and expenses (taking into account lessons from the result) lead me to an EBITDRA for the 2nd half of 471 and a PBT of 150 - vs 40m last year. This means the 2nd half could be better than the first (which is unusual), as a result of a sharp improvement in yield. The improving macro environment is a clear tailwind here - and maybe the hobbit is having an effect!

To conclude the FY13 PBT number would be $291m which is more than triple FY12. EPS would be 9.6 for the second half and 18.6c for the full year. Stunning!

Analysts are mostly around $210-230m and are aware of the yield trends and watching closely - if we see a continuation in good yield stats expect analysts to start to move up to where I am with target price upgrades to boot. if we dont and revenue growth stays at 4% then 14c eps can be expected - which means the stock is probably fair value at 1.80 which is where most analysts have it now. Still good upside from 140 where we are now.

As to my new base case valuation I use my 8% pax rev growth for the 2nd half, and just 4% revenue growth for FY14 to reach FY14 EPS of 24cps. This is holding cargo, contract, and ancillary rev at FY13 levels, iflating all costs except fuel by 4%. Fuel i use 83c and 135USD barrel (jet). This seems an appropriate estimate at this stage. May spend more time on it later.

To valuation - I continue to think a PE of 13x FY13 and 10x FY14 EPS is appropriate given that dreamliners and 777 arrivals in FY15 will support futher cost improvement - meaning even if revenue growth slows (which it shouldn't with capacity coming on), earnings are supported and could continue to grow at 15-25% into FY15 FY16. Clearly there is less certainty about this than FY13 earnings but you have to assume something.

So that gives me a valuation of $2.40 per share. Again no value is attributed for the 24c virgin stake. Factor in dividends of 3c and maybe 5c at full year and we have $2.48 - or a total return of 77% over the 6-8 months.

Thats me guys - and I miswrote earlier - have had a great week no doubt. Have just over 405k shares now. Wider friend and family the number would be close to a million shares :D. Thanks for the support

iceman

01-03-2013, 07:02 AM

Well done modandm and well deserved with your great research and knowledge of this stock and industry and then having the wherewithal and discipline to follow your conviction through. Congrats. Now being such a substantial shareholder, maybe you can start to push for a South American service for me ;)

Food4Thought

14-03-2013, 12:29 AM

Share buy back. Does anybody know if this will resume? Has it been mentioned?

steve06

14-03-2013, 12:43 AM

Just wondering is the government sell down of AIR going ahead this year? And if so would that bring the SP of AIR down some...?

14-03-2013, 07:23 AM

Just wondering is the government sell down of AIR going ahead this year? And if so would that bring the SP of AIR down some...?technically they could do as a share placement, similar to skt, STU etc at say a 5% discount. Offer only to nzers.

AIR has a market price so don't expect a big discount or bonuses. Timing? Who knows but Key is no doubt trying to pick the top (Modandm will say that is ages away)

steve06

14-03-2013, 10:56 AM

Have some cash lying around, looking to invest, deciding which companies would be a good stable med to long term investment, good financials and divis..

steve06

14-03-2013, 04:22 PM

Cheers, Will do

Food4Thought

15-03-2013, 03:11 PM

AIR is currently in transit, prior to their next departure. Prepare for a slow but steady climb, Full Year results should be positive. I would also suggest MHI. From a brand perspective, this company shows solid growth, especially as some of their developing market economies are slowely recovering.

noodles

16-03-2013, 08:40 PM

I like air and fph. They complement each other nicely as they are negatively correlated on the exchange rate. Both stocks are arguably under valued. Both stocks are in a nice uptrend.

However there are clear risks (apart from exchange rate) for both stocks.

Marilyn Munroe

28-03-2013, 02:01 PM

Air NZ is due to take delivery in the near future of the troubled Boeing 787.

It is likely that the US Federal Aviation Authority will decline to extend ETOPS certification to this airframe.

This is a certification which allows twin engined aircraft to operate an extended range from the nearest airport. An airline which operates extended oceianic routes would need such aircraft in its fleet to operate efficiently If such a certification is not availiable I would expect this to have a material effect on Cullen Airlines earnings

biker

28-03-2013, 03:34 PM

Air NZ is due to take delivery in the near future of the troubled Boeing 787.

It is likely that the US Federal Aviation Authority will decline to extend ETOPS certification to this airframe.

I think it is highly unlikely that the US Federal Aviation Authority will decline to extend ETOPS certification to this airframe.
It is not due here until June next year.
With the 787-8 having had another year of operation by then, the -9 should have no problem with ETOPS certification.

golden city

08-04-2013, 08:36 PM

why is AIR droping sharply today?

noodles

08-04-2013, 09:17 PM

I was a little surprised by the drop too. The media came up with these explanations:
1. High nz dollar means less tourism. Also mean lower fuel price for AIR.
2. Institutions raising funds for MRP.
3. Poor US lead (on friday)

I've used the opportunity to top up. The last 2 Monthly reports give me a lot of confidence that even the highest analyst revenue expectations will be exceeded. This should translate into earnings estimates that exceed expectations as well.

Poet

17-04-2013, 02:45 PM

I see that Jetstar's habit of offering bad service is catching up with them

http://www.stuff.co.nz/business/industries/8562210/Jetstar-cans-flights-due-to-poor-demand

They may be cheaper than AIR but as someone who has been stung by Jetstar more than once with delays and inconvenience. I don't even consider them an option when planning a flight so I don't even bother checking their prices.

Should be good for AIR

Zaphod

18-04-2013, 01:03 PM

Air New Zealand's trans-Pacific plans for operating Boeing 787 Dreamliners have hit a major problem with an announcement in Washington that rules over how far they can fly from an airport are unlikely to be extended.

As the rule for Extended Twin-engine Operations (ETOPS) now stands, Air New Zealand will not be able to fly its new Dreamliners direct from Auckland to the United States or Canada without a stop or a significant route change.

http://www.stuff.co.nz/business/industries/8566966/Air-NZs-trans-Pacific-flight-plans-hit-bump

18-04-2013, 01:55 PM

Ouch! That's what you get for buying into something ANTICIPATING that the rules will change. Tsk Tsk AIR!
Given the delays for Dreamliners, they could probably sell to European airlines who aren't effected by the rules and make a tidy profit.

I am pretty sure I read ages ago that that is how Virgin airlines earned all its money in the early days - not from the flights but buy selling their place in the queue to buy new planes.

noodles

24-04-2013, 10:14 AM

AIR just announced earnings expectations for the year. Ahead of average analyst forecasts by quite a margin

Poet

24-04-2013, 10:20 AM

AIR just announced earnings expectations for the year. Ahead of average analyst forecasts by quite a margin

Yes, great outlook

OUTLOOK
Based on current market conditions and the trading environment, Air New Zealand expects FY13 Normalised Earnings before Taxation to be in the range of NZ$235 million to NZ$260 million.

noodles

24-04-2013, 10:27 AM

Yes, great outlook

OUTLOOK
Based on current market conditions and the trading environment, Air New Zealand expects FY13 Normalised Earnings before Taxation to be in the range of NZ$235 million to NZ$260 million.

Based on their historical tax rate and using the middle, it should translate to eps of around 17c. This puts it on a pe of 8.87.

Recent history tells us they will make the upper end of the range (eps .179.)

DISC: Hold

24-04-2013, 01:13 PM

Perhaps this will be the next one to be sold down by the govt - nice and easy as its already listed and not in the controversial power game.
Could probably be an offmarket placement within a week if they didn't have to worry about getting the shares into M&D investors hands.

modandm

25-04-2013, 08:58 AM

decent operating statistics, slightly better yield than my estimates. One thing that I found particularly pleasing is the improvement in domestic demand (up 8.2%), and shorthaul yields are only down 1.5%. That gives me confidence that the domestic profit fortress NZ has is sustainable and that the threat of jetstar remains well under control. With susbstantial capacity (new A320's and ATR's) coming on next year NZ can grow domestic profit nicely.

The outlook is actually better than my estimates which was for about $240m (guide 235m-260m) although the pax revenue line I have is right, this means either cargo, contract or ancillary revenues are doing better than I expected, and/or that costs are being effectively controlled. It could be fuel given the recent fall (although much is locked in at slightly higher prices).

Roll on the strategy day - looking foward to hearing about the 'go beyond' plan!

No change in my view or holding :)

P:S re the 787's - uninformed commentators talking about ETOPS... 1st thing as i have said before is 787 has no effect until 2015 or 2016 performance so who cares! 2nd AIR is planning to use 787 on asian leisure routes (which don't need ETOPS 180 anyway) 3rd have you seen the boeing shareprice going up? The 787 will be fine! :D

Poet

25-04-2013, 10:10 AM

Hi Modandm, love your work!

When do you expect the strategy day to be?

zcyong

25-04-2013, 03:33 PM

All good points!

modandm

27-04-2013, 09:31 PM

Hi Modandm, love your work!

When do you expect the strategy day to be?

Sometime in May - date TBC is what IR has told me.

NZ is moving towards more of a leisure focus - and this means less luxurious (but more efficient) seating plans for both the new 787 and the refurbished 777-200ers. This will undoubtedly result in much whinging and media attention, so it will be particularly interesting whether this is brought up or pushed aside until the last minute before being announced.

The more I hear the more I like this new CEO, he seems pretty cut-throat about reducing costs and maximising profits! Happy days!

noodles

27-04-2013, 09:46 PM

Sometime in May - date TBC is what IR has told me.

NZ is moving towards more of a leisure focus - and this means less luxurious (but more efficient) seating plans for both the new 787 and the refurbished 777-200ers. This will undoubtedly result in much whinging and media attention, so it will be particularly interesting whether this is brought up or pushed aside until the last minute before being announced.

The more I hear the more I like this new CEO, he seems pretty cut-throat about reducing costs and maximising profits! Happy days!

IR? What is that?

Marilyn Munroe

28-04-2013, 04:18 AM

..and this means less luxurious (but more efficient) seating plans for both the new 787 and the refurbished 777-200ers.

Does this mean future Cullen Airlines carriage trade customers will have to endure cattle class until the nearest Ethiad pick up point?

Boop boop de do
Marilyn

zcyong

30-04-2013, 08:30 PM

huge volume today, strange.

slimwin

02-05-2013, 12:16 AM

Leaked document today which looks to outlines huge staff redundancies in engineering.
I remember them doing this in 2005 only to have to recruit worldwide to get engineers 2-3 years later.

janner

02-05-2013, 12:49 AM

Leaked document today which looks to outlines huge staff redundancies in engineering.
I remember them doing this in 2005 only to have to recruit worldwide to get engineers 2-3 years later.

Yes slimwin.. But the world qualified work shop ended up with fewer REAL engineers..

Are we seeing a repeat ??

Good for the share price.. Not good for the bookings..

Zaphod

02-05-2013, 08:01 AM

Here's the NZ Herald's report on the document: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10881011

slimwin

02-05-2013, 08:58 AM

Good for Bob De Groot i'd say.

It's never that cut and dry as"send maintenance to asia" in aviation. I've worked for several European airlines that tried it and it came back to haunt them with delays and extra costs out of heavy maintenance. If there's a delay in NZ you can shuffle a schedule. If it's in Asia and the next a/c is on the way,it's not so easy.

What will be,will be though. Better start looking for a new job in ChCh!

Go Jetstar!

Marilyn Munroe

02-05-2013, 10:44 AM

I would have thought that Cullen Airlines would have waited until other operators had gained more operational experience with the 787 before having a clean-out of engineering and maintenance staff.

Going on the experience so far the long term future of this aircraft is questionable, and Cullen Airlines has signed up to buy it.

If the 787 turns out to be a dog Cullen Airlines may need more engineering staff than they planned to keep their old 767's and 777's in the air.

Boop boop de do
Marilyn

slimwin

02-05-2013, 11:38 AM

Oh, there's problems with all new aircraft types and the 787 is a leap in technology. It'll be sorted and hopefully a good aircraft.
The heavy checks have been extended from 5 yrs out till 10 years but we'll see how that works. Our not so old A320's have had significant corrosion problems in the wings. Of course this was also not envisioned.

After maintenance has gone watch for using Asian aircrew on Asian contracts. Once that has happened and a large portion of shares are sold overseas,what is the benefit to NZ from our national carrier?

noodles

16-05-2013, 07:25 PM

from the herald today...

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10883928

Marilyn Munroe

17-05-2013, 06:20 PM

iceman

17-05-2013, 08:33 PM

NZ Herald "Analysts bullish on partial sale of Air NZ"

Cullen Airlines has a couple of future vulnerabilities. What are Emirates going to do with their spare 777's when they replace them on routes with A380's?

Will customers desert if a competitor puts A380's on the Pacific?

787 Dreamliners have had a troubled introduction, will these problems be sorted by the time Cullen Airlines takes delivery of theirs?

Boop boop de do
Marilyn

PS. While I may seem to be down on Cullen Airlines they are in a better position than QANTAS or European flag carriers.

