AIR - Air NZ.

[skid]

I think the only way to get a cheap flight wherever you are in the world(that I know of)is to drive to the nearest big connection point.
We all want low prices,but the business has to work as well.
There are some practices out there (walmart comes to mind)that are almost criminal in their practices in eliminating competition,but I dont think this case is one of them.
If the small routes are not economically viable in terms of numbers,then competition will simply cause one competitor to fall by the wayside.
I was surprised to hear that AIR allow for a discount for family members for a funeral--Thats long gone for most airlines.
We pay higher prices for alot of things in this country due to our small population-but for most its worth it to live here.
I think Roger has some valid points.
Having said all that,its still good to keep an eye on things in general-Us Kiwis dont seem to be very active in that sense-I only wish we had more say in some of the costs levied by the councils and Government in some other areas.

[Beagle]

I don't want to go into too much detail but the declining NZD is quite bad for AIR. No things don't cancel themselves out sorry. As a rough guide, 1c change in NZD USD = 1c change in normalised EPS. So from 30c based on 82c we are looking more like 26c now - though hedging will shield us this year. Still growth but...

Re China eastern - bad news, but not hugely significant in the scheme of a network.

Re Qantas, US competition on trans-pac, I don't see anything has changed. Yes Qantas has gone A380 to DFW, so what. Capacity increases are in line with demand. Regarding the Aussie feed to NZ trans-pac services this is not as significant as some would have you think. My impression is since Qantas pulled off AKL-LAX, AIR has been less aggressive in poaching Aussie customers (which are lower yielding anyway). You could call it a case of the two carriers playing nice. No signs of US carriers entering, its all gravy here.

The worry is USD strength for me - a clear negative. Can't see 65c though, 75c maybe. Still like the stock, haven't sold, just less upside...

-mod

If we take an extreme example and using your rough guide if we get John Key's magical Goldilocks level of 65 cents, down about 24 cents from the peak of about 89, what you appear to be suggesting is that EPS would be slashed by circa 24 cents and profit would be about 6 cps or only circa $67m after tax.

With all due respect this seems very simplistic as quite obviously the Airline would adapt its business model to suit the changing circumstances as frankly, CL said they would. Airfares would go up for a start.
To illustrate my point that the airline can indeed be highly profitable at this Goldilocks level lets look at the 2007 year when the exchange rate was at that level.
Net profit after tax was $214m
https://www.anzsecurities.co.nz/DirectTrade/dynamic/announcement.aspx?id=1691390
According to the IRD's website conversion of overseas currency to $N.Z the exchange rate on average was about the so called dreaded level we're talking about. See link. http://www.ird.govt.nz/resources/d/5/d56bf9004ba39ee1baf1bf9ef8e4b077/ir270-2007.pdf

[Arbroath]

Its all just supply and demand. Roger makes a common sense argument about the costs/benefits of Auckland versus the regions. We moved from Auckland to New Plymouth 5 years ago and don't regret it for a second. I grew up in NP and flights these days are so much cheaper than 20 years ago - easy to get Auckland return for $200-250, or just a 4 hour drive to connect to international flights.

The simple truth is places like Wanganui / Gisborne are slowly fading economically, just like the Sunday programme said recently and the economics of supporting those towns doesn't add up. I own AIR because its a well run company - probably the best run airline in the world. From NP to Auckland there are now 8 flights a day at cheaper prices than 5,10, or 20 years ago. There used to be 4 flights a day. It's just economic winners and losers - thats the simple truth.

[Beagle]

Good post. iI's about making choices and if you want to save money putting in some effort. We had only two days notice of my wife's father passing early last year and had to travel Auckland to New Plymouth. Flights at short notice were about $320 return ($640 for my wife and I plus rental car costs and parking, all up we were looking at about $800 in costs for the day) for the first flight of the day on a Tuesday and back on the last flight of that day. We had no idea that concessions were available for close family members, something that all of us are now aware of thanks to the recent post on here. We found it a bit objectionable so we took the car instead and stayed overnight. Just before Xmas my wife flew down to visit her mother on a grabaseat special at $49 each way.

[tricha]

Its all just supply and demand. Roger makes a common sense argument about the costs/benefits of Auckland versus the regions. We moved from Auckland to New Plymouth 5 years ago and don't regret it for a second. I grew up in NP and flights these days are so much cheaper than 20 years ago - easy to get Auckland return for $200-250, or just a 4 hour drive to connect to international flights.

The simple truth is places like Wanganui / Gisborne are slowly fading economically, just like the Sunday programme said recently and the economics of supporting those towns doesn't add up. I own AIR because its a well run company - probably the best run airline in the world. From NP to Auckland there are now 8 flights a day at cheaper prices than 5,10, or 20 years ago. There used to be 4 flights a day. It's just economic winners and losers - thats the simple truth.

supply and demand :confused: bullish.t, it's a Rort, monopoly, actively propped up and supported by the Govt.
when they burn out Jetstar, watch the fairs triple from the major city's .

John Keys going to speak to the airline, I doubt it, election won, now he can go of jet setting and have more high tea with the queen:p

it's a disgusting monolopy:t_down:


'Horrendous' airfares


By Harrison Christian


11:11 AM Friday Aug 29, 201437 comments
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Hawke's Bay airfares have been slammed by the region's candidates - with Napier Labour hopeful Stuart Nash saying Hawke's Bay travellers are being "rorted".


The high cost of Air NZ's regional flights was thrust into the spotlight on Wednesday when the airline announced a 45 per cent increase in annual profit, to $262 million.


The announcement caused Prime Minister John Key to speak to the airline about its expensive regional airfares, saying people in the regions had raised the issue of high fares during his travels on the campaign trail.


The New Zealand Airports Association also called on the Commerce Commission to regulate the airfares.


The domestic routes between the major centers, such as Auckland, Wellington and Christchurch, were often discounted, but there was potential for excessive profits in some domestic routes, where the airline had "a virtual monopoly," the association said.


Mr Nash said regional airfares were "horrendous".




"As somebody who's been travelling to and from Auckland for two and a half years, we get absolutely rorted. I actually think it's a barrier to business in Hastings and Napier. What I see in their [Air NZ's] pricing is monopolistic behaviour," he said.


Tukituki National MP and Commerce Minister Craig Foss said he agreed with John Key's suggestion Air NZ should reduce regional airfares.


"I agree with the Prime Minister that Air NZ needs to continue the work it's doing while making sure it reduces prices to the regions, if it can ... Air NZ has a crucial role in the development of Hawke's Bay, and I would expect them to work positively with our region." Tukituki Labour candidate Anna Lorck said Air NZ's regional airfares were "another example of the Government neglecting our region".


"Air NZ is making profits out of the regions and in doing do stifling regional economic development. The costs are far too high and this must be addressed," Ms Lorck said.


Napier National candidate Wayne Walford agreed "everyone would like to see a reduction" in regional airfares.


Napier Green Party candidate Paul Bailey said he would welcome competition on regional routes, but "in the long term we have to wean ourselves off our love of air travel and use more carbon efficient methods of transportation".


Ikaroa-Rawhiti Labour candidate Meka Whaitiri said regional airfares were "overly priced," particularly to Napier and Gisborne.


"I would support any initiative to bring them into a more reasonable range as a way to encourage more tourism to these areas, creating much needed jobs," Ms Whaitiri said.


Ikaroa-Rawhiti Maori Party candidate Marama Fox said the airfares were inhibiting Ikaroa-Rawhiti residents from accessing major cities for tertiary education and work.


"Further, the tourist market is likewise impacted by the daunting cost of convenient travel to our region," Ms Fox said.


Napier Conservative Party candidate Garth McVicar said the high cost of flying to and from Napier had always frustrated him.


"Competition is the only way to pull the process down. Our regional leaders need to team up and make a submission to Jetstar to entice them to the Bay."


Air NZ rejected claims it was price-gouging passengers on regional routes, and said there was ample domestic competition.


Hawke's Bay Airport chief executive Nick Story said the airport had had discussions with Air NZ regarding its regional airfares.


"Air NZ has a monopoly on regional flights," Mr Story said.


However, the carrier had recently increased seating capacity in and out of Hawke's Bay, which he hoped would have a positive impact on pricing.


Asked if he thought Air NZ's regional airfares should be regulated, he said: "We would prefer that a focus on customers and a desire for a long term and mutually beneficial partnership with the regions, as opposed to regulation, will determine their pricing of regional services."


- HAWKES BAY TODAY


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On many occasions I can purchase an air ticket to Australia cheaper than the flight from Hawke's Bay to Auckland. A trans-tasman journey on Emirates, a three hour flight, will include a full meal, free drinks, a huge selection of in-flight entertainment plus excellent service by a professional cabin crew. Compare this to Air New Zealand's service Hawke's Bay to Auckland: a pottle of water, a free lolly and biscuit plus tea or coffee only served providing the flight isn't too turbulent, which in small aircraft it frequently is.


Air New Zealand should be ashamed of the way they treat customers from the provinces. At the same time they charge us up to $300.00 for a flight to Auckland, they can run a jet from Auckland to Wellington, every day for $35.00 ... go figure.
Robin. - New Zealand - 02:02 PM Friday, 29 Aug 201410LikeReplyReport
I travel to Napier most weekends from Auckland and unless I get a grab a seat which has no flexibility it can cost over double to fly than what it costs for the five hour drive. To get a drink of water, tea or coffee and a piece of fudge and carry on luggage can cost me just on $300 one way Auckland to Napier. Of course it's price gouging - they have no competition. It's cheaper to fly to Australia than it is to some of our regional areas.


Mr Bailey's comments really add no value whatsoever - what alternatives are there? A five hour drive in a car, a bus drive which can take up to 8 hours and leaves Auckland at unreasonable hours for someone that works.


Rant over.
BB - 02:02 PM Friday, 29 Aug 20145LikeReplyReport
Harrison


I hope you take this investigation further.


Air NZ reportedly earn $135m per annum gross through Napier Airport, $70m alone from Auckland. By a rough estimate, the average ticket is $250 each way.


Part time "appeasers" are occasionally offered (think Starfish, or stand-by), but soon withdrawn once we settle down again. Grab-a-seat works if you have flexibility and foresight, but is useless for business.


An business is what the Bay needs. As one of many (and there are many more than you would imagine) who travel every second week, if not more, Air NZ is directly responsible for less business and growth in the Bay.


Having a close association with the tourist and accommodation sectors, the damage caused is huge for the Bay. If we look at Auckland alone, just try comparing the weekend break cost options for say Australia, Queenstown or the Bay in say one month from now. The Bay does not stand a chance due to flight costs alone.


Then there is the jets discussion. Rob Fyfe admitted earlier this year (as you published) that jets are a line call for the Bay. Saving 30min of each flight, at the expense of a few flight time options is a no brainer.


Jet Star want to talk.
Warren - 02:03 PM Friday, 29 Aug 20145LikeReplyReport
Harrison


I hope you take this investigation further.


Air NZ reportedly earn $135m per annum gross through Napier Airport, $70m alone from Auckland. By a rough estimate, the average ticket is $250 each way.


Part time "appeasers" are occasionally offered (think Starfish, or stand-by), but soon withdrawn once we settle down again. Grab-a-seat works if you have flexibility and foresight, but is useless for business.


An business is what the Bay needs. As one of many (and there are many more than you would imagine) who travel every second week, if not more, Air NZ is directly responsible for less business and growth in the Bay.


Having a close association with the tourist and accommodation sectors, the damage caused is huge for the Bay. If we look at Auckland alone, just try comparing the weekend break cost options for say Australia, Queenstown or the Bay in say one month from now. The Bay does not stand a chance due to flight costs alone.


Then there is the jets discussion. Rob Fyfe admitted earlier this year (as you published) that jets are a line call for the Bay. Saving 30min of each flight, at the expense of a few flight time options is a no brainer.


Jet Star want to talk.
Warren - 02:04 PM Friday, 29 Aug 20141LikeReplyReport
Everyones acting so shocked.This has been common knowledge for so long it hurts more than everybody missing the fact that this just happened to be brought up right before an election.Small minds I guess.Now where did I leave my life again.
Evenkeel - 04:06 PM Friday, 29 Aug 2014LikeReplyReport
Tried flying t Keri Keri even with one of link services discounted $400, almost the cost of a return airfare to the Gold Coast. Peole flying overseas prefer flying to driving in a car 5 hours to the major cities. It is time for us to have international flights at least 2 a week. Half of the link planes that carry those passengers will have empty seats. It will encourage tourism to fly direct to Hawkes Bay.
While Air New Zealand had hard times in the late 1900 it is time for the regional cities to be given cheaper fares when you see the profits this company is making now. Personally I find It frustrating to have to pay excessively for a flight an add this to an internaltion airfare it is making it too expensive. Secondly Air NZ have allowed cheap fares if you have a carry on bag but if you need a suitcase the costs go up and up.
0air New Zealand is not on its own all the power companies have increased profit s and at the expense of the consumer. wages are not as high in the regions as the big ciites yet we actually pay more for travel and power.
Robyn - 04:06 PM Friday, 29 Aug 20144LikeReplyReport
Aren't market forces wonderful. Private enterprise provides better services cheaper remember. How's those electricity rate cuts working out?
Steve CA - 04:06 PM Friday, 29 Aug 20148LikeReplyReport
Air NZ have also cut flights between some of the regions. Bring back the flights between Hamilton and Napier please!
Sedge - 04:06 PM Friday, 29 Aug 20143LikeReplyReport
Air NZ have also cut flights between some of the regions. Bring back the flights between Hamilton and Napier please!
Sedge - 04:06 PM Friday, 29 Aug 20142LikeReplyReport
I am flying over from Australia in October and flying from Wellington to Napier. The airfare is much the same price as flying from Brisbane to Wellington. My close family live in Napier so naturally I want to visit occasionally but the price is a rip-off! Also car rentals for 9 days are going to cost the same as the whole trip over - another rip-off! Over here in Brisbane you can rent a car (new model) for around $30 a day. Many Australians I have spoken to have not considered going to Hawkes Bay as it is too expensive to go there. Air New Zealand you need to lower your prices - you are ripping off your customers! Rental hire businesses - you are ripping off your customers too. As far as the Greens Party representative's comment - get into the real world.
Lynn2508 - Brisbane - 06:55 PM Friday, 29 Aug 20143LikeReplyReport
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[Fox]

supply and demand :confused: bullish.t, it's a Rort, monopoly, actively propped up and supported by the Govt.
when they burn out Jetstar, watch the fairs triple from the major city's .

John Keys going to speak to the airline, I doubt it, election won, now he can go of jet setting and have more high tea with the queen:p

it's a disgusting monolopy

I'm sure if exuberant profits are being made within short domestic flights at the price AIR NZ charge, then there wouldn't be a monopoly and every other airline would jump in on this opportunity. But there is no queue of airlines waiting to offer domestic flights, simply because it is so expensive. For the sake of our own sanity do a simple calculation on the number of people that use these domestic flights and the costs involved (pilot salaries, fuel, depreciation, airport costs etc etc.). If you don't like the price they offer the service to you at, then don't use it.

[modandm]

If we take an extreme example and using your rough guide if we get John Key's magical Goldilocks level of 65 cents, down about 24 cents from the peak of about 89, what you appear to be suggesting is that EPS would be slashed by circa 24 cents and profit would be about 6 cps or only circa $67m after tax.

With all due respect this seems very simplistic as quite obviously the Airline would adapt its business model to suit the changing circumstances as frankly, CL said they would. Airfares would go up for a start.


I fully understand the interplay variables that would occur, and don't suggest this rule of thumb be applied to larger long term exchange rate shifts.

With respect, I don't consider chatting with a CEO over biscuits at the AGM research, of course Chris is going to portray the company in a positive light, as is his job. My knowledge of the company, having been invested for several years, following developments closely, regular one-on-one discussions with the CFO and IR, detailed financial model, and investment knowledge puts me in a strong position to judge the impact of an FX shift. In fact my original investment case was predicated on the fact that most analysts were under appreciating the positive impact of NZD strength and lower fuel prices on the companies performance. I started getting excited in 2012 (post 717 page 48 of this thread), and more in 2013 on NZD strength - accumulating.

Lets ignore hedging and examine the impact of FX moving from 83c to 78c - in a very simplistic way

P&L

1. Fuel in NZD goes from $1183m to $1259m by my model - call it +80m
2. Maintenance, aircraft operations, lease payments and interest (where USD) rises - rough estimate +40m

offsetting this
3. US revenue is worth more. In FY14 this was $638m. Add 6% = $676m so a gain of rounding up $40m

Net decrease in profits before tax of $80m. Pretty significant you agree?

The other factor is USD capex. The shift won't stress the strong balance sheet, but it does make future special dividends less likely.

Lastly I think you over-estimate the ability of the company to flex pricing short term. You should think of demand as being quite elastic, therefore should AIR increase prices ahead of increases in demand, load factor falls.

I am not trying to alarm anyone into selling, like I said I am holding and I have a 7 figure position. But people should be aware that the recent NZD shift if maintained, puts my forecast of 30c eps out, and I would expect something in the order of 26-28c as being more likely now, with less growth in FY16 than previously expected (but still positive) as favorable hedging rolls off.

-mod

[777]

But modandm the depreciation of the $NZ will be against all currencies. Your example includes 100% of fuel costs but only the US revenue. All the other revenue from other destinations has to be considered which improves the situation.

[Beagle]

Modandum - Totally respect your long term and sizeable position in the company and depth of research BUT a couple of things. Firstly my credentials. I have 33 years experience as an accountant and many, many years experience advising privately owned aviation operators who were making good money when we were at 39 cents American. I totally understand price elasticity and inelasticity arguments. Its about providing a quality attractive service at a price the customer can bear when the exchange rate goes badly south.

Looking at your contentions. Firstly a 6% drop in the N.Z. dollar against the TWI, ($N.Z. has been falling out of bed against virtually all currencies) = circa $2.3b in overseas sales x 1.06 = $N.Z.138m dollar revenue gain which more than covers your expected increased costs of $120m.

Secondly, besides that, we have oil at 18 month lows which if unhedged would by my calculations extinguish the exchange rate effect. To be honest I'm really not worried about a modest correction in the Kiwi dollar at all.

On the other hand the spread of Ebola and its possible effect long term on people's propensity to curtail unnecessary travel is definitely a long term concern I hold as is my short / medium term concern regarding the dramatic reduction in Fonterra's forecast pay-out and its effect on the N.Z. economy. People need to have confidence about their financial situation before splashing out on that dream five figure overseas trip. You think dairy farmers and all service providers to that industry aren't going to be pulling their horns in a LOT ?

I'm not trying to be argumentative but I was never on board with the AIR is worth $3.00 (now) calculations. My contention has been that if they can fill there planes to the same load level's as last year with the additional capacity expansion of 5% this year and all other factors being equal then we could see close to 30 EPS next year and if and when they proved their ability to grow the top line by 5% they'd be worth close to $3.00 sometime next year.