I noted with much interest that the PM in his Budget speech yesterday talked about increased funding for tourists from Latin America. I travel between NZ and Argentina every 6-8 weeks. The only travel option I have at present between NZ and Argentina is LAN via Santiago. Aerolineas Argentinas pulled out last year. So if you want to fly direct between Latin/South America and NZ, LAN in your only option. It is increasingly fully booked and increasingly expensive. So if the PM wants increased tourism between SA/NZ, which I agree with, we need more flights. Star Alliance is completely out of the loop between Australasia and South America.
Based on the above, I expect and wish for AIR to start flying from Auckland to Buenos Aires or Brasil. It would be a significant business for us and I reckon much more profitable route than the heavily competitive routes we are currently fighting on.

Marilyn Munroe

18-05-2013, 12:35 AM

It wont be Cullen Airlines flying to South America iceman.

Because of the extended duration of such a flight over the Southern Ocean the rulz say that a four engined aircraft must be used. The only four engined aircraft in the Cullen Airlines fleet is the 747 which they plan to retire.

LAN use a four engined Airbus 340 on this route. This model is no longer being built leaving the A380 the only aircraft in current production available to fly this route. Whoever continues or develops this route may view the A380 bums on seats capacity as too great for the passengers on offer.

Boop boop de do
Marilyn

PS. Boeing are touting a 747 update called the 800 series. Reception by the market to this proposed update has been lukewarm so it is an open question whether Boeing will continue with the update.

777

18-05-2013, 08:04 AM

Not so. With 240 ETOPS a two engine aircraft can do it albeit not in a straight line.

Also the 747-8 series is already flying.

http://www.lufthansagroup.com/en/company/fleet/lufthansa-passage.html

slimwin

18-05-2013, 11:24 AM

Flying and the freighter version is popular

biker

18-05-2013, 03:12 PM

NZ Herald "Analysts bullish on partial sale of Air

PS. While I may seem to be down on Cullen Airlines..........

Oh really? You think? Something personal?

Anonymous

19-05-2013, 04:25 PM

I noted with much interest that the PM in his Budget speech yesterday talked about increased funding for tourists from Latin America. I travel between NZ and Argentina every 6-8 weeks. The only travel option I have at present between NZ and Argentina is LAN via Santiago. Aerolineas Argentinas pulled out last year. So if you want to fly direct between Latin/South America and NZ, LAN in your only option. It is increasingly fully booked and increasingly expensive. So if the PM wants increased tourism between SA/NZ, which I agree with, we need more flights. Star Alliance is completely out of the loop between Australasia and South America.
Based on the above, I expect and wish for AIR to start flying from Auckland to Buenos Aires or Brasil. It would be a significant business for us and I reckon much more profitable route than the heavily competitive routes we are currently fighting on.

Sorry to say Iceman but I understand that Air NZ's Chief Strategy, Networks & Alliances Officer (Stephen Jones) spoke last month to a South American focused Business group. Apparently he spelt out that AIR is not looking at flying to South America anytime soon. The main 3 reasons being:

1) Destinations - Santiago is already well serviced by LAN & Qantas (ex Oz). BA is serviced by Aerolineas ex Oz (I agree it is a very liberal use of the term serviced) and there is high economic risk dealing with Argentina whilst it rapidly goes broke. Sao Paulo is too far to reach directly and they are against flying two stop destinations. Lima is a possibility but that has the least demand.

2) There is no decent Star Alliance partner to feed onto in South America.

3) They don't have the aircraft type suited to fly there (which is this 4 engine vs 2 engine debate) and so would have to fly a more northern route (to stay within so many hours of land or something) and this is less economically viable.

Apparently they are not completely against it and they are continuing to investigate BA but there is nothing happening in the near future.

iceman

20-05-2013, 08:15 AM

Sorry to say Iceman but I understand that Air NZ's Chief Strategy, Networks & Alliances Officer (Stephen Jones) spoke last month to a South American focused Business group. Apparently he spelt out that AIR is not looking at flying to South America anytime soon. The main 3 reasons being:

1) Destinations - Santiago is already well serviced by LAN & Qantas (ex Oz). BA is serviced by Aerolineas ex Oz (I agree it is a very liberal use of the term serviced) and there is high economic risk dealing with Argentina whilst it rapidly goes broke. Sao Paulo is too far to reach directly and they are against flying two stop destinations. Lima is a possibility but that has the least demand.

2) There is no decent Star Alliance partner to feed onto in South America.

3) They don't have the aircraft type suited to fly there (which is this 4 engine vs 2 engine debate) and so would have to fly a more northern route (to stay within so many hours of land or something) and this is less economically viable.

Apparently they are not completely against it and they are continuing to investigate BA but there is nothing happening in the near future.

Thanks for that Anonymous. I had heard similar reasoning but it disappoints me, more for purely selfish reasons rather than as an AIR investor ! Aerolineas does not provide as service, they provide flights. They cut out Auckland last year and now fly only BA-Sydney as you correctly point out. I will not fly them between South America and Oceania anyway which leaves me with LAN via Santiago as the only option. The planes are nearly always full since Aerolineas pulled out of NZ. That's why I don't understand how the Government think increased tourism between NZ-SA can be increased if we don't have flights to cater for it !

Your point about Argentina's precarious economic situation is unfortunately very very valid and all to real

20-05-2013, 09:36 AM

Terry Hall in Stuff Online seems to think the Air NZ sell-down might involve a rights issue to existing shareholder (2nd para)

http://www.stuff.co.nz/business/opinion-analysis/8691716/Investors-put-off-by-pig-in-a-poke-floatNot sure they could get the full 25% away with just a rights issue - It would require all shareholders to double their holdings.

I do think they will be looking to do something that doesn't require a full prospectus to so maybe a rights issue combined with an institutional book build?

Alternatively, they could do what the Ozzy government did with Telstra and 'sell' the shares to its future investment fund (NZ alternative would be super fund, but could split with ACC etc) who could manage an orderly sale over time.

Zaphod

03-06-2013, 08:50 AM

Not a lot of new information in this article, but will post none-the-less.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10888007

"There has been analyst speculation that Singapore Airlines would be a possible partner to give Air New Zealand better connections into Southeast Asia and to Europe."

What additional level of co-operation would NZ be seeking with SQ over and above that which is already provided for, given that they are both members of the same alliance?

slimwin

03-06-2013, 12:09 PM

Code sharing would give a direct route out of ChCh to Asia.

Zaphod

04-06-2013, 10:34 AM

Code sharing would give a direct route out of ChCh to Asia.

Thanks - Looks like the game has changed since I last few into Asia via Singapore. Back then, NZ code-shared with SQ by default, however after making some dummy bookings I see that Etihad is the preferred code-share partner.

iceman

04-06-2013, 10:48 AM

Thanks - Looks like the game has changed since I last few into Asia via Singapore. Back then, NZ code-shared with SQ by default, however after making some dummy bookings I see that Etihad is the preferred code-share partner.

I flew Christchurch-Paris return last week. Air NZ disappointingly had now decent or competitive Star Alliance options so I ended up booking SIA directly from their website. These code sharing arrangements like Air NZ has with Etidad or Cathay Pacific seem to be undermining the integrity and benefits of the Star Alliance in my view !

biker

06-06-2013, 11:28 AM

noodles

06-06-2013, 08:54 PM

AIR has had a good run over the last 12 months. Any reason why I shouldn't sell at these levels and if so inclined, buy back in when the Gummint sells down? What I am contemplating is whether there is more upside prior to the sell down and what the price and effect of the selldown will be. Any thoughts?

The sell down may well be in 2014. It may also be a right issue or placement.

Analysts are forecasting earnings growth next year. This will put them on a pe < 10 (for fy13 and fy14). Recently analysts have been playing catch up. They have been consistently under-estimating earnings.

On a negative note, their last monthly report had a drop in RPK's.

I still hold. I am comforted by the resilience in the share price given the recent market correction.

I'm not giving advice. Up to you:)

modandm

07-06-2013, 04:08 AM

AIR has had a good run over the last 12 months. Any reason why I shouldn't sell at these levels and if so inclined, buy back in when the Gummint sells down? What I am contemplating is whether there is more upside prior to the sell down and what the price and effect of the selldown will be. Any thoughts?

Its tough to anticipate what the price or effect of the govt sell down will be so its not something I worry about.

What does have me concerned is the recent decline in the NZD, the strong NZD has been a key reason to own the stock, with that reversing I am no longer so keen and am going to start trimming.

As noodles also noted the April stats were a bit weak - my revenue growth assumption has been revised downwards too.

Specifically on the operating stats yield (year on year) fell from +3.8% in March to +0.5% in April and RPK growth fell from +2.8% to -0.8% so quite a bad result...

noodles

07-06-2013, 08:04 PM

Its tough to anticipate what the price or effect of the govt sell down will be so its not something I worry about.

What does have me concerned is the recent decline in the NZD, the strong NZD has been a key reason to own the stock, with that reversing I am no longer so keen and am going to start trimming.

As noodles also noted the April stats were a bit weak - my revenue growth assumption has been revised downwards too.

Specifically on the operating stats yield (year on year) fell from +3.8% in March to +0.5% in April and RPK growth fell from +2.8% to -0.8% so quite a bad result...

Another profit upgrade today...and another rather muted response from the market. Heck, it seems profits dont matter anymore. I might capitulate and buy snk xro sli etc

Stranger_Danger

07-06-2013, 09:15 PM

noodles - You'd be better switching to cash. I relate to your feeling, this really is an "enchanted" market.

biker

08-06-2013, 01:45 PM

Thanks noodles and modandm. Sold some yesterday with the upgrade news and holding the rest for the annual result. Just trying to time the cycle. Have taken good profits on the way up so not too worried.
Thanks for your responses

noodles

08-06-2013, 02:26 PM

Its tough to anticipate what the price or effect of the govt sell down will be so its not something I worry about.

What does have me concerned is the recent decline in the NZD, the strong NZD has been a key reason to own the stock, with that reversing I am no longer so keen and am going to start trimming.

As noodles also noted the April stats were a bit weak - my revenue growth assumption has been revised downwards too.

Specifically on the operating stats yield (year on year) fell from +3.8% in March to +0.5% in April and RPK growth fell from +2.8% to -0.8% so quite a bad result...

Modandm,
i'm struggling to work out how you got the +.5% yield. Is that derived from other figures?

noodles

08-06-2013, 02:42 PM

noodles - You'd be better switching to cash. I relate to your feeling, this really is an "enchanted" market.

Cash!? That would mean paying off the mortgage. If my wife saw the mortage go down, she might want to upgrade the house... Or worse, renovate. I've recently brought some hnz. I might have a punt on wynyard. Lots of action on the aussie markets atm. We are seeing lots of downgrades. Some good shorting oportunities.

modandm

21-06-2013, 04:33 PM

Modandm,
i'm struggling to work out how you got the +.5% yield. Is that derived from other figures?

Yes from the delta of Ytd group yield each month.

Buying today :). Market due for correction after strong run (mostly just pe going up), air nz on the other hand pe has gone down so weakness in air is buying opportunity for me.

On the currency weakness have decided that will not effect fy13 or fy14 result and market likely too stupid to factor it in fy15. Stock is on 9x fy13 and less than 6x fy14 ignoring virgin worth c.30cps now...

I'm calling the stock at 175 post results and div so a good 25pct to come in near term. Seems the pattern now so sticking with it :D

Finally in stock news I read jet star is cutting nz capacity which is pleasing. I continue to be impressed by the strength of nz domestic and new a320s arriving now -first today- should continue to see some growth.

noodles

25-06-2013, 11:56 AM

Op Stats out today.

Good to see that RPK's are back on track (up 3.7%) and ytd yield is stable after weak RPK's last month.

This is consistent with the company's forecast of being at the top end of guidance.

Food4Thought

10-07-2013, 10:53 AM

10-07-2013, 11:12 AM

Any one else think AIR is currently a good buy? Potential for a serious uplift in share price heading to full year results and dividend? Also did that accident with ASIANA impact AIR NZ for their flights etc? possible damage to income?If anything ASIANA impact into the sea wall will be positive for airlines with a good safety record like AIR.

Food4Thought

10-07-2013, 11:25 AM

Marilyn Munroe

13-07-2013, 11:34 AM

I hope that the fire in the Ethiopian 787 parked unmanned on the tarmac at Heathrow has a trivial, easily resolved cause.

Poor aircraft choices can cripple an airline and if Cullen Airlines was to ditch the 787 and go for the A350 they would have to go to the back of the order queue.

The other problem, if they persisted with the 787 they would have to keep on more engineering staff longer than planned to keep their ageing 767's and 747's in the air, until the 787 was satisfactorily bedded in.

Boop boop de do

Marilyn

modandm

13-07-2013, 09:04 PM

I like the small buy and seller indication. The big firms are holding as they know of the good news to come. End of year will be very positive. AIR has a fantastic safety record and a great market position. Currently, they look solid... possibly in the best shape the company has been in for a long time. I expect that with the NZ dollar devaluing, soon there will be an increase in incoming travelers. With a great winter, lot's of snow... we should see healthy visitors numbers. Both national travel and international will be good. Thanks for that CJ, your right.

NZ dollar weakness is a negative for AIR - fuel and aircraft costs are USD denominated. They do have hedging in place but it rolls of from about 90% to 10% over 24 months - a declining wedge. This has been mentioned before.

Continued Dreamliner issues are concerning - if delivery delays result FY15 could be impacted but n/c to this or next year.

slimwin

13-07-2013, 09:15 PM

That wouldn't be a problem for me MM. That means I would keep my job for longer..

modandm

13-07-2013, 09:51 PM

That wouldn't be a problem for me MM. That means I would keep my job for longer..

sorry to hear that its under threat slimwin. Hopefully there is something out there for those made redundant as a result of reduced maintenance requirements for the latest generation aircraft.

slimwin

13-07-2013, 10:07 PM

Yeah. A necessarary evil that I fully inderstand. A dying industry. At least in the capacity we know it now. Aircrew will be next in time. Think drone operators..
For me it'll be back to study. Project management or quantity surveying.
Unless there is some financially sorted woman out there looking for a 43 yo solo dad!

modandm

26-07-2013, 06:57 AM

noodles

26-07-2013, 10:02 AM

Operating stats for June (last month of FY13)

A disappointing showing really - Group RPK down significantly. On the plus side its the cutting of underperforming Asian flights that have caused this. Anyway it reduces the top-line while my fuel forecast is based on company data which should incorporate route cuts (but may not). Yield materially weaker, and clearly so on domestic - but then again costs have been falling as a320 arrive.

Nothing to get excited about anyway - results out next month - could see a small beat, most picking earnings to come in at the top of guidance.

I was shocked at how poor the yield result was. It had dropped from 1.6% to 0.9% in one month. RPK's down as well. With higher oil prices and weak NZ dollar, fuel costs will also be a headwind for FY14.

I heard a quote recently... "Only ever date airline stocks. Never marry them". Well AIR.NZ, you are dumped(sold).

see weed

26-07-2013, 10:47 AM

I was shocked at how poor the yield result was. It had dropped from 1.6% to 0.9% in one month. RPK's down as well. With higher oil prices and weak NZ dollar, fuel costs will also be a headwind for FY14.

I heard a quote recently... "Only ever date airline stocks. Never marry them". Well AIR.NZ, you are dumped(sold).

Same here. Also dated them for 18 months and sold after about 6 months and made a loss for tax purposes. Then bought them back again a short while later for .845c,.875,.88,.89,.90. Then sold them at $1 and then bought them back at $1.04, $1.05 and $1.13 and then sold them for $1.305 , $1.31 and got my money back pluss a couple of thousand. Am i a slut or what?

noodles

26-07-2013, 11:25 AM

Same here. Also dated them for 18 months and sold after about 6 months and made a loss for tax purposes. Then bought them back again a short while later for .845c,.875,.88,.89,.90. Then sold them at $1 and then bought them back at $1.04, $1.05 and $1.13 and then sold them for $1.305 , $1.31 and got my money back pluss a couple of thousand. Am i a slut or what?

I've been dating other airline stocks at the same time! And I didn't even use protection (crude oil price options).

see weed

26-07-2013, 12:26 PM

I've been dating other airline stocks at the same time! And I didn't even use protection (crude oil price options).

LOL,hehe.:D

Poet

30-07-2013, 09:45 AM

From WSJ

By Ross Kelly Airlines from Asia to the Middle East are building big stakes in Virgin Australia Holdings Ltd., making it one of the world’s most coveted airline investments and prompting expectations of a takeover bid.

http://si.wsj.net/public/resources/images/AM-AZ635_AMONEY_D_20130729110606.jpg (http://si.wsj.net/public/resources/images/AM-AZ635_AMONEY_G_20130729110606.jpg)click to enlarge
Virgin Australia, the No. 2 carrier behind Qantas Airways Ltd. in one of the world’s more robust aviation market, offers a rare acquisition target for foreign investors angling for a piece of the action in Australia, which restricts foreign ownership of domestic carriers with international flights to 49%. Virgin, however, is fair game because last year it spun off its small international flights unit to enable it to attract foreign investment.
Singapore Airlines and Air New Zealand in recent months have both raised their holdings in the Brisbane-based airline, while Abu Dhabi-based Etihad this month gained Australian regulators’ approval to raise its position from 10% to as much as 20%.
And with billionaire Richard Branson indicating his 13% interest is up for grabs, another wave of buying may follow.
“We could easily see a situation where either two of the three airline shareholders, or indeed all three, issue a takeover offer for the company,” said Russell Shaw, Macquarie Group’s Sydney-based aviation analyst.
Control of Virgin Australia would offer immediate strength in Australia, where sunshine and beautiful beaches helped attract more than 5.5 million visitors in the year ended in June 2012. Increasingly, tourists are arriving from fast-growing Asian economies such as China.
Virgin is a domestic carrier, but the influx of foreign arrivals is funneling passengers into its network as tourists hop from city to city.
To be sure, it hasn’t all been smooth sailing for Virgin. In May, the carrier downgraded its profit guidance as Australia’s resources boom fades and fragile consumer confidence crimps demand for local leisure travel.
At 43.5 Australian cents (40.3 U.S. cents) each, its shares have almost doubled in value in the past two years, but in the most recent year they have gained only 5%, underperforming a 19% rise in Australia’s benchmark S&P/ASX 200 index. The shares remain 80% below their 2007 peaks—cheap by historical standards.
Singapore Airlines invested around US$125 million in April to nearly double its stake to almost 20%, while Air New Zealand raised its stake last month by 3%, to 23%, and said it would like to raise it to 26%. Companies in Australia that own 20% or more of another company can raise their holding only by 3% every six months without having to make a takeover bid.
A spokesman for Etihad said the carrier “may purchase available shares to increase our shareholding where it is prudent to do so, and will provide notice in accordance with regulatory disclosure requirements.”
Speculation about a tussle for control of Virgin intensified this month after unusually large blocks of its shares were traded in Sydney. The identity of the buyer or buyers remains unclear.
Air New Zealand didn’t respond to requests for comment.
A Singapore Airline spokesman said, “At this point we have no plans to increase our stake beyond 19.9%.”
The presence of three rivals with significant stakes will make any takeover hard to pull off. But analysts at Macquarie say a joint bid is possible.
Shaw said Singapore Airlines and Air New Zealand are the most likely partners because they are both members of Star Alliance. And while they don’t now have a strong bilateral relationship, Air New Zealand’s search for alliance partners in Asia could bring them closer together, he said.
The most challenging relationship to forge, Shaw said, would be between Singapore Airlines and Etihad, because both carriers serve Europe from separate hubs and would compete for Virgin passengers heading there from Australia.
A Virgin Australia spokeswoman said the company doesn’t comment on speculation regarding its share register.
Simon Marias, managing director of fund manager Allan Gray Australia, also believes a takeover bid is possible but is quick to point out the obstacles. Allan Gray, which manages around 2.5 billion Australian dollars (US$2.3 billion) of client funds, doesn’t hold Virgin shares but it does own around 5% of Air New Zealand.
Marias said a joint bid would risk involving Australia’s competition regulator, which has already expressed concerns about the consolidation taking place among the nation’s carriers. Earlier this year, it allowed Virgin to acquire a controlling stake in budget carrier Tiger Australia only because the target was likely to disappear from the market altogether without an injection of fresh capital.
“One airline could take a much bigger stake [in Virgin] and make an offer to the other minority holders. But the size of their blocking stakes would make that hard to achieve,” Marias said.

Food4Thought

09-08-2013, 04:52 PM

Why the AIR drop?

noodles

09-08-2013, 06:40 PM

Why the AIR drop?

I think it is likely the poor Ops stats for july.

See my previous post.
http://www.sharetrader.co.nz/showthread.php?1088-AIR-NZ&p=418567&viewfull=1#post418567
The price was 1.47 at time of posting. I know this because i sold out.

modandm

10-08-2013, 09:22 AM

I think it is likely the poor Ops stats for july.

See my previous post.
http://www.sharetrader.co.nz/showthread.php?1088-AIR-NZ&p=418567&viewfull=1#post418567
The price was 1.47 at time of posting. I know this because i sold out.

Maybe. A note from MQ following a call with mgmt suggests poor weather resulting in a large number of cancellations and refunds during the period was a factor in the stats. Even so one month of poor stats doesn't change the investment case. A 1c move in the currency has more impact and the currency has fluctuated between 82c and 78c wildly over the past month or two.

I will go into more detail later this month, but I remain a buyer.

Zaphod

10-08-2013, 01:54 PM

Blendy

10-08-2013, 02:52 PM

Yes that would be most useful to see how that is working out, and whether upgrading people allows more economy seats to be sold. I just used up all my airpoints and got a OneUp upgrade to Business Class for a trip this week, and when I went to choose my seat, there were only 4 other seats booked in Business Class. About half of economy was unfilled as well, so I'm not sure how much revenue is gained from this - it certainly has a lot of potential though to help fill seats at last minute. I got a great deal anyway! Maybe my flight was not very full anyway, but it will be interesting to see how many seats are taken when I board.

QOH

10-08-2013, 02:59 PM

Modanim, glad to hear you are still a buyer, I bought back in recently, I valued your research.
Regardless of whether I make any money out of AIRNZ, I've decided they are a great NZ company
and an airline we can be proud of.

Marilyn Munroe

10-08-2013, 03:03 PM

modandm

11-08-2013, 01:43 AM

Food4Thought asked; "Why did AIR drop?"

Maybe this announcement from, their twenty something percentage holding in, Virgin.

http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01431214

Memo to State Owned Enterprises Minister Tony Ryall, sell Cullen Airlines to Ethiad now.

Boop boop de do

Marilyn

Again could be - but I doubt it. So far the valuation the market places on AIR has given absolutely no credit for the investment in Virgin, which is roughly 30c NZD per share at the current VAH valuation.

NZ management are clearly thinking long-term with the stake in VAH, which is frustrating for me in the short term! Post results I hope to get a 1-on-1 with the CEO or at least CFO to raise concerns that NZ is not doing enough to reward shareholders, why not further raise the dividend, why aren't they buying back shares?

On a medium term view - say 3-4 years I think there is a good chance NZ and VAH will merge. In the mean time the NZ govt should be pressuring management to get the share price up to a fair level, before offloading some of the govt stake. I see this offloading as a catalyst for more institutional investors to look at AIR, and likely a strong improvement in the share price. AIR trades at a substantial discount to other listed peers on most metrics, and has a better competitive position than others like Qantas, which faces not only a growing domestic competitor but a multitude of competitors on almost all international routes.

Regarding Etihad buying a stake in AIR - I don't think Etihad would want to. NZ can't provide good feed for their network when there are numerous 1 stop options to Europe via asia or the US. Actually I see Etihad quite worried that NZ VAH merge with SQ a significant stakeholder - sending Australian feed through Singapore. Etihad are a bit mad honestly, they are so late to the party on the kangaroo route, and why you would want that business anyway with the growing Chinese airlines looking ever threatening on it I have no idea. Etihad would do better to focus on the Europe/Eastern Europe/subcontinent/Central Asia/West Asia. Which is what it is doing with the likes of Jet and Jat airways (india and Serbia).

modandm

11-08-2013, 01:46 AM

I wouldn't mid seeing some detail provided by AirNZ on the increase in revenue directly derived from their loyalty and Oneup schemes. There has been an immense amount of investment into these by the Airline, so one would hope that this is paying off.

Its a good question so I asked it a few months ago. Apparently this revenue is recorded as normal passenger revenue (not ancillary revenue) and therefore the impact of it is reflected in operating stats. Apparently CC fees and f&b purchases and seat selection fees etc are the ancillary fee revenues.

Zaphod

11-08-2013, 05:59 PM

Its a good question so I asked it a few months ago. Apparently this revenue is recorded as normal passenger revenue (not ancillary revenue) and therefore the impact of it is reflected in operating stats. Apparently CC fees and f&b purchases and seat selection fees etc are the ancillary fee revenues.

Thanks for the explanation - most appreciated. Do you know if other airlines provide these details in their annual reports? My cursory examination revels not. Perhaps the reason is that these figures are deemed to be commercially sensitive.

scamper

12-08-2013, 10:44 AM

personal note...
just returned from trip to london and east europe flying as cheap as possible: virgin Aus, etihad, ryanair, easyjet.
never ever again. Anybody over 5'5" would be acutely uncomfortable. 'Economy' on these planes is strictly cattle class.
etihad food and cabin crew good, but the plane designed for midgets who don't need a loo more than once every 15 hours. I think only four for economy...
Sydney-AbuDab (13-14 hours) absolute agony.
in future it will be AIR all the way.

fungus pudding

12-08-2013, 11:33 AM

scamper

13-08-2013, 10:41 AM

From Chch to London? And at a comparable price? I thought Air had the largest seat 'pitch' (distance between seats) around for Economy?