My current thinking is that with dramatic Dairy reductions and its effect on the N.Z. economy and with the potential for Ebola to be a medium / long term concern AIR faces a considerable challenge to fill their extra capacity over the next few years.

Interestingly according to Reuters the consensus average of 7 analysts has 2015 eps at 23.07 cps for 2015, (highest is 25 cps), and for 2016 consensus of 6 analysts is 25.78cps and the highest is 28.

If they achieve the average analysts forecasts and we use a reasonable PE of 10, (which is the average its been trading on over the last 10 years), that suggests fair value will be circa $2.30 in 2015 and circa $2.60 in 2016. Given the challenges the airline faces I think we should be pleased if those SP markers are achieved in tandem with receiving high fully imputed divvy's.

Considering the not inconsiderable risks and challenges AIR faces, arguments around having no more than a sensible percentage of one's investment in AIR, (i.e. maintaining a well diversified portfolio) appear to me to have considerable merit.

Tricha - Its become clear you have no idea about the operational costs AIR faces on small short regional routes on a per passenger basis. What part of amortising high fixed (per plane) landing and airways charges over 10 pax as compared to a flight load of 300 is so difficult for you to understand ?
I have no concerns at all the AIR aren't well capable of fending off anyone's bleating agenda about regional airfares using international research. Frankly, unlike the other matters referred too above, I don't see your or anyone's else's emotionally charged rants regarding regional airfares as a risk to AIR at all. Jetstar have been quick to implement full regional services haven't they, (sarcasm intended), could it just be because there's bugger all money in it and its bloody hard to get an acceptable return on capital !!
Can I make a suggestion, use your car some more, it won't kill you.

[tricha]

I am sorry but unless you can back your highly emotional claims with evidence that they're outrageous relative to other airlines in other countries providing similar services to small regions then most people will view your statements as nothing more than having a baseless agenda and / or showing a very limited understanding of the operational costs an airline faces. Perhaps go away and do some research and provide some supporting evidence then people might take you seriously. Ever heard of the concept of using your car if you find short regional airfares so morally offensive as it appears you do ?

Air NZ :t_down:is a cartel, eliminates any completion by dropping prices and then gorging the average Kiwi.
The average Kiwi bailed them out to the tune of hundreds of millions of tax paid money and in return gets flogged!:t_down:

John Key can go jet setting for free, high tea with he Queen, golf with Obama.
If you do not find Air NZ morally offensive Roger, you do not have a moral fibre.:(

Air NZ reviews sky high fares
Last updated 12:58 28/08/2014






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Prime Minister John Key has taken up the issue of high regional airfares, which a Nelson woman highlighted.


Key says Air New Zealand needs to keep working to reduce regional airfares.


The airline said yesterday it would review the cost of last-minute domestic regional airfares after criticism they were too high.


Nelson woman Helen Blaikie, who expressed her dismay over regional airfares and the airline's attitude in a Nelson Mail article on Saturday, said today she was pleased the issue was being looked at.


Key said in Blenheim yesterday he had directly raised the issue of high regional airfares with the airline's chief executive, Christopher Luxon.


"I've made it clear that I think Air New Zealand needs to continue the work it's doing while making sure that it reduces prices to the regions if it can. Because in the end we always know they're likely to have a more monopoly-type position in those areas. They've got to make sure that they continue to deliver fair pricing to the regions.


"Now, they assure me they are. But they also assure me they're very focused on that area."


The airline announced today annual profits had soared by 45 per cent due to higher passenger numbers and greater capacity.


Key said it was doing a "magnificent job" and was one of the few airlines in the world to make a profit.


However, the high price of airfares to regional areas had been raised with him as he travelled around New Zealand, and he had "directly raised" that with Air NZ.


The airline's pricing schedules were "quite complex", he said.


It was up to Air NZ's leadership to run their company, he said.


"I was simply making the point that they're our national carrier and we expect them to deliver fair prices across New Zealand . . . New Zealand is a small country and in so many areas, we either have a monopoly supplier or a duopoly position."


Blaikie spoke out about regional airfares after she and her husband paid a total of $1352 for last-minute return tickets from Nelson to Dunedin for a funeral. Her concerns were echoed by many others with a flood of reaction with many fed up with high airfares.


Luxon said yesterday last-minute airfares may be reviewed.


"A strong performance like this certainly helps the business be able to keep a downward pressure on airfares," he said.


However, it is not only last-minute airfares that have sparked outrage. A Nelson traveller who this month booked return tickets for two to a February wedding in Gisborne paid $1148, the cheapest seats she could find.


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In the past six years average regional fares had not changed, Luxon said.


Luxon said he believed Air New Zealand had the best regional network in the world.


Normalised earnings before taxation of $332 million for the 2014 financial year were up 30 per cent on the previous year. Statutory earnings before taxation were $357m, an increase of 40 per cent, while statutory net profit after taxation was $262m.


Operating revenue, capacity and yields grew across the network, while unit costs remained stable.


Other online reaction from air travellers include one who faced paying nearly $3000 return for two adults and two children from Napier-Hastings to Christchurch for a grandfather's funeral.


Margaret Bartlett said: "We had to go to a funeral in Te Aroha (from Nelson) in Feb and it was going to cost $1200 for flights to Ak then rental car and accommodation. We ended up driving. Flight prices aren't good unless you can book in advance."


Cameron Woods said: "When my mother died it cost me, my wife and 18-month daughter more to go to Hawke's Bay from Nelson than it did to spend 10 days on the Sunshine Coast a month later. That can't be right."


Celia Zumbach said: "When I went to Auckland from the Gold Coast I wanted to go home to Nelson and joined up with Grab a Seat. Seriously, Auckland to Nelson came up once and the travelling dates were wrong for me. I had 5 weeks before I travelled and checked every day just in case . . . nothing, so I just didn't go to Nelson, I stayed in Auckland for the week."


- The Nelson Mail








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[Beagle]

Origin Pacific collapsed more than eight years ago. Some people need to get over it and move on in more ways than one.
http://en.wikipedia.org/wiki/Origin_Pacific_Airways
Airlines are not dispensers of welfare cheques, its called a business, I guess thinking that makes me a capitalist pig with not an ounce of moral fibre LOL.

Wait , what's that I see, they discontinued flights to Dunedin more than 18 months before they collapsed. Couldn't possibly be because the route was uneconomic could it !!

Anyway...moving on from those with a welfare mentality, in real news Thia researchers claim a massive breakthrough in the fight against Ebola...this looks promising.
http://tvnz.co.nz/world-news/thai-researchers-claim-massive-breakthrough-in-ebola-fight-6098769

[modandm]

Modandum - Totally respect your long term and sizeable position in the company and depth of research BUT a couple of things. Firstly my credentials. I have 33 years experience as an accountant and many, many years experience advising privately owned aviation operators who were making good money when we were at 39 cents American. I totally understand price elasticity and inelasticity arguments. Its about providing a quality attractive service at a price the customer can bear when the exchange rate goes badly south.

Looking at your contentions. Firstly a 6% drop in the N.Z. dollar against the TWI, ($N.Z. has been falling out of bed against virtually all currencies) = circa $2.3b in overseas sales x 1.06 = $N.Z.138m dollar revenue gain which more than covers your expected increased costs of $120m.

Secondly, besides that, we have oil at 18 month lows which if unhedged would by my calculations extinguish the exchange rate effect. To be honest I'm really not worried about a modest correction in the Kiwi dollar at all.

On the other hand the spread of Ebola and its possible effect long term on people's propensity to curtail unnecessary travel is definitely a long term concern I hold as is my short / medium term concern regarding the dramatic reduction in Fonterra's forecast pay-out and its effect on the N.Z. economy. People need to have confidence about their financial situation before splashing out on that dream five figure overseas trip. You think dairy farmers and all service providers to that industry aren't going to be pulling their horns in a LOT ?

I'm not trying to be argumentative but I was never on board with the AIR is worth $3.00 (now) calculations. My contention has been that if they can fill there planes to the same load level's as last year with the additional capacity expansion of 5% this year and all other factors being equal then we could see close to 30 EPS next year and if and when they proved their ability to grow the top line by 5% they'd be worth close to $3.00 sometime next year.

My current thinking is that with dramatic Dairy reductions and its effect on the N.Z. economy and with the potential for Ebola to be a medium / long term concern AIR faces a considerable challenge to fill their extra capacity over the next few years.

Interestingly according to Reuters the consensus average of 7 analysts has 2015 eps at 23.07 cps for 2015, (highest is 25 cps), and for 2016 consensus of 6 analysts is 25.78cps and the highest is 28.

If they achieve the average analysts forecasts and we use a reasonable PE of 10, (which is the average its been trading on over the last 10 years), that suggests fair value will be circa $2.30 in 2015 and circa $2.60 in 2016. Given the challenges the airline faces I think we should be pleased if those SP markers are achieved in tandem with receiving high fully imputed divvy's.

Considering the not inconsiderable risks and challenges AIR faces, arguments around having no more than a sensible percentage of one's investment in AIR, (i.e. maintaining a well diversified portfolio) appear to me to have considerable merit.

Tricha - Its become clear you have no idea about the operational costs AIR faces on small short regional routes on a per passenger basis. What part of amortising high fixed (per plane) landing and airways charges over 10 pax as compared to a flight load of 300 is so difficult for you to understand ?
I have no concerns at all the AIR aren't well capable of fending off anyone's bleating agenda about regional airfares using international research. Frankly, unlike the other matters referred too above, I don't see your or anyone's else's emotionally charged rants regarding regional airfares as a risk to AIR at all. Jetstar have been quick to implement full regional services haven't they, (sarcasm intended), could it just be because there's bugger all money in it and its bloody hard to get an acceptable return on capital !!
Can I make a suggestion, use your car some more, it won't kill you.

Suggest we just ignore tricha - pure trolling. It does put me off this forum.

Not doubting your accounting skills roger, but I disagree strongly with the conclusions you are reaching on both the NZD, and on the PE multiple (as debated earlier).

I take your point that NZD has weakened vs other ccy's as well but not by as much that your calculation is valid, JPY and AUD have also been weaker - its just a strong USD right now - look up the DXY Index. Also there are offsetting local costs. The big currency sensitivities really are just AUD and USD. Even ignoring the impact on earnings a weaker NZD means higher capex on new a/c. Overall i'm not sure what point your trying to argue, do you think NZD weakness is immaterial?

On the PE, what I say is not some theory, its commonly accepted wisdom. Here is some info:
http://www.investopedia.com/articles/02/102202.asp
http://www.fool.sg/2013/12/18/why-the-pe-ratio-isnt-a-good-way-to-value-a-cyclical-company-2/

excerpt:
So why is the P/E ratio not a good gauge for valuing of such companies? This is because when the company is facing a down cycle, there are little or no earnings. This will result in a high P/E ratio. On the other hand, when the company is doing well and having record earnings, the company will then trade at a very low P/E ratio due to the outsized earnings. This is the oxymoron of cyclical investing.

I don't know what your investment horizon is but for me I have been riding for 2 years, and will happily make an exit when I think earnings momentum has slowed too much (i.e eps growth <15%) or worse reversing. If USD strength is the cause of that so be it. There is a medium term cash flow story in the stock, but its more a FY17 story, and a strong NZD was part of that case - will I be around for it... lets see how things play out - I hope so :)

-mod

[modandm]

On newguys risks (in brakets my comment)

1. RB intervention in the forex market - scary stuff (not scary, its market forces not the peashooter RBNZ)
2. Uncertainty about long term capacity at Auckland airport (not a risk, plenty of capacity, and will be built when needed - its a matter of national interest)
3. The new entry of other airlines on lucrative asian routes (asian routes are far from lucrative - bar Shanghai AIR have done whats necessary here to co-operate with competitors - not risk i worry about)
4. potential second recession if Europe and the states can't pull themselves together (YES this is a risk to all companies but Airlines in particular)
5. potential collapse of the dairy industry (unlikely and although a weaker local economy would be bad, there is offsetting strength (property chch etc))
6. weakening commodity prices (good if oil falls!)
7. Ebola (YES, but from my understanding is not that contagious, unlikely to spread to developed economies and therefore probably is being worried about unnecessarily)
8. Oil price uncertainty (uncertainty is a constant - oil price has been moving lower so not a concern)
9. Global decline in airline profitability (this is an outcome of a risk, not a scenario or risk in itself - also AIR is not your average airline so what BA or American makes has only modest relevance)

[Beagle]

Complelty agree on the Trica troll matter.
To be honest I haven't looked up the decline in the trade weighted index.
All I'm suggesting is that AIR is capable of adapting its business model to cope with a modest change in the currency.

[Robomo]

However, it is not only last-minute airfares that have sparked outrage. A Nelson traveller who this month booked return tickets for two to a February wedding in Gisborne paid $1148, the cheapest seats she could find.

| Saved Stories

Outrageous indeed. Checked on AA website on compact car running costs - 63.9 cents / km. Nelson - Gisborne return 1,458 kms. Ferry cost for car and 2 adults $452

Fly to/from Gisborne for your wedding $1,148. Travel time about 6 hours total (depends on actual flights - Wellington connections)
Drive to/from Gisborne $1,383.66. Travel time 23.5 hours (optimum, depends on ferry sailing times). May need an extra night or 2 accommodation.
Intercity Bus to/from Gisborne $248. Travel time 24 hours plus overnight stays in Wellington due to connection times. Cheapest if you can put aside 4 days for travel. Total cost would be about $500 including taxi to a cheap motel.

The Nelson Mail is the same as the Herald; simply regurgitates subjective statements without doing even a simple analysis. If you are not working and have plenty of time then catch a bus. If you want the convenience of your own car then drive. If you want minimum time off work (say $150 per day in lost wages) and the quickest trip then fly. The options are there, don't just whinge!

[Beagle]

I think Tricha's main argument appears to be that because the Govt bailed out AIR they now have a moral obligation to use that company as a welfare provider to the regions.
Doesn't appear to understand, (read doesn't want to understand), that airport landing charges are a significant component of a short regional flight and that amortising those over just a few pax is more expensive on a per pax basis that amortising those of a A320 landing at Wellington with 150 pax.
Those greedy Dorklanders who can get cheap $39 flights to Wellington sometimes on special must really get some people's knickers in a twist LOL.

[Hoop]

Thanks Modandm, but seriously?

*RB selling $521 million of forex is not "market forces", its intervention. Very simple economics, mate. http://www.nzherald.co.nz/monetary-policy/news/article.cfm?c_id=201&objectid=11333657

*Airport capacity is not a given. They are one of my clients.

I can't be bothered answering all of them. let's just agree to disagree.

New Guy....remember why I always harp on about the media.....this is one of the reasons why...

Away from the media and back to reality ...Last month the 10th most traded currency (the NZ$) traded $221,900 million...and that was a down month!!!! (http://www.interest.co.nz/charts/exchange-rates/foreign-exchange-trading-volumes)

Hmmm ..What little amount in the grand scheme of things was it ??..$521 million... and Mr Wheeler + the Media expect me to believe that that piddly amount dropped the NZ$ like a brick... come on...really??? ;)

[skid]

Lets face it --Its been a combination of things ,but the $US is flying ATM (thats a big one)

[Zaphod]

Fly to/from Gisborne for your wedding $1,148. Travel time about 6 hours total (depends on actual flights - Wellington connections)
Drive to/from Gisborne $1,383.66.

Add into that equation the opportunity cost in terms of lost earnings due to spending the extra time traveling and the picture gets even worse. Unfortunately people are not rational when it comes to working out such costs or making decisions. In many people's minds the cost of traveling by car is simply the fuel input costs and nothing more.

IMO, this issue is going to continue being as emotionally driven as the seemingly endless cyclist v driver debate in newspapers. At the end of the day I suspect that those making the most noise on this issue are not regular travellers anyway, who by and large understand the costs of making last minute travel arrangements.

[Beagle]

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11338753 More emotional B.S. about last minute regional airfares but this time containing some interesting independent analysis.

Please Note: Professor of Economics international research shows N.Z. has much cheaper regional airfares than other countries. This backs up Mr Luxon's claims.

[skid]

Is that an endorsement?

[Beagle]

I think the spotlight needs to go on Wellington airports landing charges. I know AIR had had a very frost relationship with this Infratil owned airport over the years over their sky high charges and they're not the only airport to dramatically raise landing charges by any means.
http://www.odt.co.nz/news/dunedin/203331/dogfight-breaks-out-over-landing-fees

http://www.stuff.co.nz/marlborough-express/news/4063915/Airport-landing-fees-soar

http://tvnz.co.nz/business-news/airport-landing-fees-bridling-air-nz-s-success-fyfe-5052470

[tricha]

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11338753 More emotional B.S. about last minute regional airfares but this time containing some interesting independent analysis.

Please Note: Professor of Economics international research shows N.Z. has much cheaper regional airfares than other countries. This backs up Mr Luxon's claims.

Air NZ is a cartel and should be broken up!

[Beagle]

Air NZ is a cartel and should be broken up!

Broken record here guys, don't feed the troll.

[Jaa]

of Tim? His economic evidence is usually pretty good, so yes.

Couldn't agree more. Tim Hazeldine was the best economics lecturer I had too. No trip to the pub though!

[tricha]

Broken record here guys, don't feed the troll.

U r the broken record here Roger, sticking up for a thieving cartel! That destroy viable opposition by lowering fares.
As soon as they are gone fares go up again.

and it is tax payer money that bailed them out that allows them to do it.

Watch thi s space when Jetstar quits and airfares to the major centres triples.

[Okebw]

U r the broken record here Roger, sticking up for a thieving cartel! That destroy viable opposition by lowering fares.
As soon as they are gone fares go up again.

and it is tax payer money that bailed them out that allows them to do it.

Watch thi s space when Jetstar quits and airfares to the major centres triples.

Roger happens to be one of the highest quality posters on this site and it's only his input that encourages me to trawl through the drivel you've been posting in this thread as of late. If you have some evidence to back up your claims or something market related to discuss go ahead but if you're going to insult those with constructive input please go elsewhere or take your airline complaints to the off market thread

[brend]

U r the broken record here Roger, sticking up for a thieving cartel! That destroy viable opposition by lowering fares.
As soon as they are gone fares go up again.

and it is tax payer money that bailed them out that allows them to do it.

Watch thi s space when Jetstar quits and airfares to the major centres triples.

Whats the alternatively? no regional flights - that will be next if the economics don't work.

yes we, the taxpayer bailed them out but the taxpayer has and with its current shareholding will continue to get a good return on investment....

[modandm]

Rogers 'analysis' of the stock comes down to

1. Using the analyst consensus earnings estimates
2. Applying a PE of 10

So simple... I would disagree with both of these and hardly call it high quality posting.

Roger hasn't estimated the difference in earnings might be if passenger revenue grows 3,4,5,6,7, or 8%, or how a change in fuel or FX affects next years profit. He certainly hasn't bothered to forecast P&L cost line items. Instead he would say - oh the business model can cope. That's nice. Chorus will probably cope too - never mind shareholder losing half their investment.

Good luck...