Food4Thought

13-08-2013, 04:56 PM

NZ is still an attractive destination for the Chinese traveler, even after the baby powder scare. I don't see every Chinese student all of a sudden packing up their bags as NZ now isn't a safe and reputable place for them to study. Their loved ones will still come to visit. The destination is still a great destination and the numbers arriving by AIR won't drop. The up and coming AIR report will be mighty fine. I love it how the price has dropped back on AIR share price, prior to some serious good news for investors. Perhaps these guy's who are selling are also the people buying into RAK at the moment?

Food4Thought

19-08-2013, 03:39 PM

AIR a bit stale for discussion at the moment?

biker

19-08-2013, 10:31 PM

Took the opportunity to buy on the dip at 1.36, 1.37. The annual result not far away should give the share price a shunt IMO

modandm

20-08-2013, 02:29 AM

In good news for AIR, VAH and QAN, United will downgage their 2x747 flights to 777-200ER from 1 April 14. This is 105 seats per flight or 210 seats per day between Australia and the US.

If you assume 75% load factor thats about 75 to LAX which will mostly go to Qantas and Virgin - maybe 10 to Air NZ (as star alliance)

To SFO these should mostly go to NZ as Qantas and Virgin dont fly there. so +50 seats a day! This should support NZ's ambition to fly 777-300er aircraft daily to SFO next year. This year it has been a mix of 747 and 777-200ER, between 5 weekly and daily.

It also should support NZ launching further services to the US - NZ really are well positioned on the trans-pac, they have the right aircraft, and the right product. US carriers with higher cost bases are not a threat - and they would rather focus on the south american market where fares are high. VAH/Delta are stable, QAN is stable. Only threat is Emirates launching AKL-LAX, not sure if they would be allowed to or wherther they would want to - It would be a strategic departure.

Unstoppable! NZD on the up again! 10 days to results! Will post something a bit more thoughtful in a few days after July operating stats.

http://blogs.crikey.com.au/planetalking/2013/08/19/united-waves-off-76650-seats-per-year-on-australia-flights/

modandm

23-08-2013, 09:53 AM

Operating stats

Nice results to start the year RPK growth of 2.2% and yield of +0.9% equals pax revenue growth total of 3.1% for July.

All parts of the network firing except Asia where they cut capacity by 25% year on year (HKG-LHR). Very strong demand on routes to the US saw load factor over 90%. A good performance from short haul.
Yields were -1% short haul +1.8% long haul so overall about +0.9%.

For reference my base case estimate for PAX revenue growth for FY14 is 2% so we have started well ahead of that.

Fuel hedging disclosure

Fuel consumption reduced by $11.5m on updated volume. Also they have been locking in hedging at below market price due to backwardation in the forward market. A decent chunk of hedging in the 102-105 bbl range (brent). Looking at the jet refining spread $15 bbl is a conservative assumption based on recent range. That means I revise my fuel costs for Q2,Q3 and Q4 from 125 USD bbl to 120 bbl. Q1 remains 125 bbl.

FX has been quite volatile recently 78-81c - I leave my FX estimate at 80c.

Total effect is a decent reduction in my estimates for FY14 fuel expense. (to around 1096m NZD).

modandm

23-08-2013, 10:14 AM

Model and target price update (pre results)

Based on the above changes I expect 25c EPS for 2014. My target valuation for 1 year ahead is $2.50 based on a historic P/E of 10x, or 9x + 25c for stake in Virgin.

I believe the multiple chosen is supported by the prospects of further earnings growth of 20% to around 30c EPS in 2015, as 5 new aircraft (777+787) arrive at the end of FY 2014. (this is based on current fuel and FX estimates). We should see good capacity growth support 5-10% pax revenue growth in FY15 - (777-200 refit also a tailwind as is more A320 domestic).

Air NZ is in a sweet-spot for the next 3-4 years. The usual caveats with airlines apply - I am satisfied with the margin of safety here, and it goes without saying am heavily invested. Most recently I topped up to the tune of 200k at $1.45.

Short term and comment on Full year results (due Thursday)

Recent guidance has been provided suggesting top of the range (around 17c EPS) and that this is after the cargo penalty of $7.5m. Estimating closer than that would be pointless. I am looking forward to seeing progress on cost reduction. Recent reports suggest good progress is being made. My model features higher costs than some analysts such as Macquarie, so I hope results give me scope to reduce and increase my FY14 EPS number further (lets see).

Consensus has the full year dividend at 4c. I would be disappointed by this but NZ has been spending on new a/c and more shares in VAH.

Elsewhere it will be interesting to hear when they think 767 retirement will be, some suggestions they might stick around longer to enable higher growth in FY15. Maybe a bit of an anti-climax for me generally, I don't expect much on strategy etc (its all well known). Although a 300% increase in profit shouldn't be an anti-climax - I'm sure the media will have a field day. Lots more to come for this stock - happy holder.

777

23-08-2013, 10:52 AM

And this is a disgrace.

Air New Zealand to axe up to 180 jobs
Last updated 10:44 23/08/2013

Air New Zealand has told staff it will cut up to 180 engineering jobs next year as it closes an aircraft maintenance facility in Auckland.

The closure has been blamed on the loss of third-party engineering work, the retirement of its Boeing 767 fleet and an inability to attract replacement work, due to the high New Zealand dollar.

The facility will be closed by July 2014.

The Engineeering, Printing and Manufacturing Union (EPMU) has entered a consultation process to try and keep the jobs in New Zealand.

"The confirmation of job losses is devastating for our members and we will be doing everything we can to protect jobs," EPMU assistant director of organising Strachan Crang said.

Air New Zealand is also proposing to outsource the upgrade of its Boeing 777-200 fleet.

"The EPMU wants this work done in New Zealand and we are committed to working with the airline to keep our members employed," Crang said.

He said the EPMU's engineers were working hard to remain productive.

"Over the past three years they've delivered productivity gains in the double figures but this has all been eaten away by the high value of the New Zealand dollar," he said.

"New Zealand has world-class aircraft engineers but unless we see action on the high dollar this highly-skilled, well-paid industry will continue to decline."

During the 58-day consultation process the EPMU will have the chance to study the business case and suggest an alternative proposal.

The news follows recent job losses at the Christchurch Engine Centre, Safe Air and Air New Zealand Technical Operations.

- © Fairfax NZ News

minimoke

23-08-2013, 11:08 AM

And this is outrageoud
Also outrageous is Air nz getting the employment relations authority to open up an employees private bank and Facebook details. They also lost a recent restraint of trade argument. Looks like they are in a particularly litigious mood at the moment

23-08-2013, 11:45 AM

And this is a disgrace.I think Disappointing is the right word. You cant expect them to keep open an uneconomic business. I guess the question is why dont we try to become the service centre for the new Boeings - aren't we some of the earlier purchasers?

Also outrageous is Air nz getting the employment relations authority to open up an employees private bank and Facebook details. They also lost a recent restraint of trade argument. Looks like they are in a particularly litigious mood at the momentNot sure on the facts of the ERA case but assume they wanted them opened so they could prove that the person wasn't really sick - If the employee takes the company to court, the full discovery should apply.

Re the restraint of trade, again not knowing all the facts but they should have won. You have a restraint of trade in a contract for a reason and if an employee goes to the only other NZ airline (your only competition!), I would think it should apply. The fact that he had also been sent on gardening leave should be irrelevant. A restraint of trade isn't a standard contract term so he must have agreed to it (more common as you get senior but then you are negotiation that contract anyway).

777

23-08-2013, 12:01 PM

Zaphod

23-08-2013, 03:36 PM

Re the restraint of trade, again not knowing all the facts but they should have won. You have a restraint of trade in a contract for a reason and if an employee goes to the only other NZ airline (your only competition!), I would think it should apply. The fact that he had also been sent on gardening leave should be irrelevant. A restraint of trade isn't a standard contract term so he must have agreed to it (more common as you get senior but then you are negotiation that contract anyway).

Speaking from experience in a similar incident, as an employer you cannot legally stop an employee from being gainfully employed in their area of expertise, despite what is added into the contract. What you can do is set reasonable terms and conditions for when an employee moves on, however requiring 6 months gardening leave with a further 6 months restraint of trade is quite frankly unreasonable and downright gratuitous, especially in a country with very little alternative employment choices in that industry. The court has rightfully (IMO) recognised this fact.

If however the employee takes and disseminates confidential information or trade secrets (e.g. AirNZ's strategic plans), then AirNZ would still have a case. That helps to provide a fair an equitable balance between the employee and the employer.

minimoke

23-08-2013, 03:56 PM

Not sure on the facts of the ERA case but assume they wanted them opened so they could prove that the person wasn't really sick
They had already fired the woman so no need for this as evidence

Re the restraint of trade, again not knowing all the facts but they should have won.
Restraints are fraught with difficulty especially if you are trying to hold a person beyond 6 months.

They are chewing through a fair bit of cash in their legal department.

Food4Thought

23-08-2013, 04:10 PM

...can't wait for the fulll year report. AIRnz is looking great

23-08-2013, 04:29 PM

Speaking from experience in a similar incident, as an employer you cannot legally stop an employee from being gainfully employed in their area of expertise, despite what is added into the contract. What you can do is set reasonable terms and conditions for when an employee moves on, however requiring 6 months gardening leave with a further 6 months restraint of trade is quite frankly unreasonable and downright gratuitous, especially in a country with very little alternative employment choices in that industry. The court has rightfully (IMO) recognised this fact.Accept your points. Normally RoT are only for a very restrictive area - depending on teh business, it could be as small as not to set up in competition in the local neighbourhood. From the little I read, I understood the guy knew company secrets and I guess this point was disputed (being the secrets he held, would have been public by then - ie special fares and promotions). If he was a pilot/engineer, I agree a ToT coudn't be applied.

Note that the Gardening leave is just them serving out their notice - ie paid but not having to work (not everyone knows the term so just clarifying).

They had already fired the woman so no need for this as evidenceShe was (I assume) disputing that sacking, hence why full discovery was needed.

modandm

23-08-2013, 07:15 PM

As I see it CJ they have the upgrades to the 777-200's to be carried out over the next 18 months. This could still be done here, employing New Zealand workers. Natural attrition over that time would reduce the number of redundancies and give those affected more time to cope with the situation and reorganise their lives.

New Zealand Inc gains and this should be what all big employers should consider. So not to is a disgrace.

Go back to russia you bloody communist!

We live in a capitalist society. Air NZ owes an obligation to its shareholders to maximise profits. In this case is not blatent or hard nosed - there is simply no work for these people with new aircraft.

I have absolutly no time for this sort of rubbish social commentaty on this (an investment) forum, take your bleating somewhere else! Where are the mods on this forum...

777

23-08-2013, 07:55 PM

Go back to russia you bloody communist!

We live in a capitalist society. Air NZ owes an obligation to its shareholders to maximise profits. In this case is not blatent or hard nosed - there is simply no work for these people with new aircraft.

I have absolutly no time for this sort of rubbish social commentaty on this (an investment) forum, take your bleating somewhere else! Where are the mods on this forum...

Read my post again and and try to comprehend what I said.

There is the work there for skilled workers for the conversions. So they should be used rather than outsource it.

Your rant amuses me.

Crisis

23-08-2013, 10:28 PM

Read my post again and and try to comprehend what I said.

There is the work there for skilled workers for the conversions. So they should be used rather than outsource it.

Your rant amuses me.

Good on you 777.

slimwin

24-08-2013, 11:59 AM

iceman

24-08-2013, 12:46 PM

Thanks for sharing this slimwin. I do recall you told us on this forum not long ago that this was coming. I am shocked to read the detail as you have explained it here. Where is the media and why don't they rip into this a bit more and get the real truth out ?

As for modandm, I will come to his defense as his posts, especially on this thread, have been extremely valuable. His most recent post was out of character and I just put it down to him having had a hard week or a hard Friday arvo !

Zaphod

24-08-2013, 03:12 PM

Thanks Slimwin - a very interesting post. It's good to hear the other side of the story. I have heard that the airline would look to redeploy some workers; what roles do you think they would fit into?

Aircraft efficiency does come with some other costs unfortunatly, doesn't it!

slimwin

24-08-2013, 04:22 PM

It'll be a unified workforce that copes with the light and heavy maintenance. Makes sense to me. New positions will be created to do this but of course there will be net loss.
My hat goes off to modandm. I quote his figures at work to gain cred at the coffee table! I certainly wasn't having a go and hope it didn't come accross as that.
No surprises that the NZ media just quoted the unions press release as gospel without bothering to find out the whole story.

modandm

24-08-2013, 10:46 PM

Whats a disgrace is the reporting and the unions trying to score political points. I'm an engineer at air nz. We have two unions,EMPU and AMEA. Everybody(who doesn't have their head up their a***) has known for years this is coming. The 787 needs 10 year heavy checks,not five. The old aircraft are getting phased out from all fleets so there is no work out there regardless of the exchange rate.It'll cost 12 mil extra to do the upgrade work in NZ and would give the workers an extra year of work before the inevitable happens. The company put a very good offer to the employees for their collective.If it was accepted the work would be done in house. The hook was it had to be agreed so there would be no industrial action while the upgrade was on. The EMPU took it to it's members. 78% voted in favour. The rest want 20% or they'll chain themselves to the gates! Lol. The AMEA lawyer(husband of the secretary) deemed it an illegal offer and refused to take it to the workers. IDIOT. 50 workers in my hanger alone quit AMEA. As it wasn't ratified,the company did what they said and are taking the cheap option and putting the work overseas. The AMEA is now calling it the companies/national fault. I can assure you very few workers are blaming the company.
Anywho, over 140 workers in AKL are over 65 and 40 over 70 so hopefully they do the right thing and fall on their sword.
The world turns,things dont stay the same and companies evolve or die.
Modandm, I guess that is what you saying and I agree , but a bit of sensitivity mate. Thats 180 paychecks not going to feed families.

Thanks for that insight slimwin. I can get quite defensive of the airline - labour relations are always difficult but NZ has done a good job of building a good culture and I hate to see misinformed commentators jumping to criticise. No doubt will be more labour/green garbage rolled out this week when the airline announces a profit (albeit a modest return on assets invested) - didn't hear much complaining about AIA and the 'yield improvements' in their parking operation supporting another record year of profits... makes me sick.

Lets hope the union pulls its head out. Not many companies would bother negotiating considering the prospect for $12m of saving by sending offshore - my feelings are a bit mixed. On one hand its the right thing to do, and on the other $12m is a lot for industry where profit is hard to come by. The long term thinking of management in doing the right thing through challenges like Chch and this is commendable and a strong culture has permeated the airline (much unlike at Qantas). Overall this is value enhancing for shareholders.

slimwin

25-08-2013, 08:25 AM

The Aussie unions sealed the fate of Qantas heavy maintenance. No surprises nearly all the union reps at work,on my base anyway, are English or Australian. The default mode for this tired union model is confrontation regardless. The last three negotiations the company has made good first up offers as opposed to start low and meet at the middle. It makes the unions a little redundant and I wonder if they are feeling like that.
I hope for the guys in AKL that they snap out of it. That extra years work would make it a whole lot easier for guys to plan their future. I'm sure many will take other jobs over that period and lesson the need to actually sack many people.

bulltrap

28-08-2013, 04:56 PM

Last chance to buy before results come out tomorrow. Any takers?

Apparently not *shrugs*. Tough crowd. I've got mine already.

Food4Thought

28-08-2013, 07:26 PM

Last chance to buy before results come out tomorrow. Any takers?

Apparently not *shrugs*. Tough crowd. I've got mine already.

Bulltrap, you know it, I know it, the analysts know it... tomorrow will be a fruitful day and I shall give you a virtual ~~~**** Hi 5! ****~~~
Suckers not buying in at this level... anyway... the non believers could probably still get on the plane last minute if you are ready for a quick take off...

Food4Thought

28-08-2013, 07:27 PM

Can't Share Trader add a "Like" feature?

Wolf

28-08-2013, 07:33 PM

Anyone have an idea of what the results tomorrow will look like?

Food4Thought

28-08-2013, 07:34 PM

best you hold onto your socks if you own some...

modandm

29-08-2013, 07:33 AM

Anyone have an idea of what the results tomorrow will look like?

I outlined expectations on page 61. 17c EPS, 4c Div and around 260m in normalised pre tax profits is expected. Guidance to this was recent so don't expect massive difference. Hope for a bigger dividend, good progress on cost savings and guidance that forward bookings look strong.

Consensus for FY14 is 290-315 and I think this is low and it should be 350-380 therefore guidance will be key.

Lets see

gv1

29-08-2013, 09:13 AM

Air New Zealand profit more than doubles9:03am, 29 Aug 2013 | FLLYRAir New Zealand today announced earnings before taxation of $256 million for the 2013 financial year, an increase of 172 percent on the previous year and the company’s best result in five years.
The net profit after taxation was $182 million, which is $111 million or 156 percent up on the previous year.
Operating cash flow was the highest ever at $750 million, and the company reported cash holdings of $1.15 billion. Gearing improved seven percentage points to 39.1 percent, a record low for the airline (http://www.surfcanyon.com/search?f=slc&q=airline&p=wtiieeuo).
A fully imputed final dividend of 5.0 cents per share has been declared, taking the total dividend for the year to 8.0 cents per share, a 45 percent increase on the previous year.
Chairman John Palmer says the result places Air New Zealand amongst the best performing airlines globally. “We are focused on further improving on this result in the 2014 financial year. Based on the airline’s forecast of market demand and fuel prices at current levels, early results and forward bookings are encouraging.” he says.
“This result is one that investors, Air New Zealanders, customers and our nation can be proud of. It marks the start of an exciting new phase as Chief Executive Officer Christopher Luxon and his management team drive their Go Beyond strategy to grow the airline,” Mr Palmer says.
“Strong results allow Air New Zealand to reinvest in its products, services, training and development to further enhance the customer experience and to connect more people and businesses than ever to, from and within

modandm

29-08-2013, 09:35 AM

yay on the dividend!

Will post in detail in a few days once I have been through in detail but all looks healthy and as expected.

Will be tuning in for the call at 10:30.

Will be interesting to see the markets reaction - given whats going on in Syria it may be quit muted. Who really knows - anyway at first look the result looks fine to me.

Again yay on the dividend! :D Huge check coming for me!

Food4Thought

29-08-2013, 09:40 AM

Pretty happy with those results

When are AIRnz/Virgin launching a NZ initiative to get people to outer space? The new word on the street is Richard Branson couldn't find a better location then NZ to launch some space flights...

freddagg

29-08-2013, 11:27 AM

29-08-2013, 12:47 PM

Consensus for FY14 is 290-315 and I think this is low and it should be 350-380 therefore guidance will be key. Did they post forecasts?

noodles

29-08-2013, 07:30 PM

Did they post forecasts?

I didn't see any forecasts

golden city

30-08-2013, 06:01 PM

not as good as i expecting.. the share prices were static..i was thinking a big jump

Robomo

30-08-2013, 07:55 PM

Just wonder if people are a bit spooked about the proposed partial sell-off and the desire of the govt to keep share price attractive - particularly given the debacle of MRP.

slimwin

30-08-2013, 08:14 PM

Or more like have an eye on the price of oil.

macduffy

30-08-2013, 08:36 PM

Not concerned about lending $40m unsecured to Virgin Australia?

slimwin

30-08-2013, 08:46 PM

Lending money to the company you own 20%(?) of and,more importantly, are carrying the fight for you on domestic aussie routes. Perhaps there's some strategy in there somewhere.

macduffy

30-08-2013, 09:04 PM

Lending money to the company you own 20%(?) of and,more importantly, are carrying the fight for you on domestic aussie routes. Perhaps there's some strategy in there somewhere.

I'm sure there is.

But it might help explain the muted market reaction to AIR's excellent result.

slimwin

30-08-2013, 09:13 PM

Could be a combination. A good result ahead was hardly a secret either so perhaps priced in for now. Lets see where it is in a few months.

bulltrap

31-08-2013, 12:16 AM

I'd say the prospect of a sell-down is keeping the share price low - some may be simply holding out for a discount or for less uncertainly, others may be actively trying to beat the price down (who knows?).

The government should just ignore the share price, and price the offer at fair value with a two-month application window. If they're left with a pile of unsold shares at the end, well fine.

Or they could just sell their entire holding to the highest bidder. It's not like having a state-owned airline is part of anyone's grand plan.

(And this is from someone who's against asset sales - of national infrastructure, that is.)

iceman

31-08-2013, 08:07 AM

Lending money to the company you own 20%(?) of and,more importantly, are carrying the fight for you on domestic aussie routes. Perhaps there's some strategy in there somewhere.

Singapore Airlines and Ethidad lent the same amounts proportional to shareholdings. No doubt strategical but also a need from cash burning Virgin !

slimwin

31-08-2013, 03:43 PM

Yep. And a show of faith in them. They've just laid out a lot of cash in upgrades to the fleet. Not sure when there next big cap ex but you'd hope a few profitable years in the intrim.

Zaphod

01-09-2013, 10:42 AM

Again yay on the dividend! :D Huge check coming for me!

Well done Modadm, you were spot on with your analysis! Enjoy the cheque, you've certainly earned it! ;)

I'm also pleased with the AIR result, but just a pitty that current events appear to muting the SP. But on the bright side, perhaps a good buying opportunity.

Zaphod

01-09-2013, 10:46 AM

(And this is from someone who's against asset sales - of national infrastructure, that is.)

Labour have agued in the past that AIR is part of the national infrastructure. I wonder what a prospective Labour government would seek to do in relation to the AIR sale? I suspect they would have their hands full for one full term trying to implement their NZ Power proposal.

bulltrap

01-09-2013, 03:43 PM

Labour have agued in the past that AIR is part of the national infrastructure. I wonder what a prospective Labour government would seek to do in relation to the AIR sale? I suspect they would have their hands full for one full term trying to implement their NZ Power proposal.

Political rhetoric perhaps, anyway it's a stretch to call an airline infrastructure. We've seen other airlines come and go over the years. Airports are infrastructure, airspace even, but not airlines.

Also worth a mention is that a large part of Air New Zealand's operations are outside of NZ borders.

peat

01-09-2013, 04:08 PM

bulltrap

01-09-2013, 05:39 PM

Countries always have one flag-carrier tho which is Air NZ here of course and its very hard to imagine it not being assisted should trouble arrive. Hence there is IMO a big diff between other airlines and Air NZ.
Airlines earnings are way too volatile for useful analysis or normal investmest. Hence SP does not assume earnings continue.

I was alive in 2001 but only semi-conscious (at varsity) so bear with me while I brush up on history...

http://www.wsws.org/en/articles/2001/11/nz-n03.html

Prime Minister Helen Clark argued that the move was essential to the national interest. A national carrier was needed, she said, to ensure a measure of control and certainty over such vital economic activities as tourism, overseas trade and domestic and international travel. The country’s other main airline, Qantas New Zealand, a privately-owned local franchise of the Australian carrier Qantas, collapsed in April with the loss of 1,100 jobs and debts of over $NZ20 million.
...
Finance Minister Michael Cullen made clear that the government did not intend to be the airline’s “long-term owner”. The government plans to maintain its control long enough to restore its profitability then sell it off to big business.

So reading into that, a bailout was necessary since Air New Zealand was the sole major carrier at the time in NZ, and it was uneconomical to operate an airline under the prevailing conditions. (Note that Qantas NZ, formerly Ansett NZ, went under before 9/11!) That I concede made Air New Zealand part of national infrastructure, but not so today, now that we have healthy competition and profits.

Regarding the current share price, a quick google suggests a benchmark forward P/E of 10 for the airline industry. The industry risk factor is built in to this figure. By this crudest of measures, Air New Zealand would be fair value at upwards of $1.65, and is currently trading at a 15% discount. OTOH, that assumes at least industry average long-term growth prospects, and maybe that's not justified. Chasing that growth via Australia was the downfall of AIR back in 2001 (not to mention a stumbling block for numerous other mature NZ companies) and so the current investment in Virgin makes me a little nervous.

modandm

01-09-2013, 11:33 PM

Result

Quite happy with the result. The fact that they took $11m of one off losses relating to a cargo penalty payment and a VAH derivative position on the P&L instead of to equity means that earnings have actually been understated. In the past Air NZ has reported 'normalised profit' but if they had this would have beat guidance. Seems management don't want to blow the trumpet too hard.

One of the best insights was a comment that domestic yields were down 5% in FY13, but looking forward management see them improving slightly "there will be some improvement". That is fantastic news in light of the new A320's (5) and 4 more arriving in next 12 months. New a320's have a 15% cost advantage over 737's being retired. Domestic is 30% of revenue but I would guess 50-60% of profits because it is much higher margin. So improvement in domestic is vital, it has been a little weak with govt cutbacks and general corporate travel weaker but there must be signs of an improvement. Lets see if it comes through on the op stats.

Cathay alliance has seen an improvement already so the impact of this should be well realised in FY14. The long haul business should improve further. Trans-tasman remains solid but not great.

Otherwise comments were that bookings look every bit as good as last year and that all areas of the business are performing well. Sounds good to me.

Capital management

Very good cash flow generation, they didn't buy many planes! Nice dividend.

High capex ahead, but should be well covered and the balance sheet is very strong - expecting leverage in the middle of target range after huge capex shows just how strong it is. Strong case for continued growth in dividends in FY14 - I think 10c as a minimum. Therefore 5+10 = 15c worth in next 13 months... thank you very much.