[Okebw]

Rogers 'analysis' of the stock comes down to

1. Using the analyst consensus earnings estimates
2. Applying a PE of 10

So simple... I would disagree with both of these and hardly call it high quality posting.

Roger hasn't estimated the difference in earnings might be if passenger revenue grows 3,4,5,6,7, or 8%, or how a change in fuel or FX affects next years profit. He certainly hasn't bothered to forecast P&L cost line items. Instead he would say - oh the business model can cope. That's nice. Chorus will probably cope too - never mind shareholder losing half their investment.

Good luck...

I wasn't limiting that statement simply to analysis. He frequently brings articles and insights both about the industry as a whole and company specific things that I had overlooked to my attention through this thread as well as generously sharing his conversations and insights with management with those of us unable to make it to the AGM.

However I shall bite my tongue after this post as I'm becoming as petty and off topic as the resident troll

[modandm]

I wasn't limiting that statement simply to analysis. He frequently brings articles and insights both about the industry as a whole and company specific things that I had overlooked to my attention through this thread as well as generously sharing his conversations and insights with management with those of us unable to make it to the AGM.


very true and fair, sorry

[Beagle]

Rogers 'analysis' of the stock comes down to

1. Using the analyst consensus earnings estimates
2. Applying a PE of 10
Roger hasn't estimated the difference in earnings might be if passenger revenue grows 3,4,5,6,7, or 8%, or how a change in fuel or FX affects next years profit. He certainly hasn't bothered to forecast P&L cost line items. Instead he would say - oh the business model can cope. That's nice. Chorus will probably cope too - never mind shareholder losing half their investment.

So simple... I would disagree with both of these and hardly call it high quality posting.
Good luck...
You're a laugh mate. Many times you've referred to your model and actually offered to send me it and then withdrew that offer for no reason other than it gives you too much of a "competitive advantage". In my eyes you lost all credibility at that point.

No professional analyst has been anywhere near your 30 cents EPS forecast so you'd obviously have us believe that you as some pseudonym on the internet with some alleged seven figure holding and alleged meetings with management and special analytical skills give you insights into the company that named professional analysts that definitely have been meeting with management of a regular basis don't have. Yeah, that's really plausible, (NOT).

A while back you claimed the stock was worth $3.00 NOW. Ha, obviously the market disagrees with you :doh you didn't bother turning up to the ASM, despite claiming to have a seven figure investment didn't bother meeting other ST members at the Chch meeting. Who are you, what's your background ?
Other members on here have met me and know my credentials, who you are is anyone's guess and to be quite honest I take what you say with a grain of salt and also your claimed position in the stock.

I have been factoring forex and fuel changes into my thinking and what do you know, just like CL said, they basically cancel each other out for the 2015 year.

Fact is you have no idea any more than anyone else what the exchange rate will be in 2016 when their forex cover runs out, how they'll fill their projected capacity increases of 5% growth each year, what the oil price will be, how the Ebola crisis will play out and affect people's propensity to avoid unnecessary travel and don't even seem to understand what stage we are at in the economic cycle.

Your wonderful analysis was summed up with the rough projection that each one cent decline in the N.Z. U.S. x rate reduced EPS by 1 cent so a 25 cent drop basically wipes out profit but then I posted their 2007 result making over $200m when the forex rate was mid 60's. You had no answer to that.

The difference between me and you mate, is I take the time to meet people on here and they know my credentials. I accept professional analysts forecasts as a good starting point and work my own assumptions from there, I don't pretend to have some theoretical special model that's God's gift to the investment community.

I'm not trying to forecast this years EPS, management don't know either other than initial signs are looking encouraging compared to 2014. That could easily turn to custard as new non-essential bookings start to get curtailed if Ebola goes rampant.

I reckon you should put in the time and effort to meet people on here so people can get to know your credentials if you want people to take you seriously.

Finally its you my friend that needs good luck with your own portfolio that you've admitted to me is not at all well diversified.

Ever heard of modern portfolio theory and diversification reducing risk. Good luck to you reducing you're so called 7 figure position if the Ebola crisis runs away on itself.

Apologies to other members, sometimes things have to be said. Sorry to pollute the thread with so my angst.

Some people on here who don't make the effort to get to know others and have a specific agenda whether its ramping or bleating like a trained parrot about AIR being a cartel are frustrating to say the least.

Still, what would I know, just 33 years experience as an accountant advising privately owned aviation operators... My 3 cents.

[modandm]

I wasn't limiting that statement simply to analysis. He frequently brings articles and insights both about the industry as a whole and company specific things that I had overlooked to my attention through this thread as well as generously sharing his conversations and insights with management with those of us unable to make it to the AGM.


very true and fair, sorry

[modandm]

Don't really care whether you take me seriously or not, and I have nothing to prove to you or anyone else.

No professional analysts thought they were going to earn what they did last year, but I had a view they would - not a certainty, it never is, but based on what I thought were fair assumptions. It's not because my model is better than theirs - I think the detail I go to on fuel costs is better than what they do, but otherwise its not. They likely get better access to management than I do. BUT I have made better assumptions, free of the pressures they face. You don't even understand the assumptions or the sensitivities - because you don't do any real analysis. All you do is turn up late to the party, and say relatively unbalanced (positive) things about the stock, without from what I can tell any position of good knowledge of either investment analysis or the company. Then get together with others that hold the stock (and so already have a positive bias), and back slap each other around the AGM over biscuits. The AGM is an event for the retail shareholder, like I say its dumbed down baby speak and PR. There are analyst day's and direct management access for the pros.

You keep repeating how old you are - thats great. With all your experience you should appreciate investing in boom-bust industries, and how to appropriately value a company for 'through the cycle' performance. I found your obstinate response to what I have said about and peak cycle multiples as particularly annoying given its commonly accepted practice. Regarding 2007 performance I thought the comment was too stupid to even solicit a response. 7 years is a long time, the cost base has risen significantly since then. Most obviously labour was $886m, vs $1151m last year. I would like to see the business model try and adjust back to that without some newspaper articles... I stand by what I said about FX, in the short run that is my best estimate, and the capex point is even more important.

Of course I have heard of portfolio theory, but I disagree with its relevance as do many. I share the view of buffet that risk is not knowing what your doing. Why dilute your returns with inferior ideas? He has most of his money in 4 or 5 companies. I'm the same. Trademe is the other NZ stock I own, a recent purchase. For you who don't know what they are doing please diversify.

And I'm well aware of ebola thanks, I read a detailed piece of research from a professional on it today. I'm comfortable that the risk is minimal.

Lets call it even tit-for-tat and end it here, I don't have any appetite for continued argument. I did want to highlight to others that your cheerleading of the stock is based on next to zero analysis of any value, and that point has been made.

-mod

[winner69]

Maybe if AIR is actually 'worth' $3 the market is discounting it back to current price fearing Virgin might dilute AIR's fantastic underlying performance.

Just a thought

[Beagle]

Yes lets leave it at that, you irk me and have affected my blood pressure this morning. People can make their own minds up, you a pseudonym who nobody has met and claim to have superior analytical skills to professional analysts or myself, who doesn't hide behind a pseudonym and who has made the effort to get out and meet people on here.

W69 Virgin won't give a forecast for 2015, they simply don't know how the year will play itself out and C.L. who's been to his first two board meetings at Virgin can't give any guidance.
Stock isn't worth $3 at present, simple as that, other than in the figment of someone's imagination.

[percy]

Roger.
I wish to record the excellent help,analysis,research and advice Roger has given me recently on a fixed interest investment I was out of my depth on.
I appreciate the time and effort he put into helping me.
Thank you very much Roger.

[Beagle]

Roger.
I wish to record the excellent help,analysis,research and advice Roger has given me recently on a fixed interest investment I was out of my depth on.
I appreciate the time and effort he put into helping me.
Thank you very much Roger.

Its always a pleasure to help mate and I wish to note that Percy picked up on one aspect of that investment I missed. A wise man is always ready to acknowledge he doesn't have all the answers :)
Its was great to catch up with you in Chch recently mate.

[noodles]

Roger.
I wish to record the excellent help,analysis,research and advice Roger has given me recently on a fixed interest investment I was out of my depth on.
I appreciate the time and effort he put into helping me.
Thank you very much Roger.

Likewise Roger. Always value you input (even if it is sometimes bullish).

And not wanting to take sides, I value modandm's quality research as well.

Both valuable contributors in my opinion. The stock is one of the more complex to analyse.

Analysts have yet to factor in the recent NZD decline as there have not been any new reports since late August. Perhaps punters have already been factoring it in (given the recent share price weakness).

I've also been underwhelmed by the last 2 monthly reports. Revenue seems pretty flat.

[bunter]

Why dilute your returns with inferior ideas? He has most of his money in 4 or 5 companies. I'm the same. Trademe is the other NZ stock I own, a recent purchase.
-mod
Air NZ? It's worth $2.69.:cool:

Modandm - my model is very crude and shallow compared to yours - would be interested to know what other stocks you hold.
I hold TME (val 3.54) but am thinking about selling.

[Hoop]

TA told me to sell out at $2.05 the day after AIR went Ex-div.. I didn't!! .... as the large div total 15.5c is not adjusted into the chart and confused things somewhat...However if you notice other stock charts with div payouts most didn't trigger a sell after ex-div ...I gave AIR a chance to regather and strengthen but it didn't it just gave more sell signals...Yesterday with a NZX relief rally it failed to break any of its resistances...My defiance of my TA discipline at 2.05 was knawing at me ..enoughs enough and pushed the big red sell button..

EDIT,,,I added the NZ$ (green line) into the chart

http://i458.photobucket.com/albums/qq306/Hoop_1/AIR09102014.png (http://s458.photobucket.com/user/Hoop_1/media/AIR09102014.png.html)

[robbo24]

TA told me to sell out at $2.05 the day after AIR went Ex-div.. I didn't!!

Hoop, why do you use EMA as opposed to SMA?

[skid]

TA told me to sell out at $2.05 the day after AIR went Ex-div.. I didn't!! .... as the large div total 15.5c is not adjusted into the chart and confused things somewhat...However if you notice other stock charts with div payouts most didn't trigger a sell after ex-div ...I gave AIR a chance to regather and strengthen but it didn't it just gave more sell signals...Yesterday with a NZX relief rally it failed to break any of its resistances...My defiance of my TA discipline at 2.05 was knawing at me ..enoughs enough and pushed the big red sell button..

EDIT,,,I added the NZ$ (green line) into the chart

http://i458.photobucket.com/albums/qq306/Hoop_1/AIR09102014.png (http://s458.photobucket.com/user/Hoop_1/media/AIR09102014.png.html)

I cant see many shares gathering any momentum today after that Dow plunge last night--Sounds like you may have made a good move

I dont think we will see an NZ releif rally today--Should separate the men from the boys in terms of shares today.

[bunter]

as the large div total 15.5c is not adjusted into the chart and confused things somewhat. http://i458.photobucket.com/albums/qq306/Hoop_1/AIR09102014.png (http://s458.photobucket.com/user/Hoop_1/media/AIR09102014.png.html)

Would have thought the sell signal was false for the reason you said - and that the prices after going ex-div ought to be increased by 15.5c.

I've been thinking about getting 'gross' share price data (from yahoo) to compare with the NZSE gross index. Lot of work.

BTW - is trading NZX shares using TA working for you? Or are commissions and slippage killing it?

[freddagg]

Modandm's research on AIR is better than any other that I have seen anywhere.

[Hoop]

Would have thought the sell signal was false for the reason you said - and that the prices after going ex-div ought to be increased by 15.5c.

I've been thinking about getting 'gross' share price data (from yahoo) to compare with the NZSE gross index. Lot of work.

BTW - is trading NZX shares using TA working for you? Or are commissions and slippage killing it?

Would have thought the sell signal was false for the reason you said - and that the prices after going ex-div ought to be increased by 15.5c. Well....there are a few schools of thought on whether the sell signal is false or not..I guess that is why there are two ways on a chart ..adjust or unadjusted...except the adjusted chart doesn't seem to work atm :(......Anyway one school saying just add the 15.5c back but thats not correct as there's tax involved..usually its the historic price that is adjusted, its lessened to the current price.... However.......the appeal of shares after a huge div windfall can be lost, this shows up on momentum which is a sell signal on its own for some disciplines...............The other school says the shares should not be adjusted because the company NTA/share just took a dive of ~20c/share and this should be reflected in the share price, and it doesn't matter whether it went to the shareholders, the Taxman, in fines or a subsidary of the same value ($200M) going belly up it should all treated the same way..OK..people say AIR will earn that amount back in 9 to 10 months ..that is forward thinking and not 100% certain so there's a bit of added risk applied into the present shareprice to cover this..
TA works off the principle that investors know best and that demand will push the price up at some stage and only then will it trigger TA buy signals again..

I've been thinking about getting 'gross' share price data (from yahoo) to compare with the NZSE gross index. Lot of work. Manually yes..try using Google drive, then use their spreadsheet program, and hyperlink Google finance AIR data into it. Yahoo have seemed to cleaned up its act but I still treat their data as suspect.. Haven't found any problems with Google Finance..

BTW - is trading NZX shares using TA working for you? Yes, far better than what I was (FA long/very long term investor) Investing with TA takes all forms...I'm comfortable being a medium/long term trader which means I use TA indicators with the default settings..(defaulted to Medium term)...TA can still chuck me out after a few days but Phaedrus using meduim/long settings was in FBU for 7 years..my longest using TA was over 3 years in a stock....so there are periods where I mightn't trade for weeks or months.. Or are commissions and slippage killing it? No, commissions are negligible..I'm not telling anyone how much I invested in AIR but an indication is when 1c change in shareprice relates to $100, $200, commission of $30 $60 are certainly not killing the investment.


Hoop, why do you use EMA as opposed to SMA?

For a long time I got into a bad habit of just using SMA..(Often it was me being too lazy to change the indicators in the chart program :mellow:)..It was on ST forum I can't remember who it was, Paper Tiger or KW ?? apologies if it was someone else...It was pointed out to me that when using a recently volatile share (PEB I think) then the latest shareprice should have more weight applied to it than its historic start period date therefore I should have used EMA50 not SMA50...It doesn't mean that EMA50 should always be used over that of SMA50..There are times when SMA50 should be used over EMA50 an example being when the current price affected by some sort of abnormal short-term (or unknown term) event or the share is in a trading range.

[MAC]

I’ve AIR as a smudge over fully valued about here (HY15 $1.75), but based on analyst consensus earnings estimates of FY15 $257M and FY16 $290M. On this basis, I wouldn’t be surprised to see AIR go sideways for six to twelve months now.

Modandm, not drilling AIR nearly as deeply as yourself, how well does all your appreciated effort and work correlate with analyst consensus at this time ?

[Beagle]

Well $3.00 NOW looks like a great valuation as I type with all the depth on the buy side being drilled out at $1.88.
OTOH I'm at $2.30 in late 2015 IF they can meet average analyst forecasts of underlying earnings of 23 cps for the June 2015 year and Ebola doesn't run away on itself.

[bunter]

Thanks Hoop - i did just the opposite - traded commodities using TA for four years - got nowhere.

Based on that experience I'd've though trading costs of .3% in and out, and slippage / spread of say 2% WOULD be significant, especially for a short to medium term trader.
Interesting.

Four years ago I set up two accounts - trading, mainly AUS shares, using TA, and long term investment, mainly in NZ shares, based on crude FA (but with a glance at TA too).
The long term FA picks actually did much better than the TA picks, even in the short term.

I guess most people are making money now, with the NZX is a long strong uptrend - but see quote below.

In theory TA traders will struggle in a sideways market.
Have been wondering about NZX futures too - so as to be able go short at some point.

All a bit off topic - go AIR!

[tricha]

Whats the alternatively? no regional flights - that will be next if the economics don't work.

yes we, the taxpayer bailed them out but the taxpayer has and with its current shareholding will continue to get a good return on investment....

Stop them killing of competion by price lowering.

They are a govt backed monolopy. With an unfair advantage.

Watch this space, Jetstar will be killed off soon. My prediction, airfares on the main routes will triple in two years.
Will John Keys do anything :confused: probably not, lip service in election year, just gone.

they need to be split like Telecon, to stop the monolopy and price gorging for Roger and his mates!

[Beagle]

http://www.trademe.co.nz/pets-animals/birds/birds/cockatiels/auction-791051447.htm

There you go tricha, two talking cockatiels that love to talk all day for a really cheap price. Dare I suggest that the owner is probably sick of them, i wonder why :D
You could train one to screech "ITS A CARTEL" over and over again and the other to say "SPLIT THEM UP" and you'd be as happy as a pig in mud :D

I see the Transport index on the Dow got another belting overnight, (Shareholders in airlines in America seem more connected with the realities of what they're confronting with Ebola).
Tighten that seat belt for Monday's trading in AIR.

[Arbroath]

http://www.trademe.co.nz/pets-animals/birds/birds/cockatiels/auction-791051447.htm

There you go tricha, two talking cockatiels that love to talk all day for a really cheap price. Dare I suggest that the owner is probably sick of them, i wonder why :D
You could train one to screech "ITS A CARTEL" over and over again and the other to say "SPLIT THEM UP" and you'd be as happy as a pig in mud :D

I see the Transport index on the Dow got another belting overnight, (Shareholders in airlines in America seem more connected with the realities of what they're confronting with Ebola).
Tighten that seat belt for Monday's trading in AIR.

Remember SARs, Bird Flu, Swine Flu???

Unless Ebola really starts to spread, and I'm not discounting that it might become a real problem, the whole episode will join the list above - bad if you caught it but apart from media hype it will be consigned to history hopefully...

AIR back towards $1.60-70 is a great opportunity to add longer term with the rather large caveat that Ebola doesn't turn out like the Spanish flu in 1918 that killed millions across the world. Makes this investing game easy doesn't it!

[andysh]

Death counts:
SARs: 775
Bird Flu: 379
Swine Flu: 18,000 since 09
Ebola: 4,000 since Dec 13.

Might be a bit more serious than initially thought. Sources from wikipedia.

[couta1]

Nice little blog on Huffington Post titled- Is Ebola scaring you? 5 Reasons you don't have to worry. Might not be anymore serious than initially thought, a lot harder to catch than some may think:cool:

[nzspeak]

The plague at its worst was a Pneumonic disease, like the Spanish flu, it was catchable by breath. Ebola is not Pneumonic. Dont let ebola influence your investment decisions- it's a terrible thing for african villages but not your shares. Leave ebola to the doomsday prepers.

[Beagle]

The plague at its worst was a Pneumonic disease, like the Spanish flu, it was catchable by breath. Ebola is not Pneumonic. Dont let ebola influence your investment decisions- it's a terrible thing for african villages but not your shares. Leave ebola to the doomsday prepers.

CDC projects 1.4 million cases by January 2015...yeah you're right, nothing to worry about here and no implications at all for people's inclination to use airlines...YEAH RIGHT is it to early for another Tui beer ?
http://abcnews.go.com/Health/ebola-infect-14-million-people-end-january-cdc/story?id=25698878
This is on a completely different risk scale to SAR's, bird flu and swine flu.

Maintain a well diversified portfolio including a pretty decent allocation to cash, (given the markets look highly volatile overall), and keep a close watch on this makes far more sense than sticking your head in the sand like an ostrich in my opinion :)

I see in today's Herald China Southern Airlines are offering incredibly cheap return fares to Europe next year from only $1,449 on their new dreamliner, (I have never seen fares that low or anywhere near that to Europe) so I wondered what you get for that, not a lot as it seems but damm that is incredibly cheap !! At least you get the advantages of the new Dreamliner that I've outlined at length before but I see China southern use the same really tight pitch as AIR is using with its new 787-9 and the same very narrow 17.2 inch seats, so I noted with interest some feedback on what its really like to fly long haul in these tight pitch narrow seats.
http://www.seatplans.com/airlines/china-southern-airlines/b787-3/b787-economy-1#sreviews (Click on read more in the 7.9 review for a really detailed review) This seems typical of the sort of reviews China southern is getting so its obviously true you get what you pay for which in terms of price and service is not a lot but you do get the advantages of the Dreamliner, better cabin pressure and humidity leading to possibly less jet lag ?.
More of a concern is how these same size seats will affect the flight experience for people enjoying ? travelling on Air's Dreamliner.

[DarkHorse]

I have to agree with NZSpeak. Seems to me like ABC news / CDC are nobly trying to spur the US and western world into action to help the fight in Africa - good on them - but even their article notes "it won't spread here" (the US); 1.4 million cases is a tragedy for west Africa but far fewer than the number of AIDs cases worldwide...
Still a perceived threat can disrupt tourism, as SARS did for a while.

[tzbang]

Back on topic. I'm surprised given AIR's good current fundamentals and projection for 2015 that the SP has been sliding like it is. Is this really just ebola scare or something I'm missing from the company valuation?

[couta1]

Back on topic. I'm surprised given AIR's good current fundamentals and projection for 2015 that the SP has been sliding like it is. Is this really just ebola scare or something I'm missing from the company valuation?
The whole market is sliding tzbang or haven't you noticed?

[skid]

The whole market is sliding tzbang or haven't you noticed?

Ive always found Mondays to be a bit sureal when there has been alot of action over in the US.
We have a whole day of market in limbo as no one really knows how things are going to go until tonight.
I do think that with the weekend in between,it sometimes can water down the news a bit as people get used to it (but thats just my opinion)
I guess its important to remember that theres a way to go just to get back to where things were just months ago as the US market has gone up so much.(cant go on forever)
For every situation there are winners and losers--I suppose those who are optimistic and genuinely interested in AIR may have the opportunity to get in cheaper after the dust settles (if things carry on in this direction) (I dont however think we are in panic territory yet though)

[Beagle]

The whole market is sliding tzbang or haven't you noticed?

Is it really so hard to catch ? Latest Ebola news. Bit of a worry when a very modern U.S. Hospital with all the correct protective equipment gear, procedures and isolation ward can't contain this thing.
http://news.yahoo.com/texas-health-care-worker-tests-positive-ebola-095758341.html

Markets hate uncertainty. I fear that until there's some genuine headway made against this threat the market is probably right to be pricing in some risk of a material affect on people's propensity toward reconsidering non-essential air travel. Air travel that's already booked cannot be cancelled because of people's fear so AIR is okay with solid forward bookings at this stage but what about later on if headway can't be made against Ebola ??? Unfortunately I think the risk in the short / mdeium term is to the downside, affix seat belts, turbulence ahead. Hopefully one of the many early stage vaccines that are being trialled will be effective. Who really knows how this thing will play out... It may interest some of you to know that some of the American airline stocks are down circa 15% in the last month, e.g. Delta down from circa $39.50 to just under $33. On a relative basis AIR has probably held up quite well in the circumstances especially considering the recent 15.5 cents in divvy's.

[skid]

Its not transmitted by airborne like the flu (yet) but it appears to be much easier to catch than some other ''body fluid'' viruses like AIDS.
You can get it from sweat left on a doorknob for instance.
Its getting harder to believe that this will not affect international airlines as this progresses (much to my disappointment as an avid traveler)

Sounds a bit alarmist ,but some are saying its prudent to get disposable overalls,mask ,and gloves just in case--the proper masks cost a bit but the other things are cheap and may not be readily available should it get worse.

Boy ,I do feel for those having to get treated by people in spacesuits as they get sicker .

[Beagle]

Speaking of balls of steel, If I can borrow that expression from the XRO thread, I really admire the medical staff who have flown over to West Africa to help. They go knowing that despite taking full precautions hundreds of their fellow health care workers that have already paid the ultimate price for their kindness. The world would be at vastly greater danger without these brave souls and their extremely brave efforts.

[tzbang]

The whole market is sliding tzbang or haven't you noticed?

Oh ok cool. I was worried there for a second there was something wrong with AIR. But it's just the entire market crashing, sweet.

[Okebw]

Oh ok cool. I was worried there for a second there was something wrong with AIR. But it's just the entire market crashing, sweet.

I don't know how I feel about that statement :p

Sold out of AIR this morning against my better judgment though hopefully if it keeps dropping I can pick them back up

[bunter]

AIR's been going up steadily - not sure if it's ready to land yet.

The latest price action is the little down-blip at the end.
6343

[Beagle]

Ebola Concern
Risk as previously mentioned appears all to the downside. My read on the Ebola situation after spending countless hours watching CNBC overnight is the American health care system is NOT well equipped to handle an outbreak, (Trust us we are well prepared) YEAH RIGHT, risks abound in other parts of the globe and all the indications are there is a very real and present danger of a world-wide pandemic. Cleaners in particular are starting to ask, we aren't paid to take this sort of risk, (cleaners in hospitals and aircraft). Its easy to see a labour revolt causing major problems down the track for airlines and hospitals among other institutions.

American airlines fell in steep decline steadily overnight with Delta and united for example down a whopping 6 and 7 % respectively.

It is not my intention to be alarmist but after switching my radar to long range and turning up the sensitivity to maximum this Ebola thing looks like a very real concern. The American airlines, (despite enjoying oil prices at 2 year lows), are now down over 20% in just one month so anyone who thinks this is trivial might like to reconsider. I feel it is the right thing to do to post my concerns seeing I have been positive on this stock in the past.

Economic conerns
Further we have major concerns regarding the N.Z. economy with a $5-7 billion hole opening up in the Dairy industry with little prospect for a near term recovery. In addition we have the weakening situation in Europe, China, America
I like AIR and its management and they are in a very strong position to withstand a bad storm on this front but I have decided to ground myself temporarily and watch the turbulence from the sidelines.

The exchange rate is a very minor concern compared to the above two factors.
Obviously somewhat mitigating above concerns is the cheaper oil price, how long that lasts is anyone's guess.

When the storm is over i'll be very keen to be back in.

[couta1]

You must have taken a good hit on your sale Roger.Lol

[Beagle]

Taken it on the chin mate. Airlines are cyclical, something no investor should ever forget.

[dingoNZ]

Taken it on the chin mate. Airlines are cyclical, something no investor should ever forget.


Dow airliners indices 6% down, put to the Ebola situation, which one would imagine it becomes clearer and out of the media spot light AIR and other airliner pick up some pace and head for the green. Its not just AIR that has been hit recently, all alrliner have been.

Also please note that Saudi oil suppliers have stated overnight they are happy to continue supplying oil between $80-90 USD/barrel, which is a gold mine for any air liner. I expect a solid tick up once Ebola is removed from the headlines.


ED: Just saw you already posted the 7% Dow airliners, ha I'm too slow ;D
When is the next oil hedging update due out guys?

[Beagle]

Agreed that oil is helping and could do for some time http://www.cnbc.com/id/102082753?trknav=homestack:topnews:18

Interesting take on Sauid's new position which appears to be to accept lower prices, trying to squeeze out shale and fracking production ???

Spain's actions to contain Ebola also cause concern

http://www.cnbc.com/id/102080089

[dingoNZ]

http://www.cnbc.com/id/102082753?trknav=homestack:topnews:18

Interesting take on Sauid's new position which appears to be to accept lower prices, trying to squeeze out shale and fracking production ???


It will most defiantly be hurting US fracking operations, look at the oil sector for the past 90 days over there its been softening.

OPEC have a conference with all the oil leaders next month I believer, will be interesting to see if they reduce supply to try reinstate back towards $100/barrel - but with the Saudi's doing this, who knows?

[Beagle]

Certainly will be. I heard it takes about $10 a barrel to get Canadian shale transported to market which is something that could be crucial going forward, more pipelines needed.
Some Opec members are very unhappy, one in particular
http://www.cnbc.com/id/102078794

Saudi's seem fairly aggressive
http://www.cnbc.com/id/102078717

The low oil price will he hurting Russia that's for sure which apparently needs $100 oil to balance its budget.

[modandm]

Nothing to do with the cycle, just plain fear in markets at present. There is a lot of hype around ebola in the US press, but really its just that the market (in the US), got a little expensive after a great run, and we are seeing investors bailing out. As usual its a disorderly exit, with hedge funds etc amplifying volumes, and lemmings/sheep capitulating. The NZ market is not a bad place to hide given our low volumes. AIR is trading down as you would expect, but I wouldn't panic. Outside the currency move I haven't seen anything fundamental to change the outlook, its pure risk-off and short term sentiment driving the move lower.

The US economy will grow slowly, while QE is becoming increasingly likely in Europe as data deteriorates. The UK is healthy. EM is a mixed bag, slower than historic growth, but still decent. Australia is slow but ok, NZ is still humming.
What people forget when the look at dairy prices alone is volume. Last year prices were high because of a drought and low volumes. This year prices are low and volumes are high, no it doens't fully offset, but its not as bad as some suggest. Meanwhile immigration, christchurch, property, and the service economy (most of the economy), is doing fine. Lower oil prices will support the global consumer and the recovery.

[dingoNZ]

Nothing to do with the cycle, just plain fear in markets at present. There is a lot of hype around ebola in the US press, but really its just that the market (in the US), got a little expensive after a great run, and we are seeing investors bailing out. As usual its a disorderly exit, with hedge funds etc amplifying volumes, and lemmings/sheep capitulating. The NZ market is not a bad place to hide given our low volumes. AIR is trading down as you would expect, but I wouldn't panic. Outside the currency move I haven't seen anything fundamental to change the outlook, its pure risk-off and short term sentiment driving the move lower.

The US economy will grow slowly, while QE is becoming increasingly likely in Europe as data deteriorates. The UK is healthy. EM is a mixed bag, slower than historic growth, but still decent. Australia is slow but ok, NZ is still humming.
What people forget when the look at dairy prices alone is volume. Last year prices were high because of a drought and low volumes. This year prices are low and volumes are high, no it doens't fully offset, but its not as bad as some suggest. Meanwhile immigration, christchurch, property, and the service economy (most of the economy), is doing fine. Lower oil prices will support the global consumer and the recovery.


I disagree - as does the Airliners index on the Dow. Fundamentally AIR is currently well undervalued (in my an many others view). With the Ebola situation and oil prices trending down I am happy to continue buying in tranches over the next couple of months.

EU is a growing concern of mine and overnight a FED official (unnamed) announced they are holding rates out further which leaves a lot up in the air (excuse the pun).

Disc - Holding and accumulating in trances

[modandm]

Re the oil price and hedging.

Hedging in place puts a floor on brent to AIR at c.$98bbl, which means about $122.5 into wing cost. This is down from c.$128-130 last 6 months. This hedging rolls off progressively over 12 months.

There is an interesting conspiracy theory around that the US and Saudi and conspiring to drive oil price lower, to pressure Russia, but also as a token of thanks for US intervention in Syria. Not sure how much truth to it, but certainly pressure building on OPEC to cut supply.

[couta1]

Nothing to do with the cycle, just plain fear in markets at present. There is a lot of hype around ebola in the US press, but really its just that the market (in the US), got a little expensive after a great run, and we are seeing investors bailing out. As usual its a disorderly exit, with hedge funds etc amplifying volumes, and lemmings/sheep capitulating. The NZ market is not a bad place to hide given our low volumes. AIR is trading down as you would expect, but I wouldn't panic. Outside the currency move I haven't seen anything fundamental to change the outlook, its pure risk-off and short term sentiment driving the move lower.

The US economy will grow slowly, while QE is becoming increasingly likely in Europe as data deteriorates. The UK is healthy. EM is a mixed bag, slower than historic growth, but still decent. Australia is slow but ok, NZ is still humming.
What people forget when the look at dairy prices alone is volume. La:cool:st year prices were high because of a drought and low volumes. This year prices are low and volumes are high, no it doens't fully offset, but its not as bad as some suggest. Meanwhile immigration, christchurch, property, and the service economy (most of the economy), is doing fine. Lower oil prices will support the global consumer and the recovery.
Nice balanced opinion modandm, the Ebola effect is overstated in my opinion and wont be flavor of the month for that long, sure it will keep ticking away behind the scenes but in general people should be more concerned about catching measels which are highly contagious:cool:

[Beagle]

American airlines have indeed had a good year until recently and that's another reason on a flat market overall prudent investors are taking some profits in a risk off environment.

Delta was on a 2015 PE based on consensus analysts forecasts of only 8.6 when it was $33, now under $31. Delta is a fast growing airline and has a strong consensus analysts recommendation but that hasn't stopped it getting a 20% haircut in the last month.

Technically the S&P 500 has broken the 200 day moving average, the volatility index VIX is spiking hard, AIR has broken its 200 day MA...you join the dots or fasten your seatbelt tight and good luck :)

I'll leave you guys in peace for the rest of the day as I'd better do some real work done but final thought, beware the usual late afternoon overseas sellers this afternoon.

[Okebw]

Roger, you wouldn't know a thing about delta or about investing. If watching CNBC got you scared of ebola and selling out of AIR on that your even sillier than I thought.





Market sentiment often has a lot larger impact on prices than fundamentals. Being worried about ebola and being worried about people worrying about ebola are completely different things. Your criticisms of Roger seem unduly harsh given they're ex ante. I'm sure he'll concede he was wrong if and when prices stabilise/he loses out but at present he's doing what he thinks is right and for that matter exactly what I have done.

[Beagle]

I won't lower myself to get into a personal slanging match with a certain person but for the record I really like this company but the headwinds are now something I consider are simply too strong.
This was a very, very carefully considered change in position that I mulled over at great length. I began exiting my position earlier this month and my vwap exit price was $1.944, considerably better than the current prevailing price. Sometimes watching the match from the side-lines and taking a rest to reconsider the optimum point of re-entry is a very good risk mitigation strategy.
Obviously I can buy back in whenever I want and am already ahead of the game so to speak.

[Beagle]

Nice balanced opinion modandm, the Ebola effect is overstated in my opinion and wont be flavor of the month for that long, sure it will keep ticking away behind the scenes but in general people should be more concerned about catching measels which are highly contagious:cool:
Not sure if you're having a laugh or being serious mate. Ahem , you do realise that measles has a mortality rate of 0.3% in the western world assuming good access to healthcare and certain strains of Ebola have a whopping 70% mortality rate, just a small difference in mortality rate I am sure you would agree.
http://en.wikipedia.org/wiki/Measles
I think sometimes working in the field with very elderly folk you forget that most healthy people have an excellent chance of surviving a serious illness like measles whereas on the other hand Ebola...oh dear


Good move Roger. I got out at $1.96. My reasons were listed earlier and, IMHO, remain highly relevant.
Thanks mate.

[dingoNZ]

In US Equity Markets stocks rallied,rebounding from the biggest three-day drop since 2011, as industrial companies,airlines and small-cap shares helped lead gains and banks rose as CitigroupInc.'s earnings topped analysts' estimates. Citigroup gained 3.2 percentas bond-trading revenue climbed and lending improved. Crown CastleInternational Corp. rose 3.3 percent after being urged by an activist investorto improved its balance sheet and return more money to shareholders beforepursuing more acquisitions. The U.S. Airlines Index rebounded 7 percentfollowing its worst six-day slide since 2009. The Standard & Poor's500 Index added 1.1 percent to 1,894.92 at 1:00 p.m. in NewYork. Financial stocks in the S&P 500 gained 1.2 percent as a group,led by Crown Castle. JPMorgan Chase & Co. rose 0.4 percent to $58.41,reversing an earlier 3.6 percent tumble.

Might be a good day for those of you nervous folk to reduce your holdings if its what you're thinking. This paired with the WTI and Brent Crude being hammered overnight should be a strong day for AIR. Just FYI :)

[BFG]

Spoke to soon. Very worrying seeing intraday rallies being sold into with large reversals.

https://nz.finance.yahoo.com/q?p=finance.yahoo.com&s=%5EDJI

[dingoNZ]

Spoke to soon. Very worrying seeing intraday rallies being sold into with large reversals.

https://nz.finance.yahoo.com/q?p=finance.yahoo.com&s=%5EDJI


US Airliners Index, not the DOW itself.

https://nz.finance.yahoo.com/q?p=finance.yahoo.com&s=%5EDJUSAR

[Beagle]

Amazing volatility. Look at the range of that index in the last 12 months 54-173 with it being close to its high at 170.
Air won't get any meaningful benefit from the significant slide in oil prices until 2015 Q1 and more especially Q2. They'll be seriously out of the money with their oil hedging for this quarter.
I agree with Dingo, today's bounce if any may be a good time to review what percentage of a well diversified portfolio you want in AIR. Dead cat bounce, more volatility around the corner when news of the next lot of Ebola infections break out ?

[dingoNZ]

Amazing volatility. Look at the range of that index in the last 12 months 54-173 with it being close to its high at 170.
Air won't get any meaningful benefit from the significant slide in oil prices until 2015 Q1 and more especially Q2. They'll be seriously out of the money with their oil hedging for this quarter.
I agree with Dingo, today's bounce if any may be a good time to review what percentage of a well diversified portfolio you want in AIR. Dead cat bounce, more volatility around the corner when news of the next lot of Ebola infections break out ?

A NZ Herald article today stated Ebola is growing at a rate of doubling every 3 weeks, doesn't take a genius to make some basic assumptions from that, even if their numbers are out by say 25%, that is still a very scary realization (based off their number I calculate between 50-60 weeks and the entire population could be infected (I don't sincerely believe that will happen). I will be derisking today at a level I deem high enough and will buy back in at a later date.

As for their hedging, correct they will be hurting currently being very close to their FX floor and well above the current oil cost. But Medium term its looking like a positive for them.

[Beagle]

I think one of the most frightening things about Ebola aside from the mortality rate which is off the charts scary, is the long incubation period of 21 days. Whatever numbers the WHO come out with, given the extremely poor communications standards in western Africa and the long incubation period, the actual numbers currently infected will be many times more than what's actually been reported.
On the other hand, oil prices are coming down to lows not seen for two years at a good time for airlines. Clearly AIR will start reaping benefit's in 2015 which will provide some mitigation against the loss of those leisure travellers making conservative decisions about their holiday destination next year.