VAH - sensible long term, annoying short term. VAH has a young fleet, and has had a busy year. With the Australian market now 2 players we should see an improvement in returns from this investment. Some are worried about this loan but actually I like it because AIR will be getting paid a better interest rate than if the cash was sitting in the bank in NZ. AIR has so much cash its embarrassing for management right now.

Govt stake - what will happen who knows. Would be stupid to sell now. Dream scenario Air NZ buys the govt stake back from the govt - this would be massively value enhancing. Why is this not talked about? I will be talking to management telling them to do this. This is what US company's AIG etc have done why can't Air NZ. Its a bit of a political football isn't it. Base case is the government try and place the stock with brokers but this seems like it would be hard to do. Would SIA like another bite at Air NZ, what about Cathay? A complex picture with no clear outcome. Any kind of resolution removes uncertainty and should result in the valuation rising. Currently the biggest reason cited for the shares not going up.

Valuation and model update

Key assumptions: 3% pax revenue growth, Jet fuel at $125 USD/barrel, NZD USD at 0.80 (a lot hedged at .826). Other costs I have put are best estimates based on guidance and historic trends. I have been more conservative than in the past intentionally, particularly on fuel costs. I also think 3% revenue growth is conservative, and this is the most sensitive input.

Result: FY14 EPS of 23c or a 36% increase on FY13. Should the PE remain constant (at a depressed level) and 15c come in dividends between now and next October we are looking at a total return of c.45% over 1 year.

Valuation

Bear case: Earnings disappoint due to higher fuel costs/lower FX and EPS is 17c - stock trades on 8x PE and VAH goes bust. Stock is worth $1.36, and pays a 6% dividend. 1 year return 6%

Base case: 10x P/E is reasonable given the strong competitive position, young fleet, etc. Use 23c EPS forecast therefore $2.30 is my valuation. Ascribe no value to the VAH stake. 1 year return 75%

Bull case: EPS 26cps, Govt stake issue clears, stock trades on 11x PE (in line with peers), VAH stake is recognised by market at 20c of value. Valuation $3.06. 1 year return 130%

Conclusion:

In my view the stock is a compelling opportunity, and although there are risks the low valuation means a good deal of safety. The business is performing well even if the share price isn't (this year). Patience will be rewarded, cheers.

bulltrap

02-09-2013, 04:17 AM

Excellent result, kudos to the team.

Will someone please give the nearest Air New Zealand stewardess a congratulatory pat on the bottom and say it's from old bulltrap.

(Or steward, I'm not sexist.)

Marilyn Munroe

02-09-2013, 11:04 AM

Modadm wrote; "Would SIA like another bite at Air NZ, what about Cathay? "

You have missed Etihad as a potential suitor for Cullen Airlines.

One vulnerability for Cullen Airlines is if a competitor operates an A380 on the Trans-Pacific routes, say QF or EA, MEL --> AKL --> LAX. The competitive threat this poses would be reduced if Cullen Airlines 787's enjoy good customer acceptance.

Boop boop de do

Marilyn

02-09-2013, 11:24 AM

Govt stake - what will happen who knows. Would be stupid to sell now. Dream scenario Air NZ buys the govt stake back from the govt - this would be massively value enhancing. Why is this not talked about? I will be talking to management telling them to do this. This is what US company's AIG etc have done why can't Air NZ. Its a bit of a political football isn't it. Base case is the government try and place the stock with brokers but this seems like it would be hard to do. Would SIA like another bite at Air NZ, what about Cathay? A complex picture with no clear outcome. Any kind of resolution removes uncertainty and should result in the valuation rising. Currently the biggest reason cited for the shares not going up.What do you mean by this? Buy back enough of the Govt shares and cancel them so they are only left with a 51% interest. Gives the government money I guess without needing to go to the public. Also gives the benefit of any discount required to existing shareholders which is a lot fairer than with an institutional bookbuild which is more likely.

Edit: I dont think AIRNZ could afford to buy back half of their shares!

bulltrap

02-09-2013, 10:37 PM

Edit: I dont think AIRNZ could afford to buy back half of their shares!

Good point, I make it 43.4% to be exact. It'd basically take their entire cash reserve.

If they could buy the shares and not cancel them, that'd only cost half. But is a company allowed to eat its own tail like that?

03-09-2013, 08:54 AM

Good point, I make it 43.4% to be exact. It'd basically take their entire cash reserve.

If they could buy the shares and not cancel them, that'd only cost half. But is a company allowed to eat its own tail like that?A company can own a maximum 5% of its own shares as treasury stock.

bulltrap

04-09-2013, 03:51 AM

Also gives the benefit of any discount required to existing shareholders which is a lot fairer than with an institutional bookbuild which is more likely.

Regarding that book build, John Key was quoted as saying retail investors would get a grab:

http://www.stuff.co.nz/auckland/local-news/business/9101041/No-early-Air-NZ-sale-Key

Key said there would be an opportunity for retail investors to buy shares, however it would be short. He did not elaborate on how it would work.

Seems to me it's likely to go through the brokers. They only need to raise $300-something million in total, should be a doddle, and it's already listed so no-one can complain about missing out.

I'm thinking now might be a good time to strike up a relationship with a meatspace broker, as I doubt DirectBroking will be giving me a call. Although truth be told I may be maxed out on this one already.

modandm

04-09-2013, 06:18 AM

Hi bulltrap,

I know it does sound optimistic, but AIR could certainly buy back some of the government stake, and certainly over a period of 2 or 3 years. 43% might be a bit tough agreed, but given they operating cash flow of 700m last year and will do 800-900 this year they have the cash - if only management were a bit more aggressive. Remember they are spending 1.8bn on planes over 3 years, that's more than their entire market cap!

As said earlier even with this capex they expect gearing to be middle of target range. In my view considering the scale it would be appropriate for gearing to rise to the top of the range and then come down. AND the forecast they have used to provide this probably uses quite conservative numbers I would suggest.

In my view there is a compelling argument for large scale share repurchases - for god sake stop spending on VAH and look after your own shareholders! If they had spent $300m on Air NZ shares instead of VAH shares, earnings and dividends per share could be as much as 25% higher which would be bloody fantastic.

modandm

04-09-2013, 06:24 AM

A company can own a maximum 5% of its own shares as treasury stock.

yes but you buy and then cancel. This is common practice around the world - especially in the US where managers are better incentivised to maximise shareholder value.

04-09-2013, 06:57 AM

yes but you buy and then cancel. This is common practice around the world - especially in the US where managers are better incentivised to maximise shareholder value.yes. That was in response to a question that if they didn't cancel, they would only have to buy back ~25%, not ~45%

modandm

04-09-2013, 09:24 AM

yes. That was in response to a question that if they didn't cancel, they would only have to buy back ~25%, not ~45%

Sure - thanks for doing those numbers. I guess the other thing about is dividends. Would AIR be better to just pay large special dividends instead? This way imputation credits would be utilised.

Personally because I think the shares are significantly undervalued I would prefer the buy-back. Also, despite imputation credits buy-backs would be slightly more tax efficient. The market tends to view a buy back as more temporary as well while dividends tend to be considered sticky putting more pressure on management.

I need to do some work modelling out the P&L and balance sheet to try and understand the impact of this capex. I never really thought I would want to hold onto the shares for that long, my thinking has been to sell around this time next year. BUT if the numbers still stack up - this could be a multi-year story... and multi year risk...

Speaking to management soon, the AGM will be the next catalyst.

mod

04-09-2013, 09:51 AM

Sure - thanks for doing those numbers. I guess the other thing about is dividends. Would AIR be better to just pay large special dividends instead? This way imputation credits would be utilised.A lot of their profit would be earned overseas so they dont have a large IC balance - per the last accounts, they only have $41m so not enough to pay a large special dividend (probably only enough for this years dividend). Something for you to model??

A buyback could be a good option?

bulltrap

04-09-2013, 02:07 PM

I know it does sound optimistic, but AIR could certainly buy back some of the government stake, and certainly over a period of 2 or 3 years. 43% might be a bit tough agreed, but given they operating cash flow of 700m last year and will do 800-900 this year they have the cash - if only management were a bit more aggressive. Remember they are spending 1.8bn on planes over 3 years, that's more than their entire market cap!

As a shareholder I like the sound of this, and shareholder opinions should be paramount. Especially those of their controlling shareholder, the NZ Government.

If AIR was to buy back and cancel some significant portion of the government overhang, there wouldn't need to be a sweetener discount, and the value of the remaining overhang would go up along with the share price. Then they proceed to place the remainder. They have fewer shares to place, so no need for a fire sale.

Net result: more money for the government. Other shareholders are also stoked with the share price increase. As for the company itself, well they'd basically be investing in themselves, and (in shareholder's opinion, at least) that's a good investment.

And yes, since they're the government, they can give AIR financing terms that would make Harvey Norman blush.

OTOH, if getting higher sales proceeds is the main aim, they could surely still get more if they sold a controlling stake to a single buyer. That should be underlying value plus a takeover premium. But given what they've already said publicly about the sale, it'd be deceitful to take this path now. They'd have to go ahead with selling the overhang (not doing that would also be deceitful, even if it's what voters favour!) and wait until after the next election to sell the rest.

Regarding treasury stock, AIR holds about 1% currently so could acquire up to another 4% (either from govt or buy resuming on-market share repurchase). However, treasury stock apparently have no voting rights, so holding treasury stock is essentially the same as temporarily cancelling the shares. I wouldn't be surprised if the market values them a bit differently though.

Food4Thought

26-09-2013, 02:47 AM

... Share Buy Back program to be announced soon ... It is late, yet it is in the stars ...
This will be very well received...

golden city

27-09-2013, 11:42 AM

what is going on air...keep going up

golden city

27-09-2013, 11:42 AM

is it today a very good forecast comming?

Food4Thought

27-09-2013, 11:47 AM

is it today a very good forecast comming?

Golden City. You will get a good surprise today from my understanding. Small NZ, must be some knowledge out there, and perhaps just the obvious. AIR price has been suppressed prior to Ex divi. The interesting thing is the cash they hold, and their improved performance. Share price is still undervalued, according to a few people...

golden city

27-09-2013, 12:02 PM

i had accumulated quite a few of air shares.., was thinking it is undervalued too.., but it is not that quite sudden everybody wake up..

gv1

27-09-2013, 12:31 PM

Well I did say earlier its a good buy. wish I had bought some at 1.40 but never too late

gv1

27-09-2013, 12:39 PM

Share buyback? Under a $1.50 still a good place to buy IMHO!

Thanks Moosie, received my div other day, was very happy.

Marilyn Munroe

27-09-2013, 01:11 PM

The interesting thing is the cash they hold, ...

A large portion of that cash would be pre-paid airfares.

Boop boop de do

Marilyn

gv1

27-09-2013, 01:16 PM

I bet! Re-invest her, she'll earn ya even more ;)

yes, humming all the way.

Schrodinger

27-09-2013, 02:39 PM

Im looking at fair value between $1.60 -$1.70....

modandm

28-09-2013, 10:25 AM

... Share Buy Back program to be announced soon ... It is late, yet it is in the stars ...
This will be very well received...

Not sure how you have access to inside information but don't think you should be boasting about it on the internet... In fact what you did is actually illegal. Disseminating market sensitive insider knowledge.

modandm

28-09-2013, 10:26 AM

Im looking at fair value between $1.60 -$1.70....

based on what? Thin air?

modandm

28-09-2013, 10:39 AM

Model update

Capacity growth of 4-7% between FY15 and FY17 supports stronger pax revenue figures. I have done some work on long term model post a one on one with the CFO. Using current spot fuel and FX, my base case sees earnings of 24c this year, 33c next year and 40c in FY16. This supports dividends of 11,16,20c + specials and small buy backs (mostly just neutralises dilution of management options). Assumption is 3% revenue growth this year, then 5% for 3 years.

My target valuation for 12m time is $2.64 which is 8x FY15 expected EPS, ignoring the value of VAH stake. Add dividends and that was over 100% from the price last week - I bought a lot pre-results in the 140's and reinvested my dividend (over 30k) at 1.44. Do I think it will get to $2.64? It should but if the stock remains at 6x forward PE it will be at about $2 or up 33% + 11c div = 40% from $1.51. That will leave more upside for later...:)

Would have posted that last week was opportune to buy - but was in the market myself, and chasing stock.

tosspot

28-09-2013, 10:51 AM

Not sure how you have access to inside information but don't think you should be boasting about it on the internet... In fact what you did is actually illegal. Disseminating market sensitive insider knowledge.
I think what he did was good. why should we not have access to the same information and the people that did know before announced puts us at a huge disadvantage

Flogs

28-09-2013, 11:54 AM

freddagg

28-09-2013, 02:34 PM

the entire market seemed to know well before fft. now that's food for thought...