[tzbang]

Perhaps New Zealand will be seen as a desirable location for a holiday for discerning travellers.. clean, remote and safe.

[vin]

Decent jump this morning, up 2.5%

[skid]

Nice balanced opinion modandm, the Ebola effect is overstated in my opinion and wont be flavor of the month for that long, sure it will keep ticking away behind the scenes but in general people should be more concerned about catching measels which are highly contagious:cool:

Id be interested in hearing what you are basing that opinion on--If it is a comparison to swine or Bird flu then I think you need to do some serious research--People are right to be concerned and take this seriously
http://www.theguardian.com/world/2014/oct/14/who-new-ebola-cases-world-health-organisation

[Wolf]

Its funny how people always post when they have exited a few weeks afterwards. At a favorable exit price relative to the day of course.
Not saying individuals didn't exit at those prices but it would hold a little more validation if you announced that closer to the day. Posting your favorable exit price now does nothing and adds nothing to this thread.

[Beagle]

Some of us like to keep our cards close to our vest as we execute over a period of time to average the price across a number of trading days. To be honest I couldn't care less whether people believe me regarding vwap exit price and only posted that because one particular argumentative individual inferred it was some sort of panic decision. Besides that, in my case it was a few days afterwards, not weeks.
As always it pays to DYOR. Hoop and New Guy appear to have exited cleanly in one day and posted quickly afterwards which is probably what I would have done if it was all done in one day.

[dingoNZ]

I will happily say I sold off today, got some out at $1.815, still at a profit from what I paid. I'll probably buy these back progressively ovr the next month or so as I see opportunities. I'm 50% reduced as of today :)

[Beagle]

I will happily say I sold off today, got some out at $1.815, still at a profit from what I paid. I'll probably buy these back progressively ovr the next month or so as I see opportunities. I'm 50% reduced as of today :)

A wise man hedges his bets :) Doesn't hurt to watch from the side-lines for a while, not missing any immediate near term divvy's and besides I sleep a bit better at night.
As I anticipated, a pretty lukewarm market reaction today for AIR when viewed in the light of the really dramatic reduction in oil prices and the substantial recovery in U.S. airline stocks.
The market is telling people the risk is too the downside, technically AIR looks broken, just my opinion of course and people should as always DYOR. Load factors in autumn 2015 will be very interesting and watched intensely for signs of a drop off in people's propensity to travel with the Ebola risk. Its one thing for people to take up on bookings already pre-paid over the high summer season but another thing for people to be making new bookings next year with questions over whether they might be taking a small risk with their health and their kids health ?

How they are going to fill the extra 5% capacity growth each year for the next few year's is anyone's guess at this stage ?????

I don't think its going to meaningfully hurt anyone to take a wait and see approach with this one.

[Beagle]

http://www.canberratimes.com.au/business/aviation/cleaning-mops-cause-700-litre-water-leak-on-qantas-a380-flight-20141015-116e4l.html

Wow, I thought it was only boats that leaked !! Landing at dramatically over the recommended maximum weight is also a bit of an eye-opener.

[freddagg]

http://www.canberratimes.com.au/business/aviation/cleaning-mops-cause-700-litre-water-leak-on-qantas-a380-flight-20141015-116e4l.html

Wow, I thought it was only boats that leaked !! Landing at dramatically over the recommended maximum weight is also a bit of an eye-opener.

They did not land over the maximum weight. They dumped fuel to avoid being overweight.

[Beagle]

They did not land over the maximum weight. They dumped fuel to avoid being overweight.

Have another read mate. Extract
The pilots decided the best course of action was to return to Los Angeles, in a process that involved them jettisoning some fuel to reduce the overall landing weight to 445 tonnes - above the maximum landing weight of 391 tonnes.
Read more: http://www.smh.com.au/business/aviation/cleaning-mops-cause-700-litre-water-leak-on-qantas-a380-flight-20141015-116e4l.html#ixzz3GFbIm6U8

I read that as they landed 54 tonnes above maximum recommended landing weight :eek2:

[modandm]

Not changing my position on AIR at all - remain maximum overweight :D. Australia and NZ are good economies to be in right now, and the US consumer should benefit from cheaper gas, supporting NZs's most profitable international routes, asia is doing okay, and thankfully NZ has minimal exposure to europe...

Regarding the oil price, have read some good theories about current weakness. Expecting this to be a short term phenomenon, and Brent to move back towards 90-100 bbl in the next 12m once Saudi get OPEC members in line. Does provide AIR with the opportunity to get some cheap fuel next year if the treasury team are making moves. Right now they are looking at expensive hedge losses, I wonder if they have covered (reversed) some positions like they did in the crisis. The next hedge update 18 November.

Re the operating stats I should have commented last month, they looked pretty weak at first glance, but if you look at the year over year comps for the month - comparisons were very tough so I would take comfort from that. Comparisons get dramatically easier so I would expect a pretty robust looking RSK growth number in the next release. The NZD move lower will certainly help the yield figures going forward, but I am slightly nervous my forecast assumption of 6% passenger revenue growth (based on 4% RSK and 2% yield) may be too optimistic. I really do think they will deliver this though! Next months stats will hopefully give me re-assurance. This is one area I am ahead of consensus forecasts. I think Marcus Curley is using 4%, but he has consistently been too conservative.

I would love to share my forecasts and where I differ from consensus with people, but before I do I want to get more clarity on aircraft ownership costs. It's a pretty big moving part on earnings, and I am thinking 2 777's on operating leases must be c.60m in additional lease costs per year, vs say 10m depreciation on 2 aged 747's that have now departed. The 787's I think have been purchased for cash and at good rates, but guessing what depreciation costs are annually on these could easily result in estimation errors in the 10's of millions. Broadly its safe to say I see eps at between 26 and 30 cents per share based on 6% pax revenue growth - so I believe consensus is too low...just like last year and the year before :)

Lastly I should apologies to roger for personal attacks - sorry mate. I'm going to stay in a positive mood on this thread from now on regardless.

[skid]

So now a 2nd nurse is confirmed with Ebola in the states(she just got off a commercial airliner hours before feeling sick)WHO now thinks incubation could be double the 21days first predicted

I think Its time to start the inevitable thread--(wont clutter up this thread with more info)

[couta1]

So now a 2nd nurse is confirmed with Ebola in the states(she just got off a commercial airliner hours before feeling sick)WHO now thinks incubation could be double the 21days first predicted

I think Its time to start the inevitable thread--(wont clutter up this thread with more info)
Good idea Skid and keep perspective after all there are around 2 million deaths per year worldwide from aids:cool:

[freddagg]

Roger you are correct, my apologies. I checked out the ATSB report and they said this:

"The flight crew jettisoned some fuel to reduce the overall landing weight to 445 tonnes, which was above the maximum landing weight of 391 tonnes. The flight crew then
prepared to conduct an overweight landing."

So the journalist was sensationalizing somewhat. It was not above the maximum landing weight as they did an "overweight landing."

[mp52]

I think Its time to start the inevitable thread--(wont clutter up this thread with more info)

Wise idea I think. One thing you can depend on the media for (especially in the US) is to whip a feeding frenzy of fear (and consequent self-medicating consumerism). Not to discount the seriousness of the contagion.

[biker]

Roger you are correct, my apologies. I checked out the ATSB report and they said this:

"The flight crew jettisoned some fuel to reduce the overall landing weight to 445 tonnes, which was above the maximum landing weight of 391 tonnes. The flight crew then
prepared to conduct an overweight landing."

So the journalist was sensationalizing somewhat. It was not above the maximum landing weight as they did an "overweight landing."

It WAS above the Maximum certified landing weight. 54 tonnes above it. Obviously an aircraft can land above its certified weight, but only in an emergency. Max landing weight is a certified operating maximum. Not an actual physical maximum.
The aircraft would have required an overweight landing check on arrival. No big deal.

[Beagle]

Yeah, good idea to keep the Ebola thing to a separate thread. I am sensitive to the fact that some people who purchased recently are going through some pain at the moment with the stock so I would just like to re-iterate my opinion that management appear to have first class skills, Chris Luxon appears to be an extremely intelligent and highly articulate leader and they have a modern fuel efficient fleet and no direct flights to Africa so hopefully with excellent management and some geographical isolation they can manage their way through this thing without too much financial damage or illness to staff.

Thanks Mod.

[skid]

The Ebola thread will be for updates etc,but I do think that unlike some shares it is something to keep in mind--I dont think anyone is cancelling their vacation yet and it may never come to deciding to postpone the holiday but it cant hurt to keep an eye on both Ebola and the US sharemarket.
The 2 biggest fears around Dow and Ebola and AIR is actually UP---So far so good guys but keep the ole defense primed just in case:)

[winner69]

Virgin buy the bit of Tiger they didn't already own for $1 (amazing what a buck can buy eh)

Virgin Q1 loss $60m

http://www.watoday.com.au/business/aviation/virgin-takes-full-control-of-tigerair-20141017-117g4x.html

[Beagle]

Free to a good home. One emaciated tiger, seriously wounded, de-sexed, missing all its teeth and claws.

[Marilyn Munroe]

Strewth cobbers Cullen Airlines have dived deeper into the great Australian airline cash burn with their subsidiary Virgin(Underarm Bowlers Division) buying the shares in Tiger Australia it doesnt already own.

The price paid for this transaction of one Aussie dollar tells you all you need to know.

http://www.asx.com.au/asxpdf/20141017/pdf/42syywv5jzqt00.pdf


Boop boop de do
Marilyn

Edit: I see winner69 and Roger have already posted on this news.

[modandm]

Nick Mar (Macquarie) has just put out the best analysis on Air NZ I have ever seen - very fine work, really detailed data (literally route by route) he has got from OAG (subscription database), and more just geeky detailed work. Looking at it in detail I recognize many of his assumptions as similar to my own, although he is conservative in places. I think he hasn't picked up the handling costs of fuel either, but his assumptions work okay with my thinking.
If any of you get the chance do read it.

Anyway he as a $2.45 price target based on 3.5x forward EV/EBITDAR, the historical average (equates about 11x PE - applying virgins losses to earnings).
The issue I would have is that he hasn't added anything for the value of the virgin stake. Last I checked Virgin was worth c.38cps. Even at half that, your looking @$2.64.
The stock has also traded up to 4x EV/EBITDAR regularly which would give $2.85, adding half the virgin stake gives $3.00+

I'm happy to say that I think on medium term assumptions of 80c NZD, and Brent $98bbl, the company is worth somewhere between $2.60 and $2.80. If you paid this sort of price, you could expect a return of around 5-6% pa in dividends and about 8-12% growth in EBITDAR, or EPS (roughly on average over the years FY16 through 2020), offering prospective returns of 13-18%, which I think is what most would require to own the share.

For investors at the current market price, should the stock move towards my valuation range, well thats tasty upside of between 40% and 55%, with a dividend of 7% on top. How many stocks you own with that upside over 1 year?

I'm pretty convinced this is really good analysis, but of course there are uncontrollable factors that may see this not play out.

Now you see why I have so many shares right...

[modandm]

my comments on buying rest of tiger. Its good news, cleaner, and gives VAH all the upside if they can get it working (which they will eventually).

With a perfectly balanced duopoly its simply a matter of time before QAN and VAH start behaving rationally on the domestic market, and start raking in the cash.

[skid]

Nick Mar (Macquarie) has just put out the best analysis on Air NZ I have ever seen - very fine work, really detailed data (literally route by route) he has got from OAG (subscription database), and more just geeky detailed work. Looking at it in detail I recognize many of his assumptions as similar to my own, although he is conservative in places. I think he hasn't picked up the handling costs of fuel either, but his assumptions work okay with my thinking.
If any of you get the chance do read it.

Anyway he as a $2.45 price target based on 3.5x forward EV/EBITDAR, the historical average (equates about 11x PE - applying virgins losses to earnings).
The issue I would have is that he hasn't added anything for the value of the virgin stake. Last I checked Virgin was worth c.38cps. Even at half that, your looking @$2.64.
The stock has also traded up to 4x EV/EBITDAR regularly which would give $2.85, adding half the virgin stake gives $3.00+

I'm happy to say that I think on medium term assumptions of 80c NZD, and Brent $98bbl, the company is worth somewhere between $2.60 and $2.80. If you paid this sort of price, you could expect a return of around 5-6% pa in dividends and about 8-12% growth in EBITDAR, or EPS (roughly on average over the years FY16 through 2020), offering prospective returns of 13-18%, which I think is what most would require to own the share.

For investors at the current market price, should the stock move towards my valuation range, well thats tasty upside of between 40% and 55%, with a dividend of 7% on top. How many stocks you own with that upside over 1 year?

I'm pretty convinced this is really good analysis, but of course there are uncontrollable factors that may see this not play out.

Now you see why I have so many shares right...

If you think real hard --Can you guess what one of those uncontrollable factors might be--Its sitting right next to you and be careful not to trip over its trunk.

[Beagle]

If you think real hard --Can you guess what one of those uncontrollable factors might be--Its sitting right next to you and be careful not to trip over its trunk.

Well said. Delta currently trades, based on average consensus analyst forecasts on a 2015 PE of 8.5 so AIR really not that cheap taking into account all current known risks.
If, and I think that's now a HUGE "IF" Air can achieve average consensus 2015 analysts forecasts of 23 cps for 2015, (all of which were forecasted before the Elephant got let loose and many of which will doubtless get revised down), that would put AIR on a price of $1.95 in late 2015 if the forecast is achieved. On the other hand the potential downside is quite frankly so scary it appears very few are even contemplating it.

I reckon you can't have it both ways. One minute we're near the top of the economic cycle and therefore by someone's analysis we should arguably therefore be looking at a low PE, the next minute its worth a PE of 11 despite me providing evidence their average PE over the last 10 years is 10. Which is it Mod ? Your new PE of 11 looks "awfully convenient"

If VAH and the wounded pussycat can't make a profit before this unspeakably bad genie was let out of the bottle, what chance afterwards ?

The only thing Mod and I appear to agree on at this stage is that at least if they take full possession of the wounded tiger they can get on with the rationalisation process at full speed without having to worry about minority shareholder interests. That said they have their work cut out as the leisure market would be the first to get absolutely hammered if Ebola spreads considerably further. Maybe they should just skim any cream there is out of it, (best routes and planes) and just put the poor animal out of its misery before it sucks the life out of its mother which itself is really struggling ?

I really don't think they'll achieve 23 cents EPS this year. Most of those forecasts are well before the $6-7 billion dollar hole opened up in the N.Z. economy with the Dairy collapse and none of them have factored in even the slightest revision for the current crisis. I expect significant downward revisions as the situation / year plays out and all thing considered if AIR could match last years normalised earnings they'd be doing exceptionally well. Most of these analyst forecasts are factoring in 5% top line growth which would assume AIR can achieve the same load factors at the same yields as last year as they grow their capacity by 5%. I see substantial risk around these assumptions. Quite apart from the completely obvious major concerns the economy seems to be going flat and I can't imagine the Reserve bank will want to lose face and reduce interest rates any time soon so will business confidence tailing off and other airlines around the world offering dirt cheap fares to entice people to take the risk of flying, I see pressure on both yields and pax loadings.

I must be losing the plot, what would a silly old risk averse accountant know... Maybe I'm just trained to see problems 1000 miles down the road before they happen or maybe I just need to triple my current dose of happy pills and get with the programme :)

[winner69]

At least she was still flyin

http://www.smh.com.au/world/picture-of-woman-in-homemade-hazmat-suit-goes-viral-20141018-1182td.html

[modandm]

Well said. Delta currently trades, based on average consensus analyst forecasts on a 2015 PE of 8.5 so AIR really not that cheap taking into account all current known risks.

To me AIR is a better company with significant competitive advantages a newer fleet and greater growth potential. On a forward PE of AIR alone (excluding VAH), is on around 7x so markedly cheaper. One shouldn't get to caught up on PE however, its only one ratio to compare, and there are good reasons for similar companies to have different PE's, such as growth, quality, leverage etc.



I reckon you can't have it both ways. One minute we're near the top of the economic cycle and therefore by someone's analysis we should arguably therefore be looking at a low PE, the next minute its worth a PE of 11 despite me providing evidence their average PE over the last 10 years is 10. Which is it Mod ? Your new PE of 11 looks "awfully convenient"


If you read closely you would have seen this includes VAH losses. This is how people that look at PE in the most basic and simple way (Price/NPAT(pershare)) will see. In my earlier analysis where I say AIR should be on a PE of c.8, this is using AIR NPAT (excluding losses from VAH). I then add a value for VAH. To put VAH losses into NPAT and calculate a PE based valuation is a bad approach. What Nick does is calculates valuation based on EV/EBITDAR using a 3.5x multiple. I think this is a good approach, but the multiple is conservative (I would use 4x), and that he should add some value (maybe 50% of market value) for the VAH stake.



Analyst forecasts are factoring in 5% top line growth which would assume AIR can achieve the same load factors at the same yields as last year as they grow their capacity by 5%.


Your loose interpretation of analysts assumptions are incorrect. To provide more detail, scheduled capacity for FY15 is expected to be up 6.8% on last year not 5%. This consists of 2.2% in H1 and 11.5% in H2. The split is Domestic 4.9%, Taspac 3.4%, International 9.5%. Therefore analyst are expecting declining load factor and or yield to get to consensus.



I see substantial risk around these assumptions. I see pressure on both yields and pax loadings.


As above analysts share your view to some extent. If your view is that they are too positive then you entitled to that view, and its not an unreasonable one. In my view they are being too conservative, and I have taken a slightly more fair view. In the past my fair view has been more accurate but that may not continue.

Management have a track record of disciplined capacity management, and I don't believe they are growing capacity ahead of demand. Recent NZD weakness allows yield gains to come through where previously (last 12m) these were offset by strong NZD. This is rolling off in the case of the yen and AUD where moves have been sharp. I note the threat of ebola, but maintain my 6% pax revenue growth assumption, which factors in 4% RSK growth (vs 6.8 capacity) and 2% yield improvement. I think this is fair, and neither conservative nor aggressive. I will be using operating statistics to monitor progress against these assumptions and modify them as necessary. Should ebola spread (highly unlikely in my view) these are the assumptions that would need to be revised.

further on valuation
On EV/EBITDA (not EBITDAR which would be better but harder to work out) AIR is one of the cheapest airlines globally, on 2.7x. SIA is on 3.7x, Cathay 7.3x, Delta 6.5x, Easyjet and Ryanair 7-7.5x. It is my belief that AIR should be at least near average of 5.7x, given its lack of competition (positive), offset by lack of scale (negative). Historically AIR has always been cheap and thats why Nick's analysis uses 3.5x - the historic average. I would argue, given its strong outlook, cashflow, and improved liquidity post sell-down a 4x multiple is appropriate even being conservative. Therefore I continue to stand by my earlier valuation arguments and view that the stock is compelling.

Once again I find myself taking the medium term view, valuing the company based on sensible and fair analysis and assumptions, while other pay more attention to what the stock price is doing, and sensationalist news headlines. In this regard I feel very comforted that I am taking the right course. Indeed it is when excitement builds on this thread as the stock price rises that true enterprising investors should be most careful.

Best regards,
-mod

[Beagle]

I haven't got the time to get into a point by point debate but I appreciate your input. I find it very difficult to believe AIR can grow its yields or pax in the current environment and indeed monthly operating stat's for the 2015 financial year to date validate my point of view.
If it wasn't for the threat of Ebola spreading I'd be there with you. This is the main substantive area where we disagree. We can debate semantics of how VAH's losses should be accounted for later as that's not the major issue here. The risk is real and many American airlines are down ~ 20% since it became obvious the CDC isn't really up with the play as many thought they should be.

Ignoring the absolute peak of $2.29, as something of an aberration if we take say $2.20 as the recent high and deduct the same 20% we are back to $1.76 as a fair price BUT AIR has paid a total of 15.5 cents in final and special divvy's very recently, (neither of which were provided for in the financial statements to 30 June 2014) as noted in page 37.

Perhaps I should add to the debate by noting in those financials total equity was 1.872 billion / 1.114 billion shares = NTA of $1.68 per share but if the divvy's had been provided for, as they've now been paid asset backing currently stands at $1.52.5 plus say 3-4 cents in earnings over the slower winter months since 30 June = ~ $1.56.

In my view AIR's SP has held up remarkably well in the face of the effects of the collapse in dairy prices affecting N.Z. business and consumer confidence, the Ebola threat and the recent payment of substantial dividends but its very hard to see the SP making meaningful progress back north until the elephant is known to be well contained. Until this happens I see considerable risk to the downside.
Lets see how we go in the coming months but I feel very comfortable with my vwap exit price (ex divvy's) of $1.94.4 and the risk to me being out of the money in any meaningful way in the short term appears negligible.

[couta1]

The Medias going to milk this Ebola thing to the max looking for every little hint of a new case anywhere in order to keep the sensational going its just what they do but hopefully savvy investors in Air NZ can see past this and sit tight.

[Schrodinger]

Fuel tipped to fall further things looking good for AIR.

[mp52]

After much deliberation over down-side risk of ebola AIR appears to be moving back to post-div levels but oddly not a peep in the thread. The move appears to coincide with the declaration of Nigeria being ebola free.

Is there a Chinese proverb - "in crisis there is opportunity"? Perhaps there should be though will need traders to confirm it.

[Beagle]

People have short memories and think the Ebola crisis is over just because there's presently something of a break in mainstream media coverage. Just this morning someone was escorted off a plane arriving in America after arriving with a high fever. I am sure the other passengers are "absolutely thrilled" they were sharing that recycled air. Interesting that this made N.Z. news but seemed to be ignored on CNBC this morning. Talk is the new guy in charge of the CDC is nothing but a PR cover-up expert. Crisis over ? I don't think so.
Oil is cheap so some might argue that'll make up the difference from some lost bookings.

[Robomo]

I am sure the other passengers are "absolutely thrilled" they were sharing that recycled air.
Oil is cheap so some might argue that'll make up the difference from some lost bookings.

Ebola is not airborne spread, unlike the flu. Has to be direct contact with body fluids. Wash your hands, don't touch your fellow passengers and don't touch your face after contact with any possible Ebola sufferer.

Agree with low oil prices having some positive impact but would probably be minimal given that AirNZ hedges most of their fuel.

[Beagle]

Ebola is not airborne spread, unlike the flu. Has to be direct contact with body fluids. Wash your hands, don't touch your fellow passengers and don't touch your face after contact with any possible Ebola sufferer.

Agree with low oil prices having some positive impact but would probably be minimal given that AirNZ hedges most of their fuel.

Yep, that's the official PR spin they're putting on it. I am sure when that Ebola infected person sneezes on an aircraft and spreads thousands of micro droplets through the air everyone will be fine...come on, do people really believe that B.S. ?

[Hoop]

After much deliberation over down-side risk of ebola AIR appears to be moving back to post-div levels but oddly not a peep in the thread. The move appears to coincide with the declaration of Nigeria being ebola free.

Is there a Chinese proverb - "in crisis there is opportunity"? Perhaps there should be though will need traders to confirm it.

MP.... not a peep from me yet..good rise back up to trigger some signals......Remember the TA indicators are set on default (medium term) and my charting is set to medium term...which I have assessed as 70+% prediction once the signals have fired...The shorter the term setting the more reward but at a higher risk..

So the $1.95 hurdle seems to be the conjunction area and then that big primary $2.00 resistance line...so together with lack of buy signals including not buying near resistance points this price area is not for me...not far away though.... if AIR can produce enough buying demand to jump over these tech hurdles it will trigger mass buy signals and I will be back in.

The chart below is my old chart I posted 2 weeks ago with updated copy and pasted patches to save me time....

http://i458.photobucket.com/albums/qq306/Hoop_1/AIR022102014.png (http://s458.photobucket.com/user/Hoop_1/media/AIR022102014.png.html)

[mikeybycrikey]

After much deliberation over down-side risk of ebola AIR appears to be moving back to post-div levels but oddly not a peep in the thread. The move appears to coincide with the declaration of Nigeria being ebola free.

Is there a Chinese proverb - "in crisis there is opportunity"? Perhaps there should be though will need traders to confirm it.

I'm not terribly concerned (yet) about the effect that ebola might have on AIR but I think that Nigeria and Senegal being ebola-free is not something to get excited about. Senegal had 1 case. Nigeria had 20.

Just for comparison, Guinea has had 1519 cases, Liberia 4249 and Sierra Leone 3410 cases. These numbers probably under-report actual cases, especially for Liberia.

[Schrodinger]

Fuel tipped to fall further things looking good for AIR.

Oil tipped to reduce to $75. This looks good for AIR.

[Hoop]

Hoop. Thanks for sharing the chart. One question. Are you using unadjusted prices? If so, I think that might be throwing your indicators out a bit, especially with that large divvy.

Yes unadjusted....and...damn it....one of the reasons I sold out late....There's two schools of thought in this unadjusted / adjusted stuff
One: the shareprice should stay unadjusted because it reflects the true value of the company..e'g If it lost it's money due to an one off expense and if paid that one off expense instead of paying shareholders that divy ..would the price still drop..eh?........so do you or don't you adjust for div or special payouts using that reasoning??.. or for that matter ...thinking real deep and adjust for extra shares created but at what level is the cutoff when the number issued seem insignificant??? .. Think of the Telecom chorus split.. was there material difference here? Yes...and some indicators were absurdly effected to the point you had to wait until the indicator time period expired for it to be valid...so do you adjust?... Surprisingly some chartists still said no!!! you should not touch market (material)corrections.. I said yes:mellow:.. However if you look at the present SPK chart..most of the free chart programs haven't adjusted for it...

Two: Yes everyone agrees here...Adjusting the price when nothing material has changed...e.g share split

I took the wrong view this time with AIR, I hesitated to see if the signals were short term unadjusted blips and paid the price for it by not getting out when the unadjusted chart sell signals fired at 2.06 ex div date..I sold out at $1.94:(...Obviously, now with hindsight Mr Market viewed that special div as a medium term bad move...

In comparison...I have looked at other big div payouts such as the power companies and no sell signals got triggered by their div payouts...so I stay in these companies that have strong positive signals

The adjusted data is suspect as on many free charted programs it doesn't work properly anyway...

Manually adjusting?? ....Been down that road too..Unless you're using very short term investing ... there wasn't much to be gained one way or the other over the longer term.

..OK ..what I'm saying is not pure science and technically incorrect but do these minor adjustments over time really matter?.. from my experience it's usually not a biggee..(Telecom/Chorus split did affect).. Nowadays I just use unadjusted with a passing thought to eye the chart fractionally differently as a quick glance check...any major abnormalities affecting the indicators I may dig deeper.. AIR did look abnormal enough to upset the indicators but in hindsight the sell triggers turned out to be correct..

One can get too involved in the theory side and stuff up.. I like saving time, energy and brainpower by using the KISS principle...If the stock looks too hard TA-wise its best to avoid the stock altogether as there are other fish in the sea.

[Robomo]

Yep, that's the official PR spin they're putting on it. I am sure when that Ebola infected person sneezes on an aircraft and spreads thousands of micro droplets through the air everyone will be fine...come on, do people really believe that B.S. ?

I like your Accountant's mind Roger, you make a lot of sense with your financial acumen. As an expert on medical matters you rate somewhat less with your uninformed and uncorroborated alarmist statements.

I'm in the medical field, travel a lot and have some dealing with airlines. The attachment that I received today from the Travel Firm that looks after my Australian Travel is sourced from the World Health Organisation and correlates with my own investigations and understanding of Ebola. Yes, it is a concern but with the very rapid gains in understanding this disease and how to prevent and treat it, as well as the security precautions being rapidly implemented, this outbreak will be contained. Blame the politicians for allowing it to fester in West Africa but now that it is affecting First World countries it will get the attention it deserves. Read on....

From WebMD, quoting from WHO: Scientists have been studying Ebola for decades, and they’ve never seen the disease passed through the air, according to the WHO. What’s more, it’s highly unlikely that the virus could change to become airborne.

The only way Ebola gets into the air is in large droplets of vomit or saliva. These droplets are heavy and wouldn’t be able to travel very far.

In theory, people might be able to catch it if someone coughed or sneezed directly onto them, but people who get Ebola generally don’t cough or sneeze.

What’s more, the WHO says it’s not aware of any studies that have ever shown the virus spreading this way.

Catching Ebola from someone else requires “close and direct” contact with infected body fluids, the WHO says. The most infectious body fluids are blood, stool, and vomit".

Read more at http://www.webmd.com/news/20141006/how-get-ebola

Sorry Roger, but when it comes to medical matters I'll take the WHO over you any day.


6392

[Beagle]

Sorry Roger, but when it comes to medical matters I'll take the WHO over you any day.

Fair enough. Lets stick with the 1.4 million cases by 1 January 2015 then and wondering how it spreads after that.
https://businessstream.wordpress.com/2014/10/10/heres-the-math-behind-the-cdcs-predictions-about-how-bad-the-ebola-epidemic-could-get/

Believe me when I say I hope this thing is well contained because if it isn't the resulting effect on Air's share price will be the least of our problems.

In market news I see load factors were sound for September. As at 20 October 2014, (oil has dropped further since then), I see they were a whopping $46 million out of the money with their fuel hedging for the 2015 year. Ouch !!

I'm as surprised as anyone else about the rapid recovery in the SP but content to continue watching the game from the sidelines for a while.

[winner69]

Just an expensive insurance policy ....no worried

[percy]

I'm as surprised as anyone else about the rapid recovery in the SP but content to continue watching the game from the sidelines for a while.

I am surprised to find "watching the game from the sidelines for a while, " could often be referred to as "well positioned." lol

[Beagle]

I am surprised to find "watching the game from the sidelines for a while, " could often be referred to as "well positioned." lol

Bit like W69 sitting there with his oysters and chips on the beach watching Air's planes land at Wellington Airport when its blowing 70 knots, he's well positioned too, rather be him than in the plane :eek2:
I guess you could say I'm metaphorically doing the same :D

[couta1]

Bit like Winner sitting there with his oysters and chips on the beach watching Air's planes land at Wellington Airport when its blowing 70 knots, he's well positioned too, rather be him than in the plane :eek2:
I guess you could say I'm metaphorically doing the same :D
Yep she was really pumping in Welly today but i was too busy keeping the 4x4 on the road to watch the planes landing sideways still winner would have got a good facewash sitting on the beach. Good to see the price climbing after a month from going ex divvy ,as a medical person im also not that worried about Ebola so all good:cool:

[percy]

Do Oysters improve your resistance to Ebola?

[RTM]

I think they have quite a different effect Percy. Allegedly.
Enjoy your evening. ;)

[bunter]

Yes unadjusted....and...damn it....one of the reasons I sold out late....There's two schools of thought in this unadjusted / adjusted stuff ...

The adjusted data is suspect as on many free charted programs it doesn't work properly anyway...

Manually adjusting?? ....Been down that road too..Unless you're using very short term investing ... there wasn't much to be gained one way or the other over the longer term.

FWIW.. I looked at this a week ago - Google data isn't adjusted. Yahoo's is supposed to be but it isn't kept up to date. Its data also is missing some days and needs cleaning.

I found a free vba-enhanced spreadsheet that imports data and then wrote my own programme to clean the data and adjust it for dividends (by reducing the pre-ex prices by the gross dividend * 0.7). I'm tracking the NZ 50 companies and NZ50 wannabes.

NZ companies have high dividends overall (excluding the 'froth' sector - XRO, DIL, ATM, RYM, SUM etc) and I think adjusting for divs gives more accurate data and that adjusting is the right thing to do. It makes a difference.

AIR's just had a brief stopover at 1.78 - destination 2.69. Well so my crude FA says.

[couta1]

Do Oysters improve your resistance to Ebola?
Yes Percy Oysters do in fact have antimicrobial properties and help the body fight microbes as a first defense mechanism.

[Beagle]

You could be on to something there mate. I doubt anyone has fed an Ebola patient with a dozen fresh oysters for breakfast, lunch and dinner...just imagine if that was the solution lol

[sb9]

Past $2 mark now ($2.02 in fact), been bit painful to watch for the last two weeks on the down trend...

[hummerh40]

just bought in at $2.01, hopefully things are turning around

[winner69]

Jeez cnn and fox all over about this dr in New York with Ebola ....good good the joker went to a bowling hall and caught the underground and went to a restaurant the days before he was diagnosed

[Beagle]

Just wait till it spreads and its making mainstream news every day. Remember WHO predicting 1.4 million by 1 January 2015. Air's SP been performing like the issue has completely gone away, go figure ?
Well known veteran stock picker Dennis Gartman on CNBC today saying in 45 years in the business he's never seen volatility like what we've experienced in the last 3 weeks. Derisked his portfolio, taken derivative protection for the remainder and suggested going and playing golf and watch from the sidelines for a few weeks until it settles down. The only part of that strategy I can see that could be improved upon would be to buy a boat and go fishing instead, "Golf is a good walked, ruined" Rob Muldoon

[tony64peter]

Will be interesting to see what happens to B P now that the cat is out of the bag and common knowledge.

[Biscuit]

J"Golf is a good walked, ruined" Rob Muldoon

... plagiarized from Mark Twain

[bunter]

Well known veteran stock picker Dennis Gartman on CNBC today saying in 45 years in the business he's never seen volatility like what we've experienced in the last 3 weeks. Derisked his portfolio, taken derivative protection for the remainder and suggested going and playing golf and watch from the sidelines for a few weeks until it settles down.

Why would a *successful* veteran stock picker be giving advice on CNN?

[RobbieS]

Bought CFDs in AIR NZ two weeks ago. Ignore the noise. This stock is still a buy!

PS: I'm not a day trader but prefer investing with a leverage on "good" stocks.

[Rego55]

I'm interested as to why you think this is a buy stock. Thanks.

[martinchnz1]

Garuda, Air NZ not guilty on cargo

The Federal Court has dismissed proceedings brought by the Australian Competition and Consumer Commission against Air New Zealand Ltd (Air New Zealand) and PT Garuda Indonesia Ltd (Garuda) for alleged price fixing in the air cargo industry.
The proceedings against Air New Zealand and Garuda concerned alleged arrangements or understandings with other international air cargo carriers in the period between 2001 and 2006, to fix fuel, security and insurance surcharges on air cargo services.
While Justice Perram concluded that a number of collusive arrangements were made out, he found that the conduct did not take place in a ‘market in Australia’ as required by the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) at that time.
“This is a long and complex judgment which the ACCC will carefully consider,” ACCC Chairman Rod Sims said.

Article published on November the 4th

[Beagle]

Airpoints e.mail just received.

For more than two years Air New Zealand's fleet of 19 seat aircraft has been losing more than $1 million a month. We've been carrying these losses while working with many regional stakeholders to improve the viability of these services but despite best efforts, some routes are simply not sustainable.

Therefore, today I regret to announce some changes to our regional network.

From April 2015 we will no longer fly:
Kaitaia - Auckland
Whangarei - Wellington
Whakatane - Auckland
Taupo - Wellington
Palmerston North - Nelson
Westport - Wellington
We will also stop flying Hamilton - Auckland from February 2016.

In the case of Kaitaia, Whakatane and Westport this means Air New Zealand will no longer operate to or from these airports beyond April 2015. I know this news will be disappointing for many people in these communities. It's a decision that was not taken lightly.

In addition to the route withdrawals we will be progressively winding down our 19 seat fleet and moving the remaining destinations to larger 50 seat aircraft, requiring an investment of $300 million in 13 new and more efficient regional aircraft. Experience tells us that when we do this we can reduce the average fare on that route by around 15%. This is good news for towns like Kerikeri, Tauranga, Rotorua, Taupo, Gisborne, Wanganui, Blenheim, Hokitika and Timaru.

I am conscious that Air New Zealand has recently been challenged on the cost of its regional airfares even though the average regional airfare has not increased in the past five years. We are committed to regional New Zealand and in the past financial year have offered more than 550,000 regional fares under $100 - that's nearly 200,000 more than we did five years ago.

In a further effort to offer affordable airfares to and from the regions, we will be launching a new Regional Gotta Go fare to give regional customers new flexibility for last minute travel. From February this fare will be available for purchase from 90 minutes prior to departure. The fare will be a flat rate of $169 for a single sector journey (for example Napier to Auckland) or $249 for a connecting journey (for example Palmerston North to Timaru connecting via Wellington) for a confirmed seat.

You can find more information about the changes announced today on our website.

Yours sincerely,

Christopher Luxon,
Chief Executive Officer,
Air New Zealand

I think shareholders have every right to be pleased AIR are taking a commercial approach with uneconomic routes and aircraft as at the end of the day its a business.

[Zaphod]

Yes - The removal of the rather old and uneconomic 1900D was inevitable. NZ has been exceptionally lucky in many respects to have such a thorough service to the smaller centre, and with more Q300's freed up due to upgrades to ATR72's on some higher capacity regional routes (NPL-AKL, NPE-AKL, NSN-AKL etc.) other centres will certainly benefit from lower seats costs.

I do feel sorry for those working for Eagle Air HLZ maintenance base though!

[Beagle]

In terms of inconvenience its worth remembering that many residents of smaller towns live within a stones throw of where they work so are potentially saving many hours a week commuting compared to someone for example in Auckland that might spend up to 2 hours every day on the road.

Now and again having to drive 91 km's from Whakatane to Tauranga or 87 km's from Kaitaia to KeriKeri to connect up to the AIR route network is hardly a major drama in the context of the commuting efficiencies many residents of these small towns enjoy.

[tricha]

In terms of inconvenience its worth remembering that many residents of smaller towns live within a stones throw of where they work so are potentially saving many hours a week commuting compared to someone for example in Auckland that might spend up to 2 hours every day on the road.