I don't think so.
FFT posted before opening on the 26th and the price didn't move until 11.30am and then only 2 cents for the day.
It really started moving on the 27th from 10.30am.

golden city

28-09-2013, 02:38 PM

i have just get out at 1.525.., bought it at 1.35 after dividends.., company is good., but the govt sell down..might held up the price movement at moment.., keep pocket safe., have taken my profit...

gv1

28-09-2013, 11:25 PM

i have just get out at 1.525.., bought it at 1.35 after dividends.., company is good., but the govt sell down..might held up the price movement at moment.., keep pocket safe., have taken my profit...

Or R U trying to scare the herd and then indulge by yourself..

modandm

28-09-2013, 11:43 PM

I think what he did was good. why should we not have access to the same information and the people that did know before announced puts us at a huge disadvantage

I suggest you do some basic research because you clearly don't know what you are talking about. We are not supposed to be at a disadvantage, because those with inside information are not allowed to buy or sell based on that information. To do so, or to pass on information you know to be 'inside information' is against the law - simple as that.

Food4Thought

29-09-2013, 03:55 PM

Not sure how you have access to inside information but don't think you should be boasting about it on the internet... In fact what you did is actually illegal. Disseminating market sensitive insider knowledge.

It was a guess... based on how the business is performing, on a year on year basis, what else are they going to do? They are playing a very smart game, of slowly increasing confidence in their company. Their Marketing is amazing.

Note: Do not work for AIRNZ, or anyone who would get inside information, I am basing my views/take/play on information that is available to anyone who does some DYOR.

AIRnz is doing very well, and they are playing clever cards. Clever as they are not over promising and under delivering. A highly reputable, profitable, well managed business that has a great image/brand. That is my personal opinion. I think their current situation has taken a lot of effort and smarts to get them to this level, something many other listed NZX companies could learn a great deal from. I see them currently being 25% below what the market will lift them to comfortably within 12 months...

gv1

29-09-2013, 08:00 PM

It was a guess... based on how the business is performing, on a year on year basis, what else are they going to do? They are playing a very smart game, of slowly increasing confidence in their company. Their Marketing is amazing.

Note: Do not work for AIRNZ, or anyone who would get inside information, I am basing my views/take/play on information that is available to anyone who does some DYOR.

AIRnz is doing very well, and they are playing clever cards. Clever as they are not over promising and under delivering. A highly reputable, profitable, well managed business that has a great image/brand. That is my personal opinion. I think their current situation has taken a lot of effort and smarts to get them to this level, something many other listed NZX companies could learn a great deal from. I see them currently being 25% below what the market will lift them to comfortably within 12 months...

Thanks for the infor, couldn't agree more with you. I also stated earlier on in the forum about buying in this company , also looking at the stats etc.

gv1

29-09-2013, 08:01 PM

modandm

30-09-2013, 10:13 AM

Food4Thought

30-09-2013, 04:04 PM

In that case you should make it clear when you post. Not make statements like you did which clearly infer you know something.

How do you mean? Language can be interpreted in many ways, either written or spoken. You must be an accountant or work for IRD.

Food4Thought

30-09-2013, 05:54 PM

Modandm, if you would like to view something which I think is relevant and interesting, check out last year, 28th September 2012 when AIR announced SHAREBUY back... Then search finance.yahoo.com and search the date range until the share buy back ceased. Late December. When you compare the start price, of $1.10 late September and the finish price of $1.25. Check the announcements from AIR on the share platform you use, or on Yahoo. Perhaps this will help to point out where some helpful information is. I am full of BULL for AIR in the short term... at the least. Hopefully you find this useful. I like learning from other people on here. There are many people here who are better informed then I am, and also with much more experience. Share Trader. Share.

golden city

01-10-2013, 08:54 PM

look at the price today will keep come down a bit.

Food4Thought

02-10-2013, 11:05 AM

look at the price today will keep come down a bit.

You may find that as we head closer to when AIRNZ actually starts buying shares on market for their Share Buy Back program, in the 2nd week of October, that prices will generally increase. Yesterday was another good buy in day.

golden city

02-10-2013, 11:09 AM

the share buyback program is just company's tactic to convince investor not to depress the share price.., if they really want to buy back shares.., when don't they do so last year when the price is far cheaper than this year

golden city

02-10-2013, 11:10 AM

why don't they i mean

Food4Thought

02-10-2013, 02:27 PM

They have already gone through one lot of share buybacks...

Too right Moosie_900. No complaint's here.

If a company can't expand, the best option for spending cash is to buy back shares and increase investor wealth. Why are we complaining about this?

...Because the company is limited to how many shares they can buy per year due to policy Golden City.

They buy what they are allowed to, by law. Read the share buy back information. I think that should help clarify how they complete their Buy back program.

golden city

09-10-2013, 02:44 PM

oh.., lucky wait until the right price than enter again

Food4Thought

09-10-2013, 10:54 PM

oh.., lucky wait until the right price than enter again

...if the US nonsense keeps going, the right price to enter may be in the next month. Then again, I still think AIR has not climbed as steeply as other shares, and will not drop back too far, especially with the confidence in their performance, management and outlook into the near future (for me that is 1-3 years). I think that, regardless of which government wins the next election in 2014, AIR will head North, somewhere towards $1.75 safely. And increase dividend, or keep it steady, for my near future thinking. That is just a guess. I wish I had cash

gv1

16-10-2013, 09:09 AM

Sold out, these nonsense about hiring overseas based, NZ has lots of talents. Firstly they should look here. Not happy.

777

16-10-2013, 09:12 AM

Sold out, these nonsense about hiring overseas based, NZ has lots of talents. Firstly they should look here. Not happy.

A good decision. Standby though to be attacked by a certain poster.

gv1

16-10-2013, 09:24 AM

A good decision. Standby though to be attacked by a certain poster.
Those are the kind of money grabing people are destroying this country. Then we talk about brain drain. Its patheic.

modandm

16-10-2013, 09:45 AM

I won't bite, and I am not overly familiar with the matter but for balance (and what seems like a perfectly reasonable justification:

But Air New Zealand says the employees needed under the accredited employer scheme are "highly specialised" and the roles can be difficult to fill in New Zealand.

"The skills required are entirely different to the engineering roles referenced by the EPMU'," an Air New Zealand spokeswoman told NZ Newswire.

The spokeswoman said most of the roles were required by the airline's Altitude Aerospace business which specialises in customised fit-outs for private jets, however some were also required for its IT function.

The roles include university-qualified avionic engineers, design engineers, senior aeronautical engineers and software automation test engineers.

16-10-2013, 09:51 AM

I won't bite, and I am not overly familiar with the matter but for balance (and what seems like a perfectly reasonable justification:The question is are the jobs different and how difficult would it be to upskill the existing staff. One has to assume they have done this analysis.

Its not as if they are outsourcing to cheap labour in another country. Any new, foreign, employee will be NZ based, will probably join the union and will be paid a full NZ wage.

slimwin

16-10-2013, 11:40 AM

Seems I've missed an article somewhere.

I can say degreed engineers will be on individual contracts as I am and they will be at least industry standard rates. Air NZ pay well. There is a shortage of engineers in NZ. Our universities seem to prefer to pump out arts majors. It's not possible to just train people up, you must go do the degree and, to then actually be useful, get experience.

At the moment we have a BBJ (737 private jet) project on and another about to start on an overlap due to the first taking longer than anticipated. Resources are already stretched past capacity so I guess this is their solution. If there was available, qualified guys in NZ, we would be employing them right now.

I'd love to see the article but it sounds like a political beat up. Not published by Helen Kelly was it?

Food4Thought

17-10-2013, 04:03 PM

Is AIR currently doing share buy backs? If so, why does it not show up in the news feed for them? every day, just after lunch, big chunks are being recorded... well the last 3-4 days anyway... millions at a time... is this too small for them to have to report on?

Poet

18-10-2013, 08:21 AM

I was also assuming that the volumes going through in the last few days were the start of share buyback but in the absence of an announcement, I'm beginning to wonder...

golden city

22-10-2013, 10:23 AM

looks like the govt is push finding ways to push up share prices and sell the stakes

golden city

22-10-2013, 10:32 AM

when is the AGM.... indicating a nice forecasting or yesterdays..tourism number looks well

modandm

22-10-2013, 10:34 AM

looks like the govt is push finding ways to push up share prices and sell the stakes

That is not possible. More it looks like sour grapes for you - missing out. Should be a lesson in why its best not to try and predict short term price moves.

I contacted investor relations. Air NZ has not been buying stock - if they do there will be daily announcements.

A couple of recent positives:
1. NZD strengthening vs USD - 1c gain on the cross = about 4% uplift to earnings
2. Oil price slightly weaker
3. Qantas had a negative announcement - possibly some aussies looking to play airlines buying AIR - some decent volume picking up
4. Technical breakout for you silly TA folk

But the most important reason is management commentary post the FY - guiding for strong revenue growth. Takes a bit of time for analysts to work up models, fund managers to be convinced etc, but once they are there is one way the stock is going - UP!

As a reminder I see 24c (40% growth) FY14 EPS with a 12c div (50% growth), and EPS growing 30% in FY15. All this on a super cheap stock on 7x PE. Stock could be $2.50+.

psychic

22-10-2013, 11:50 AM

As always, great post Modandm, thanks

Food4Thought

22-10-2013, 07:19 PM

Righto, have put my money where my mouth is and bought in based on a breakout in the charts and the buyback. $1.60 looks like the intraday high to beat. Hoping for $1.65 by end of week. Quite a change from PEB and XRO! :)

I like your guestimate Moosie_900. Top man. Along with the fact that... profit takers from other shares will want to put their money in a reputable, dividend paying, solid performing company, and some of this money must flow back into the likes of AIR, WHS, AIA and so on. It is excellent to know that AIR also has not yet started dishing out their cash, to buy back shares, which will also help to raise the bar for this share. $1.60 is still cheap. I am guessing it will approach $1.85 close to the new year. That is another 15% increase from current levels... and likely some good news in the near future

Food4Thought

25-10-2013, 06:04 PM

Righto, have put my money where my mouth is and bought in based on a breakout in the charts and the buyback. $1.60 looks like the intraday high to beat. Hoping for $1.65 by end of week. Quite a change from PEB and XRO! :)

The Moose will be staging around some drinking hole this weekend, chuffed, chest out... not a bore of a week for AIR... Still think there is a wee way to go before enthusiasm for this stock kneels down.

I am still unsure why there has been hesitation in Share Buy back... it does not follow other years around Share Buy Back announcements... Now I wonder if they have done this strategically, once Meridian shares have been placed... low Meridian entry point, quick gain to be had... hey lets do our share buy back now (once Meridian is placed and trading)... Ohhh look, money from Meridian is coming into AIR... price increases... John Key...look at how successful AIR is... let's sell them at a discount of 10% on the open market... do a little dance all the way to the bank. Boy we out smarted them Mum and Dad investors with no market experience...

Any one else keen for a guestimate at the outlook for AIR and reasoning behind the Share Buy Back not having occurred yet... as I am looking for some reasoning here.

noodles

25-10-2013, 06:39 PM

The Moose will be staging around some drinking hole this weekend, chuffed, chest out... not a bore of a week for AIR... Still think there is a wee way to go before enthusiasm for this stock kneels down.

I am still unsure why there has been hesitation in Share Buy back... it does not follow other years around Share Buy Back announcements... Now I wonder if they have done this strategically, once Meridian shares have been placed... low Meridian entry point, quick gain to be had... hey lets do our share buy back now (once Meridian is placed and trading)... Ohhh look, money from Meridian is coming into AIR... price increases... John Key...look at how successful AIR is... let's sell them at a discount of 10% on the open market... do a little dance all the way to the bank. Boy we out smarted them Mum and Dad investors with no market experience...

Any one else keen for a guestimate at the outlook for AIR and reasoning behind the Share Buy Back not having occurred yet... as I am looking for some reasoning here.

Why no share buyback? Management don't think it is cheap enough.

Food4Thought

25-10-2013, 07:38 PM

Why no share buyback? Management don't think it is cheap enough.

Good consideration. Thanks Noodles. Then again, I think it is other reasons.

Zaphod

31-10-2013, 08:17 PM

Food4Thought

01-11-2013, 01:19 PM

FYI: A couple of interesting NZ Herald interviews with Christopher Luxon.

Part one: The changes made thus far to the business by Christopher Luxon
http://www.nzherald.co.nz/business/news/video.cfm?c_id=1503079&gal_cid=1503079&gallery_id=138658

Part two: Virgin shareholding, government sell-down and arrival of the Dreamliner....
http://www.nzherald.co.nz/business/news/video.cfm?c_id=1503079&gal_cid=1503079&gallery_id=138771

Worth a look if you have about 20 minutes spare.

Thanks Zaphod. Positive experience. Great economics to consider for AIR NZ. Moving forward with new technology, a good way to stay competitive and profitable. Another good sign AIR NZ management is on the ball.

Zaphod

11-11-2013, 01:27 PM

Thanks Food4Thought & agreed. I've traditionally avoided owning Airline stock but their balance sheet and business acumen was too good to resist. Plus it's nice to receive some money back from my regular business.