Now and again having to drive 91 km's from Whakatane to Tauranga or 87 km's from Kaitaia to KeriKeri to connect up to the AIR route network is hardly a major drama in the context of the commuting efficiencies many residents of these small towns enjoy.

shame on air nz and shame on the govt for allowing this monolopy and having no social conscience, you conventiently forgot Westport Roger.
Oh I forgot, nothing south of the Bombays exists,:t_down:

[couta1]

shame on air nz and shame on the govt for allowing this monolopy and having no social conscience, you conventiently forgot Westport Roger.
Oh I forgot, nothing south of the Bombays exists,:t_down:
Trolling time anyone.

[Beagle]

shame on air nz and shame on the govt for allowing this monolopy and having no social conscience, you conventiently forgot Westport Roger.
Oh I forgot, nothing south of the Bombays exists,:t_down:

169 Km's Westport to Hokitika. Having to drive that the odd time for Westport locals compared to Aucklanders spending 10 hours a week commuting doesn't seem all that unreasonable to me for people that enjoy the low cost of living in such a remote part of N.Z....but I digress. I am sorry I forgot that according to some people AIR should be a distributor of social welfare to the regions'. I guess you can't please everyone so you might as well please the people that actually own the airline, the shareholders. Of course you very conveniently overlook the new last minute fare initiatives and the fact that other regions may enjoy potentially lower fares with more efficient aircraft, what a surprise, (NOT).
You've still got your precious service out of Nelson and now enjoy lower last minute fares but still want to have a good dig, I guess some people are never happy...

[Beagle]

Trolling time anyone.

Yep + left wing social agenda that couldn't care less if AIR makes an acceptable return on the capital employed in regional air services.

[slimwin]

Great move. And where there is a genuine market for a small route, someone will move in with a Cessna Caravan.

[McGyro]

This smells of AIR looking for a government (subsidy) handout. Didn't work out too well last time.

[macduffy]

This smells of AIR looking for a government (subsidy) handout. Didn't work out too well last time.

I think that its gone past that point. The smaller regional routes can only support smaller aircraft - which AIR don't want to operate because they can't carry their fair share of the overheads of a big company without charging disproportionately high fares. Now that AIR isn't around on those routes to potentially undercut them, I'd expect to see a few small outfits such as SoundsAir, stepping into the market on some routes.

[Robomo]

Shareholders should be pleased that the airline has elected to take up the four additional ATR options. You won't find a more fuel efficient and versatile turboprop.

Is this the $300 million talked about in the press release?

[modandm]

More positive signs from management. Its another $100m for the 4 options at list (which is not what they pay).

This adds to what are multiple, significant cost savings and revenue enhancements for the company over the next 3-4 years.

I have been watching the oil/fuel price collapse with glee, this is really significant stuff. I am back to my 30c+ eps forecast this year, and pushing 35c next. Whenever I see a reason to sell in the horizon it seems macro factors swing back into favor and create big upside scenarios.. hope this can continue.

[Beagle]

So another $12m on the bottom line for 2016 with this sensible fleet rationalisation and it looks like fears of Ebola becoming rampant are rapidly subsiding, so we're looking better on a risk reward profile and of course the major reductions in fuel prices will definitely help, offset partially by the lower currency.

[Arbroath]

I think its likely we will see a regional fleet comprised entirely of ATR's in ten years time which will fit with the trend towards aircraft type simplification.

Some of the misinformation and ignorance displayed around this issue is terrifying. One idiot proposed that the Auckland to Wellington flight call into Taupo to pick up passengers. The fact that a 178 seat A320 may struggle with landing performance at Taupo just didn't register,

Or the huge amount of extra fuel they'd burn and extra time - who would want to be on the Akld-Wgtn flight that took 2 hours because it stopped in Taupo

[Beagle]

Looks like Sun Air will replace AIR on its Kaitaia and Wanganui route. See N.Z. Herald.
Certain people have been bleating about the cost of regional travel and its now become clear that the fares being asked are very reasonable, in fact AIR are losing $26 per pax per sector with their twin engine Beech 1900D which has a 280 knot cruise speed. Obviously people in certain regions haven't been supporting AIR with sufficient patronage to make a profit.
Sun Air are reported to be taking over the route using a single engine Cessna Caravan 12 seat which has a 171 knot cruise speed according to Wikipedia but will be charging a similar price to Air New Zealand.
Here we see a classic case of market forces at work. You either pay more or get an inferior, much slower single engine aircraft, (implied lower safety level than a twin engine aircraft), for the same price that a company can make money on.
Next we will see people in these regions complaining the service is so much slower and still too expensive...I guess some people have to bleat about something. Isn't it strange that you never hear from them about the financial advantages of really cheap housing or how much fuel and time they save each day with their 2 minute trip to work ?

[slimwin]

What's your opinion based on?

[Beagle]

Oil price keeps surprising on the downside, now at four year lows. Nice tailwind for the second half and into 2016.

[Hoop]

Chart showing Oil prices (Green)...AIR share price (Blue)..... baseline January 2005....

http://i458.photobucket.com/albums/qq306/Hoop_1/AIROIL14112014.png (http://s458.photobucket.com/user/Hoop_1/media/AIROIL14112014.png.html)

[Beagle]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11358001

Qantas kicks off food fight with 50% bigger meals. I must admit that this seems like a good idea. If they're going to coup you up like some chicken in pen for hours on end the least they can do is feed you properly.
Air should follow suit.

[slimwin]

Hm. I've never been under fed on an international flight. You can always ask for more too.

[Beagle]

Really wondering if your user name says something here...eat like a sparrow Slim ?
http://airreview.com/AirNZ/Food.htm
Scroll down to trans pacific economy class meals and trans Tasman meals if you can call them that.
An Air N.Z. spokesman was reported to have said today that they'll be keeping an eye on how Qantas' enlarged meal offer is received in the market.
I'd suggest looking at those pretty poor excuses for a meal they offering in economy to long haul pax to say Vancouver, (a 14 hour flight), its long overdue that they lift their game as carrying some spare snickers bars looks like a prerequisite to anyone with a hearty appetite on a long haul Air economy flight at present.

Hmmm, why did I have to mention snickers bars when I don't have any at home at present...

[slimwin]

After cheese and crackers, a main, desert, salad, bread roll/ butter and possibly a welcome snack of nuts I'm hardly able to drink my two or three glasses of wine ( well actually I could drinka bottle but that never works out at the other end.) Most airlines offer hot noodles too if your hungry in the middle. And then you sit there and burn nothing. Except maybe on the cuddle couch. This is followed by a brekkie before arrival. I've honestly never heard anybody complain of lack of food and I've travelled a lot for work and pleasure.

I do a lot of excercise and eat a lot of food. Got called skinny today in fact but only by a fattie doesnt count ;)

[RTM]

After cheese and crackers, a main, desert, salad, bread roll/ butter and possibly a welcome snack of nuts I'm hardly able to drink my two or three glasses of wine ( well actually I could drinka bottle but that never works out at the other end.) Most airlines offer hot noodles too if your hungry in the middle. And then you sit there and burn nothing. Except maybe on the cuddle couch. This is followed by a brekkie before arrival. I've honestly never heard anybody complain of lack of food and I've travelled a lot for work and pleasure.



Totally agree. 80kg's !

[mikeybycrikey]

Hm. I've never been under fed on an international flight. You can always ask for more too.

I used to get hungry on Qantas flights. Also other airlines but mostly Qantas. It has been a while since I've flown long-haul with them though.

Plus their food was pretty awful so any improvement is welcomed. Nowhere near as bad as US airline food but still pretty mediocre.

[mikeybycrikey]

Anyone got thoughts on the dropping oil price?

It looks like it's down about 20% from a couple of months ago. This should mean more profitability but also gives other airlines scope to reduce prices.

Based on the latest fuel hedging report (https://www.nzx.com/companies/AIR/announcements/256764), fuel costs should be down about $74M for H1 FY2015 (very rough estimate 3.7M barrels @$20 saving), but hedging costs are up a lot, costing about $40M for the half year (but reducing in the future as hedging position changes).

So from this rough estimate, profit will be up by a few million, but that relies on revenue holding steady. I think that's pretty unlikely if other airlines get into price cutting. Reduced fuel costs provide a lot of scope for competitors to cut prices by maybe 5%. Fuel is a very significant cost for airlines and low-cost airlines will benefit more than full-service ones.

The airline business is fairly competitive so I would expect prices to be cut once oil prices stabilise at a new level, leaving minimal opportunity to extract higher profits in medium term.

Thoughts?

[Hoop]

Anyone got thoughts on the dropping oil price?

It looks like it's down about 20% from a couple of months ago. This should mean more profitability but also gives other airlines scope to reduce prices.

Based on the latest fuel hedging report (https://www.nzx.com/companies/AIR/announcements/256764), fuel costs should be down about $74M for H1 FY2015 (very rough estimate 3.7M barrels @$20 saving), but hedging costs are up a lot, costing about $40M for the half year (but reducing in the future as hedging position changes).

So from this rough estimate, profit will be up by a few million, but that relies on revenue holding steady. I think that's pretty unlikely if other airlines get into price cutting. Reduced fuel costs provide a lot of scope for competitors to cut prices by maybe 5%. Fuel is a very significant cost for airlines and low-cost airlines will benefit more than full-service ones.

The airline business is fairly competitive so I would expect prices to be cut once oil prices stabilise at a new level, leaving minimal opportunity to extract higher profits in medium term.

Thoughts?

Could be one of the reasons why Oil price/AIR share price don't correlate well

[Master98]

I heard both china southern airline and eastern airline will increase flights between auckland and shanghai,GungZhuo in coming months, been watching NZ Airline how to handing well such tough competition.

[brend]

I heard both china southern airline and eastern airline will increase flights between auckland and shanghai,GungZhuo in coming months, been watching NZ Airline how to handing well such tough competition.

Firstly AIRNZ doesn't fly to Guangzhou...I think the competition wouldn't bother them to much, I think china southrn are only flying over summer to Shanghai.

I've booked in airfares with AIRNZ to shanghai over Feb/June next year - $650 - $700 each way....can't really complain about that.

disc: holding.

[slimwin]

Is fuel price for air nz what they have it hedged at? Not necessarily what the fluctuations are.

[Beagle]

Is fuel price for air nz what they have it hedged at? Not necessarily what the fluctuations are.

Have a really good study of AIR's fuel hedge position as released to the NZX, see link in post 1969 above.
Collars are a derivative instrument designed to lock in the oil price to a certain range, hence the term collar.
As you'll see in FY 2015 Q3 for example they're miles out of the money with over one million barrels of Brent crude with a bottom collar of US 99 barrel, compares to closing price on Friday of about US 78 barrel. This means for that 1 million barrels they have to pay the minimum collar price of $99 US. This is partially offset by the purchase of over 500K of Brent put options they took out at $89 which means they will be gaining the benefit of those contracts in the forthcoming quarter. My net read of their fuel hedge position is AIR will gain something of a gain from lower oil prices this quarter and a meaningful boost from the lower oil prices in Q3 and especially in Q4. The full effect won't be felt until the next financial year when you can also add in the $12m a year they won't be losing on non economic remote regional routes. Fuel costs for AIR amount to circa 25% of revenue of about $1.2B per annum. Obviously if this recent fall is sustained there's significant efficiencies to come in 2016. To what extent other competitor pressure on pricing eats into those cost efficiencies is an open question.

[modandm]

On the oil price

Roger has explained the collars and puts well. Allow me to shed light on the finer details.

At $80 brent AIR loses on the hedging program roughly: 20m Q2, 22m Q3 and 16m Q4 (in USD)

I estimate cost per barrel of jet in USD at the following: Q1 124 Q2 112 Q3 110 Q4 110 (in USD) - spot is $96, delivery costs are c.$10 per bbl

Using this and a FX rate of: Q1 84c, Q2-Q4 81 - 79c, we get a total fuel bill of about 1136m NZD inc hedging costs. This is c.7m more than FY14. (ERROR FIXED)

Based on pax revenue growth assumption of 6% (based on 6.7% capacity growth) I get to FY15 EPS of 27.6c, (1% pax revenue growth = 2.5c to EPS ceteris paribus)

For FY16 using 79c, jet at 110, total fuel burn +3%, and 4% pax revenue growth (after 6% FY15), I get to 34c EPS.

In other words I am feeling pretty bullish right now (about 2 year prospects)

(edited to fix a mistake) sorry for confusion - mod

[winner69]

On the oil price

Roger has explained the collars and puts well. Allow me to shed light on the finer details.

At $80 brent AIR loses on the hedging program roughly: 20m Q2, 22m Q3 and 16m Q4 (in USD)

I estimate cost per barrel of jet in USD at the following: Q1 128 Q2 115 Q3 110 Q4 110 (in USD) - spot is $96, delivery costs are c.$10 per bbl

Using this and a FX rate of: Q1 84c, Q2-Q4 79c, we get a total fuel bill of about 1050m NZD inc hedging costs. This is c.80m saving on FY14.

Based on some other tweaks to the model, including reducing my Pax revenue growth assumption from 6% to 5% I get to FY15 EPS of 30.4c, (its 33c at 6% pax revenue growth)

For FY16 using 79c, jet at 110, and 5% (after 5% FY15), I get to 35-36c EPS

In other words I am feeling pretty bullish right now

Those silly analysts still have consensus EPS estimates of 23-24c. Wrong again!

You forgot about Virgin mate

[Beagle]

On the oil price

Roger has explained the collars and puts well. Allow me to shed light on the finer details.

At $80 brent AIR loses on the hedging program roughly: 20m Q2, 22m Q3 and 16m Q4 (in USD)

I estimate cost per barrel of jet in USD at the following: Q1 128 Q2 115 Q3 110 Q4 110 (in USD) - spot is $96, delivery costs are c.$10 per bbl

Using this and a FX rate of: Q1 84c, Q2-Q4 79c, we get a total fuel bill of about 1050m NZD inc hedging costs. This is c.80m saving on FY14.

Based on some other tweaks to the model, including reducing my Pax revenue growth assumption from 6% to 5% I get to FY15 EPS of 30.4c, (its 33c at 6% pax revenue growth)

For FY16 using 79c, jet at 110, and 5% (after 5% FY15), I get to 35-36c EPS

In other words I am feeling pretty bullish right now

Those silly analysts still have consensus EPS estimates of 23-24c. Wrong again!

Nice work on quantifying the fuel gain for this year. I'm not nearly as bullish on revenue growth, (latest consumer confidence survey out this week showing confidence at a 14 month low), but absolutely agree there's plenty of room for analyst upgrades to 2015 forecasts based on the dramatic reduction in oil prices and really massive room for 2016 forecast upgrades for the same reason. In addition they get another few dreamliners next year, (3 if I remember correctly), which will add even further imputes to fuel savings. With two obvious caveats, (oil staying low and AIR filling their extra 5% capacity for 2015 and 2016), I think Mod's EPS numbers are very easily achievable but whether those two matters play out favourably or not...it might be a bit early to make the call on that but its certainly starting to look good. :)

[brend]

Third dreamliner not far away


http://australianaviation.com.au/2014/11/air-nzs-third-787-9-spotted-at-paine-field/

[m4054]

Chinese President Xi's NZ visit:

Air China has announced plans for direct flights to Beijing from Auckland as part of a strategic alliance with Air New Zealand.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11362484

Bank of China unveils memoranda of understanding with NZX, Air NZ, China Construction Bank open in NZ too
http://www.interest.co.nz/business/73025/bank-china-unveils-memoranda-understanding-nzx-air-nz-china-construction-bank-open-nz

[modandm]

just discovered a big mistake in my analysis (had a negative where it should have been a positive - oops). FY15 eps is lower than I thought, but FY16 is still very good.

I have updated my previous post. Summary FY15 EPS 27.6c, FY16 34c. (exclude VAH losses)

As a side note I hit a significant financial milestone today (largely as a result of success with AIR).

I'm celebrating with a nice scotch. To all holders that have shared the ride, and those on board, my best. -mod

[iceman]

just discovered a big mistake in my analysis (had a negative where it should have been a positive - oops). FY15 eps is lower than I thought, but FY16 is still very good.

I have updated my previous post. Summary FY15 EPS 27.6c, FY16 34c. (exclude VAH losses)

As a side note I hit a significant financial milestone today (largely as a result of success with AIR).

I'm celebrating with a nice scotch. To all holders that have shared the ride, and those on board, my best. -mod

Well done mate, you sure deserve it with all your great work on AIR that many of us have benefited from and greatly appreciate. I am sure I speak for a few others.
Enjoy that Scotch or cheap jet/rocket fuel you're drinking :-)

[Beagle]

just discovered a big mistake in my analysis (had a negative where it should have been a positive - oops). FY15 eps is lower than I thought, but FY16 is still very good.

I have updated my previous post. Summary FY15 EPS 27.6c, FY16 34c. (exclude VAH losses)

As a side note I hit a significant financial milestone today (largely as a result of success with AIR).

I'm celebrating with a nice scotch. To all holders that have shared the ride, and those on board, my best. -mod

Looks like I got the seriousness of the Ebola crisis wrong in the context of its effect on demand for air travel so I guess that makes us even :D

[brend]

Looks like I got the seriousness of the Ebola crisis wrong in the context of its effect on demand for air travel so I guess that makes us even :D

Sellers side looking heavy..any thoughts?

[Beagle]

Sellers side looking heavy..any thoughts?

Oil bounced up a bit since close on Friday. October operating stat's should be out this week. We need to see evidence that AIR can fill its extra capacity coming on over summer for meaningful SP appreciation from here in my opinion. Stock looks about fair value to me at present pending confirmation of some reasonable growth in passenger demand. Sitting on autopilot with a modest holding and see what happens makes sense to me and that's what I'm doing :)

[skid]

Looks like I got the seriousness of the Ebola crisis wrong in the context of its effect on demand for air travel so I guess that makes us even :D

Better safe than sorry--We are all happy ,Im sure, this thing has not gotten out of hand,and lets hope it never does--but IMO it would have been reckless to discount it-IMO it was a big gamble that was won this time around--Maybe a bit of lost profits,but the other side of the coin would have been far worse if we had all been unfortunate enough to have been bowled by it.
It was one of those "I hope your right but fear your wrong''situations that panned out all right (so far)this time.

[Beagle]

Better safe than sorry--We are all happy ,Im sure, this thing has not gotten out of hand,and lets hope it never does--but IMO it would have been reckless to discount it-IMO it was a big gamble that was won this time around--Maybe a bit of lost profits,but the other side of the coin would have been far worse if we had all been unfortunate enough to have been bowled by it.
It was one of those "I hope your right but fear your wrong''situations that panned out all right (so far)this time.
Dead right Skid, I've never been so happy to appear to be too conservative and overestimate the seriousness of this threat, (at this stage). The effects on the global airline industry could have been cataclysmic if the spread of Ebola had got completely out of control and frankly that would have been the least of our problems. While its fair to say we're not out of the woods yet there might be some light starting to appear at the end of the tunnel.

[nzspeak]

Roger, you're one of the best posters on this forum. Your analysis is always sound. Give up on the ebola thing.

[Beagle]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11364352

Oil Slide saves airlines $8.9 Billion.