Zaphod

11-11-2013, 01:28 PM

An interesting commentary on the state of the battle for Virgin Australia. Grab a coffee and have a read....

http://www.stuff.co.nz/business/industries/9386422/Unique-battle-for-Virgin-Australia

Zaphod

13-11-2013, 11:08 AM

Christopher Luxon rebuttal on the Air NZ v Virgin Australia battle.

http://www.stuff.co.nz/business/industries/9392574/Air-NZ-denies-Virgin-privatisation-speculation

gouba

13-11-2013, 09:19 PM

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11156635

Interesting push from National

Newman

14-11-2013, 06:24 PM

http://www.radionz.co.nz/news/national/227672/no-decision-made-on-air-nz-sale

No decision made on Air NZ sale

Updated about 1 hour ago

The Government says no decision has been made about it when it might sell shares in Air New Zealand.

Business analyst Brian Gaynor said on Thursday there is a strong chance the Government will sell off part of its stake in the the next couple of weeks.

The Government owns 73.4% of the national carrier and intends to sell down to 51% as part of its asset sale programme, but has not indicated when.

Associate Minister of Finance Jonathan Coleman said on Thursday that Finance Bill English has not made any final decision.

Mr Gaynor, the executive director of Milford Asset Management, said regulations about insider trading dictate when and how the Government sells the shares, and the window of opportunity is small.

"The Government gets monthly accounts from Air New Zealand, therefore, it's considered to be an insider.

"Under the insider trading guidelines, the Crown cannot sell the shares after the first of December until the beginning of March. If it wants to sell them over the next two or three months it has to sell those shares by the end of November."

Mr Gaynor told Radio New Zealand's Morning Report programme airlines are always considered a risky investment, but Air New Zealand has been doing well.

The Treasury denies there is only a small window of opportunity for the Government to sell the shares. A spokesperson said on Thursday the Crown can trade regardless of such restrictions.

The spokesperson says ministers and Treasury officials who are involved in decisions about the Crown selling its shares in listed companies do not have any non-public information that would legally prevent the Crown from making the transaction.

Snow Leopard

17-11-2013, 02:59 PM

NZHerald: Government Sell Down Now On (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11158618)

Stuff: Similar Thing (http://www.stuff.co.nz/business/industries/9409881/Government-to-sell-its-Air-NZ-shares)

20% available

Best Wishes
Paper Tiger

Sideshow Bob

17-11-2013, 06:00 PM

Already received an email from my broker....

NOCASH

17-11-2013, 06:39 PM

How do i get my hands on some shares? i have account with ASB and Direct brooking

iceman

17-11-2013, 07:15 PM

How do i get my hands on some shares? i have account with ASB and Direct brooking

From the Herald article:

"Mr Ryall said New Zealanders interested in purchasing Air New Zealand shares should talk to a sharebroker or authorised financial adviser.''

Marilyn Munroe

18-11-2013, 12:34 AM

Roll-up roll-up, get your tickets for the Virgin Australia cash burn here. Give your cash to the nice Kiwi lady. Pay no attention to Michael Cullen hiding behind the curtain.

Boop-boop-de-do
Marilyn

Stranger_Danger

18-11-2013, 01:05 AM

I've been waiting for this.

I - with much shame - must admit to owning Air NZ, for the second time, having not been happy with an 80% loss the first time around. Maybe I should go for 90% this time?

I don't know what it is with airlines. Even with all the history, and knowing the Branson quote, and reading Buffett rant about the subject, I've still ended up owning it twice.

I think the problem is, the time you should be selling it (ie after things have gone right for a short period, in other words, just before they invariably go wrong again), it always looks cheap. Plus there is so much operating leverage, "if only this..." and "if only that..." they'd consistently make real money.

I've held on recently due to positive momentum and suspect a larger free float may push it up further.

Shoot me if I still hold it in a year.

Joshuatree

18-11-2013, 09:09 AM

Im hearing around $1.60 plus brokerage of course.

clip

18-11-2013, 09:18 AM

I've heard the same - what are people thinking at that price?

Harvey Specter

18-11-2013, 09:23 AM

NOt intested at $1.60 having foolishly sold at $1.30. I have decided never to own an airline again after years of being in a hole.

Anyones brokers unable to supply? Will be interesting to see if ASB/Direct Broking etc get access for their mum and dad investors.

Joshuatree

18-11-2013, 09:41 AM

At a two year high?.A one in five year performance (check this) practically no discount,Turnaround man leaving; the Govt selling(no sweetener there). Id rather watch the averaging down action in CNU!

golden city

18-11-2013, 09:45 AM

i said it last month..they were push up shareprice for a good sell..price not attractive

TimmyTP

18-11-2013, 09:48 AM

I don't entirely buy into the "avoid " airlines at all costs" philosophy, even though Warren Buffet is much smarter than me, but I made the decision to sell out at around 158c.

Three key reasons:
1. Declining standards. I travel to Asia and UK 5-6 times per year and Australia about the same, travelling AirNZ on almost every occasion over the last 5 years. Earlier this year, I travelled to the UK on Cathay and felt their planes were better and their staff just as helpful etc. AirNZ planes (especially on the Asia routes, can't comment re USA) are looking and feeling really tired. My latest trip to Europe was on Singapore airlines; $3K cheaper, more modern planes, lovely staff, on-line check-in.
2. Share price doubled in the 18 months I held. Of course that has limited bearing on whether today's price over/under values the company, but I couldn't see that much change in value over that time, particularly considering the risk associated with an airline.
3. General unease about the prospect of a sharemarket or global economy downturn and likelihood of a very left-leaning govt in NZ, meaning they are forced to fuel their planes with cabbages. My feeling is that AirNZ share price and dividend are likely to suffer significantly in the event of any of these.

As such, I think that the government has picked an excellent time to sell a good portion of its holding. This announced when the last bail-out happened, so really it was just a matter of timing.

Just one opinion of course and do note that the share price has risen since I sold - I don't tend to look back at the "what if", but you shouldn't take my word for that :)

Shall0w

18-11-2013, 10:09 AM

Harvey Specter

18-11-2013, 10:40 AM

The only sale of govt assets that I think is okay as flying is largely discretionary whereas a supply of electricity is not.But you have the choice of 5 large generators + some small fry and over 20 retailers.

Harvey Specter

18-11-2013, 10:45 AM

modandm

18-11-2013, 10:57 AM

Good news for Air NZ investors! I expect the increased liquidity to make it a more attractive stock to institutional investors, which should support a more efficient pricing of the company's shares. Also removes an overhanging uncertainty.

I don't understand how anyone can come out and say its not an attractive price. The stock is very cheap on 8x forward PE in comparison to both other NZ stocks and airlines in an international context, while the airline has a much stronger competitive position than almost any airline you care to name. The company is extremely well capitalised, and easily funding transformational fleet growth over the next few years. Strong revenue growth expected, combined with favourable current FX rates, Fuel prices, and more efficient aircraft set the company up for very high profit growth (20-30%p.a) over the next few years. Yes there are risks to that scenario playing out - but I am monitoring these closely.

You will all know the confidence and conviction I have in the stock. And I'm looking for another great year from the company next year.

To any new shareholders - welcome, and look forward to your balanced contributions and thoughts.

Joshuatree

18-11-2013, 11:11 AM

Thanks Modandm and timmy For your opposing opinions. Maybe Air NZ has a sweet spot ahead for a few years if so good luck to those who are in.

biker

18-11-2013, 11:48 AM

I think also that if Virgin Australia get Tiger sorted and profitable and eventually realize the potential that Air and the other two big players think they have, there will be upside there also.
Air buying more in the cash issue at 38 cents averages down their entry cost and with good management and a strengthened balance sheet the Virgin/Tiger combination could really take it to Qantas. They do of course, have to get it right and that does add to Air's risks.
Airlines - Not for the faint hearted and always cyclical.
Disc: Hold AIR and VAH and applying for more Air in the sell down so I'm biased.

peat

18-11-2013, 04:08 PM

The main thing I wish to understand about this sale is whether the government is recouping its bail out costs of 11 years ago.

They paid 885 million back in 2002 according to http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11158715
An article from back then http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=786800 described the recap as:

The programme was in two parts - a $300 million loan and a $585 million investment. The loan was by way of 1.25 billion convertible preference shares at 24c each and the investment by 2.167 billion ordinary shares at an issue price of 27cps.

Are these the same ordinary shares as back then?

Is anyone close enough to this company to evaluate the success of the governments 'investment'.

macduffy

18-11-2013, 04:24 PM

Does it really matter though, peat?

If we accept that the bail-out was necessary in the overall interests of the country in the circumstances of the time and if we think that now is a good opportunity to sell down the nation's interest in a highly volatile investment - I do! - then it doesn't really matter what the original cost was. At least, that's how I'd try to approach a similar situation in a personal investment. ie the original cost of an investment is irrelevant in determining when to sell. ( I know, it's easier to say than to put into practice!)

winner69

18-11-2013, 07:01 PM

Yes they paid 27 cents .... been a 5 for 1 as well s a 1 for 6 rights since ... so now about 130

There were also heaps of prefs that converted to ords along the way

So could ay they have done sort of OK over 12 years .... prob why Buffett says airlines are dogs if this is what the best in breed can do as an investment

peat

18-11-2013, 07:50 PM

thanks winner69.
fair comment macduffy, I just like to have an idea of these sorts of things as part of the economic history.
The weird aspect of this company is the flagcarrier status and hence the effective underwriting by govt.

But airlines are not really a buy and hold sector imo so not particularly appropriate for most retail investors.
Possibly the insto demand will support it. I hear ACC is rolling in dosh. They're into risky stuff. I remember them buying Chase at $9.
Super Fund might take a few but shouldn't think they'll be too keen. If somehow they were though, wouldn't it be great as an incentive for Kiwis to fly with their homegrown airline (supporting their own super).

percy

18-11-2013, 08:11 PM

Zaphod

18-11-2013, 08:22 PM

I don't entirely buy into the "avoid " airlines at all costs" philosophy, even though Warren Buffet is much smarter than me, but I made the decision to sell out at around 158c.

Three key reasons:
1. Declining standards. I travel to Asia and UK 5-6 times per year and Australia about the same, travelling AirNZ on almost every occasion over the last 5 years. Earlier this year, I travelled to the UK on Cathay and felt their planes were better and their staff just as helpful etc. AirNZ planes (especially on the Asia routes, can't comment re USA) are looking and feeling really tired. My latest trip to Europe was on Singapore airlines; $3K cheaper, more modern planes, lovely staff, on-line check-in.

Many of the Asian routes are serviced by older 767s which would have been retired years ago if it were not for the delays in the delivery of the new 787s. Both the 777-200ER and 777-300ER's used primarily on the US/Canada routes are modern and overall, very pleasant aircraft to travel in IMO.

I too would rate both Cathay Pacific and AirNZ staff equally helpful, however personally I found Aircraft hard products on the AKL-HKG and HKG-LHR sectors to be inferior to the NZ product. I note that Cathay Pacific have upgraded the aircraft on the AKL-HKG sector very recently.

Generally, airline fares are very similar, after all the industry is incredibly price sensitive and drawing comparisons is very difficult without knowing what fare category you were purchasing in, especially if razor-sharp specials were being offered at the time.

Just my two cents! :)

Zaphod

18-11-2013, 08:34 PM

Just to add to some of the more upbeat comments above, AirNZ have an exceptionally strong, talented and cohesive management team who have done a great job of building an efficient and financially stable airline, with great growth prospects. From the video interviews I have watched and briefings I've attended, Christopher Luxon has a formidable understanding of the business, its challenges and a clearly defined vision for where he sees the airline heading.

As long as these elements stay consistent and they keep hitting those revenue targets, I will continue to hold.

TimmyTP

18-11-2013, 09:32 PM

Many of the Asian routes are serviced by older 767s which would have been retired years ago if it were not for the delays in the delivery of the new 787s. Both the 777-200ER and 777-300ER's used primarily on the US/Canada routes are modern and overall, very pleasant aircraft to travel in IMO.
I travel on 777-200ERs to and from HK mostly and they are very tired IMO. A few years ago, they were spanking new and fabulous; now I often find seats and controllers in economy are broken & just looking worn. The business class cubicles have not fared well, with what looks like polyfilla in worn areas for some time now. Can't remember being in an AirNZ 767 so no comment about those.
Having said that, I suspect the US routes are more up-to-date; I get the feeling that's their focus and perhaps where the $ is.

Generally, airline fares are very similar, after all the industry is incredibly price sensitive and drawing comparisons is very difficult without knowing what fare category you were purchasing in, especially if razor-sharp specials were being offered at the time.

Business AKL to LHR return last month - ~NZD11k on NZ (would have been 777s all the way I think & similar price whichever route) vs ~NZD8k on SG (mix of 777 and A380 via Singapore). There appeared to be plenty of spare seats on AirNZ very close to departure (as a shareholder at the time, I was very interested so I kept and eye on it).