Opec meeting on November 27 to shape the future of oil prices in the short term in my opinion.

[psychic]

The Company has previously announced that it expected to improve on the 2014 result in the coming year. At the Annual Shareholders’ Meeting in late September it was stated that there had been an encouraging start to the year with solid forward bookings into the high season.

That sales momentum continues as the Company heads into a period of sustained growth. Further, should the current level of jet fuel price persist, there will be significant additional improvement in earnings in the second half of the financial year.

What a lovely way to open :)

https://www.nzx.com/companies/AIR/announcements/258153

[Beagle]

What a lovely way to open :)

Well said. Some very good encouragement in there for AIR shareholders including confirmation of good demand growth / forward bookings growth and prospects for a significant uptick in 2H profits due to lower oil prices. I can see some analyst upgrades coming :)

[vin]

Wish I bought back in at $1.80 ><!

[tzbang]

I bought in at $1.90.. it's close to my target sell.. but.. but I feel the greed kicking in. It's looking quite positive for the coming year so it's tempting to wait and see.

[couta1]

I bought in at $1.90.. it's close to my target sell.. but.. but I feel the greed kicking in. It's looking quite positive for the coming year so it's tempting to wait and see.
I'm tempted to sell my remaining block as I reckon you'll be able to buy back in below $2.20 sometime before next year.

[winner69]

I'm tempted to sell my remaining block as I reckon you'll be able to buy back in below $2.20 sometime before next year.

Stop teasing us Couta ..... you just having us on again and hoping to get some response eh

[couta1]

Stop teasing us Couta ..... you just having us on again and hoping to get some response eh
No mate I put my block on at $2.35 but have just had a friendly birdy pm with some info as to why I shouldn't sell, check out the 49k block at above price and watch it shrink when I alter my order:cool:

[tzbang]

Feel like sharing that friendly birdy info as to why you shouldn't sell? :-)

[Beagle]

One of the most well respected brokers has upgraded, (as I suggested they would yesterday). 12 month price target $2.64. Gross dividend yield of 7.2%.
Recommendation BUY. I expect all the other analysts will be upgrading if they haven't already. EPS forecast for 2015 29.26 cps.

[theace]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11365415

[Jaa]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11365415

Chicago, one of the busiest airports in the world would make for a good destination.

Houston or Dallas would also be good options (though Qantas flies to Houston) but Air NZ would need to work on code sharing and alliances south of the border.

Star Alliance partners Copa Air and Avianca would be a good start. A tie up with Aeromexico even better.

[Robomo]

Qantas flies to Dallas/Fort Worth, not Houston.

Interesting to compare fares to Dallas from Sydney.
Qantas: Sydney-Dallas return (mid-Dec - mid-April) is AU$3092, direct flight.
Air NZ: Sydney-Dallas return same dates is AU$2557 ($535 cheaper!) SYD-AKL-SFO-DFW. If AirNZ can undercut Qantas by that much even with three sectors (higher airport fees, less efficient planes than Qantas's A380, etc) just imagine what they could do with SYD-AKL-DFW on the 787-9 (less landing fees, much better fuel economy). And AirNZ can still make lots of money and Qantas can't!

I've just come back from Melbourne and spoke to a couple of Aussies who were flying onto San Francisco - much cheaper with AirNZ than Qantas.

[h2so4]

One of the most well respected brokers has upgraded, (as I suggested they would yesterday). 12 month price target $2.64. Gross dividend yield of 7.2%.
Recommendation BUY. I expect all the other analysts will be upgrading if they haven't already. EPS forecast for 2015 29.26 cps.

That's more like it. I'm happy buying under $3

[Poet]

Certainly running along nicely. Big thanks to Modandm for alerting me to this, I only paid attention and got in at $1.28 - doubled up before special divi at $1.93.

So now got a big truckload, when to exit?

[BFG]

Awesome news for AirNZ!

http://mobile.reuters.com/article/idUSKCN0JA0O320141127?irpc=932

[Beagle]

http://www.cnbc.com/id/102222286

[dingoNZ]

Great news for AIR, expect some positive movements in the price today on the back of the ~6% fall in oil

[winner69]

Plunging oil prices often leads the world into recession, not always good for airlines

[Master98]

Plunging oil prices often leads the world into recession, not always good for airlines

not real this time, it is a political issue which is American made to give pressure to Russian.

[Beagle]

The conspiracy theory that the American's and Saudi's are conspiring to maintain production level's to create a glut and stick it to the Russians appears to be gaining some credibility.
Either that or the Saudi's are playing the long game to maintain market share and are prepared to ride out what could be a considerable period of low prices to nobble the oil sands industry in North America.
Either way or whatever other theory you subscribe too this is very good for AIR.

Further good news. AIR and Tony Carter Chaiman win honours at N.Z.'s premier business awards. Simon Challis from Ryman receives top executive award.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11365647

[couta1]

Look at that SP fly:cool:

[brend]

Look at that SP fly:cool:

jesus up 6%

[couta1]

OMG !!!! How easy was buying this morning on the open at $2.35 :ccol: :cool: That little birdie did you a big favour yesterday mate, you might like to buy him a beer next time he's flies down your way :)
Yep and a quick ride around the block in the Big Block with Norah in the back seat ( Whoops forget that last bit as we want to conserve fuel)

[Beagle]

UMMM Yeah, no further comment about that seems like a good thing to say :D Market getting a bit more rational now at $2.40 or is it ? Maybe this mornings apparent irrational $2.50 isn't so irrational ?
We could be in for a really sustained period of low oil prices which could present AIR with an opportunity to lock in really good gains.

[Master98]

I sold all my holdings and 40% gain! money in my pocket is better than on the paper.cheers

[couta1]

I sold all my holdings and 40% gain! money in my pocket is better than on the paper.cheers
Well done,I'd be doing the same at that level of gain.

[Beagle]

If people feel its getting near the top, (I don't), selling enough to get your original investment back and having a free ride with the rest can be a smart move but honestly I look all around the market at other shares and their hugely stretched PE multiples, bonds at record low interest rates and property (at least in Auckland) at all time high's and call account interest rates at around 3-3.5% and ponder, if one was to sell, where's a smarter place to invest ??????????
HNZ maybe but I have heaps of them already.

Sure a profit is not a real profit until its realised but what's the point in realising a profit, generating a truck load of cash and then really struggling to find another more attractive investment ?

[Zaphod]

You're right on the money there Roger. There are very few other shares that I'd be prepared to plough more funds into from the proceeds of an AIR sale, so I'd probably look to top back up on any future weakness.

My primary target for divestment are the few PE 30 stocks (e.g. FPH) that I still own, having bought into those many years ago.

[tzbang]

some people might like to buy a new trinket with said profits. Out of interest where would you see the top Roger?

[Zaphod]

Qantas flies to Dallas/Fort Worth, not Houston.

Interesting to compare fares to Dallas from Sydney.
Qantas: Sydney-Dallas return (mid-Dec - mid-April) is AU$3092, direct flight.
Air NZ: Sydney-Dallas return same dates is AU$2557 ($535 cheaper!) SYD-AKL-SFO-DFW. If AirNZ can undercut Qantas by that much even with three sectors (higher airport fees, less efficient planes than Qantas's A380, etc) just imagine what they could do with SYD-AKL-DFW on the 787-9 (less landing fees, much better fuel economy). And AirNZ can still make lots of money and Qantas can't!

I've just come back from Melbourne and spoke to a couple of Aussies who were flying onto San Francisco - much cheaper with AirNZ than Qantas.

DFW makes sense for Qantas give it's the hub for fellow one-world partner AA's operation, although AirNZ could partner with them outside of the Star Alliance, it'd make more sense for them to hub at the DEN (who has been here in recent months courting both AIA and AirNZ) or ORD/IAH. IMO the latter two provide better connections to the East coast of Canada and the USA with either UA or AA.

[slimwin]

Seems 787's don't like lightning strikes. Ours is grounded in Perth right now :(

[brend]

Seems 787's don't like lightning strikes. Ours is grounded in Perth right now :(

I think thats ground control policy. I had flights delayed in SYD due to lighting strikes.

[Beagle]

some people might like to buy a new trinket with said profits. Out of interest where would you see the top Roger?

Fair comment and a difficult question. I think the market was very pleasantly surprised by the trading update both in terms of customer demand and fuel. Another positive surprise is the Opec decision not to trim output. I'd rather not put it out there where I see full value because the gains to be had from the fuel price are in such a state of flux at present both in terms of the severity of the oil price fall and duration.

The question in my mind is if the Opec members are in apparent disagreement and cannot seem to come to any production accord with non opec members, (its extremely unusual for Russian representatives to have a pre-Opec meeting with key Opec members), what does this suggest about the medium term prognosis for oil prices ? What about the long term effects on the North American shale producers if oil goes below their average production cost or even cash cost ? Perhaps this augers badly for the long term supply situation ?

Given that fuel cost AIR just over $1.1b last year frankly its almost anyone's guess what their fuel bill will be in 2016 but it looks quite possible that it'll be a lot lower than 2014.
Even though AIR has had a good rally from its intra-day low of $1.75 at the peak of Ebola crisis, (up 36% since then), its perhaps worth noting that many of the American carriers are up well over 50%. The PE is very cheap, the dividend yield looks decent and they have ample imputation credits to fully impute dividends almost indefinitely.

In addition I have a very high level of confidence in management and am very impressed with the job the CEO is doing. In a market where many have started to question growth stocks on a PE of circa 30+ AIr continues to stand out with excellent performance and to my mind is good value even at today's price.

[Master98]

some people might like to buy a new trinket with said profits. Out of interest where would you see the top Roger?

stupid question,DYO

[Beagle]

http://www.cnbc.com/id/102219498

$35 dollar oil a possibility ?

Qantas up 7.5% at $1.93 at last look on 16 m shares traded which looks pretty strong for a company that's trading on a positive outlook only. Must be the extra savings for those old tech planes.
I'm really starting to think today's rise of only 3% to $2.41 is slightly under-done for AIR.

P.S. Here's a look at how various airlines around Asia have reacted to the Opec news today. Most up circa 6-7% and Air only up just over 3%.
http://www.cnbc.com/id/102222780

Good news with positive messages at the VAH AGM recently. Looking at profitable trading for Q2 and how could it not be profitable for the rest of the year with oil prices falling out of bed !!
http://www.asx.com.au/asxpdf/20141119/pdf/42ttjyknwcf5yl.pdf

[BFG]

Yup, definitely a strong buy imho as long as oil stays down (it will). Expect some great margin growth next year.

[tzbang]

stupid question,DYO

Jeez I'm sorry, how offensive of me to ask someone for their opinion. What was I thinking.

[slimwin]

I think thats ground control policy. I had flights delayed in SYD due to lighting strikes.

Nope. Actually got hit. Delamination out of limits on spoiler and wing. Engineers scratching their heads. Very common for aircraft to get hit but not cause that ammount of damage. It leaves a spot on aluminium airframes. Asia pacific is particularly prone to strikes. It'll just end up being a repair but at this stage they are still just learning how.

[BFG]

Incoming Huge Projectile can shed some light on this...

[Master98]

some people might like to buy a new trinket with said profits.

every person has their own investment strategy, buy or sell at their own decision, you should't laughing them, for me if I bought shares have 40% gain just in a coup of month then i will sell it and take the profit, as simple as that.

[Marilyn Munroe]

Cullen Airlines fuel hedging disclosure here;

http://www.airnewzealand.co.nz/assets/PDFs/fuel-hedge-disclosure-20october2014.pdf

My understanding is that derivative contracts are now required to be marked to market. The largest hedging type currently are Brent Collars. I assume the floor and ceiling prices in the disclosure are the maximum and minimum prices for Cullen Airlines to exercise the collar based on the Brent Crude price. The floor of USD$99 is well out of the money meaning that Cullen Airlines is obliged to settle the collar at a price greater than the current physical price.

I take this to mean the price savings Cullen Airlines makes at current prices buying the fuel on the airfield is clawed back by losses on their hedging contracts.

In note (1) of the disclosure the losses described as "Compensation from Fuel Hedges" include losses from mark to market adjustments. The compensation for the March 2015 quarter show a loss of $13 million using October 2014 prices. If current prices hold or decrease further the amount of red ink will increase.

Of course all this is a bit of a mystery to a blonde movie star who thinks diamonds are girls best friend as a store of value, so I stand to be corrected.


Boop boop de do
Marilyn

[tzbang]

every person has their own investment strategy, buy or sell at their own decision, you should't laughing them, for me if I bought shares have 40% gain just in a coup of month then i will sell it and take the profit, as simple as that.

er.. What are you even talking about. I'm not laughing at anyone? :confused:
Just pointing out to Roger that aside from selling and reinvesting, some might enjoy selling and buying stuff.

Sensitive much?

[modandm]

Traders do what you will - your definitely nuts. But to those medium-term investors that are selling simply because the stock has gone up I would say you are making a mistake.

A short term price move is no justification for sale, especially give the HUGE move in the oil price. If anything the stock price has SIGNIFICANTLY under-reacted to this development. You are displaying the recency bias.

I see others are nervous to try to either 1 value the stock, 2 estimate the impact of the oil price move. Hell if I couldn't do either of these I wouldn't have much conviction in my investment either.. no wonder some people flit in and out with no real confidence, never building meaningful positions and making real $$.

I see a 29c EPS this year (ex VAH), and 40c EPS next year (VAH could even be + next year). This based on 110 fuel, which could be even lower given the move down in Brent to 70. At 100 fuel I get 50c eps (seriously). I have taken comments re bookings into account with my pax revenue assumptions (upgraded). I now see 6.8% this year, 4.8% + 2% yield (yes its heavily second half loaded there is 11.5% capacity growth in H2 (but thanks for pointing out recent stats - i'm well aware)) And 6.5% next year based on 5.5% + 1% yield. Both of these numbers assume 70% load factor on incremental capacity growth which is scheduled at 6.8% this year and 7.8% (yes truly) next year.

So what would I sell at? If my assumptions are fair and I think they are, I see the stock approaching $3.60 in August 2016, 18 months. That's AIR on 8x PE + VAH at 40cps.

There is likely to be about 40c in dividends between now at then so lets say $4.00. And discount back 18 months at my required return of 20% = $3.05. Above that price I would begin considering reducing/selling out of the position today. In other words I am in no rush.

And folks that's how its done. Not that hard.

-millimod

[777]

And what if some airlines start reducing fares due to fuel costs reducing? AIR will have to follow suit.

[winner69]

And what if some airlines start reducing fares due to fuel costs reducing? AIR will have to follow suit.

Some still have surcharges ......greedy bastards

http://www.smh.com.au/business/aviation/frequent-flyers-hit-as-airline-surcharges-fly-high-despite-slump-in-fuel-prices-20141127-11vfdm.html

Love this bit

"I can guarantee you that it is designed by accountants who have no moral fortitude," Flight Centre managing director Graham Turner said.

So the bastards are the accountants!

[Beagle]

Mod - I'm not too scared to value the stock if that was aimed at me. Fair value is well north of the current SP and that's all that's required to be known for now until the oil price situation becomes clear.
I believe its simply too early to try and get an accurate gauge on the extent and duration of the fuel price decline. Just the other day you were saying the fuel costs to AIR would increase this year and you made that call when Brent was under $80 and WTI around $75.
I agree that on face value AIR's SP performance has significantly under-reacted to the news, all of it including VAH's current profitable trading but quite obviously the demand and yield growth looks good and there is scope for dramatic fuel savings in 2H 2015, 2016 and possibly beyond that.

I believe we could be heading for a couple of years of super profits for AIR in 2016 and 2017.

[Zaphod]

And what if some airlines start reducing fares due to fuel costs reducing? AIR will have to follow suit.

If reductions in airfares by AirNZ are to scale with fuel costs, then yields should remain stable and the lower fares should actually stimulate demand, which would be especially good given the room they have for capacity growth.

An all out price war could be negative, but AirNZ is a premium carrier so I can't see that happening to such an extreme.

[Master98]

I definitely NOT hold airline shares for longer term even medium term, I fear someday flight suddenly crash and few hundred people killed, I will cry and very very sad, not just the money , it is the live.

[samdaman]

I definitely NOT hold airline shares for longer term even medium term, I fear someday flight suddenly crash and few hundred people killed, I will cry and very very sad, not just the money , it is the live.

0.o... That can happen with any share with some sort of variant. Remember fonterras botulism scare

[BIRMANBOY]

But short term is ok is it? So you can get in and out between crashes?
I definitely NOT hold airline shares for longer term even medium term, I fear someday flight suddenly crash and few hundred people killed, I will cry and very very sad, not just the money , it is the live.

[Beagle]

http://www.cnbc.com/id/102222904

Oil in the U.S. closes down a whopping 10.2% in one day on Friday (Saturday morning N.Z. time).

https://www.nzx.com/companies/AIR/announcements/256764

I went through their last reported hedge position and netted off their Brent put options, (put option is a derivative contract where the Airline makes money when the spot price of oil is lower than the contract price, for those that don't know).

Interesting to note that Air's net hedge position is 62% for the current quarter, (i.e. they will be enjoying substantial fuel savings in this quarter with 38% unhedged.
Jan- March 2015 they are 40% hedged and likewise April - June 2015. Approx. 60% of fuel consumption in the second half of the year will be at rates that benefit from the recent substantial decline in fuel prices !! Only very minimal hedging in place for Q1 FY 2016.

[martinchnz1]

That's why you shouldn't put all your eggs in one basket no matter whether its a short/medium or long term hold, I used to think differently but after some major humblings and big losses I've changed my thinking

"Put all your eggs in one basket and then watch that basket."
I'm still of this thought with near 50% of my holding with AIR. Though people do keep telling me its nuts to have that much exposure, I couldn't bring myself to do anything else at the moment.
I guess it all comes down to risk tolerance.

[modandm]

Fair value is well north of the current SP and that's all that's required to be known for now until the oil price situation becomes clear.

I agree that on face value AIR's SP performance has significantly under-reacted to the news, all of it including VAH's current profitable trading but quite obviously the demand and yield growth looks good and there is scope for dramatic fuel savings in 2H 2015, 2016 and possibly beyond that.

I believe we could be heading for a couple of years of super profits for AIR in 2016 and 2017.

Agreed on each point!


I believe its simply too early to try and get an accurate gauge on the extent and duration of the fuel price decline.

We can't predict the future of the oil price, or how quickly Jet fuel prices will move down in concert. So far Jet remains at $96bbl (source bloomberg), which means the spread to brent has blown out hugely to $26. I am watching closely to see if this normalizes back towards $15, which would imply $85bbl Jet. In my analysis I assumed $96 Jet and have found that providing for $10-15bbl of delivery costs is appropriate and conservative taking it to $110.

My analysis at $110 is outlined in post 2027. I maintain that at that level fuel costs are slightly higher as calculated on page 132. The difference in my EPS numbers is due to a higher passenger revenue growth assumption - which I have applied after the trading update and comments that high season bookings are looking strong.

One risk is that Air does not hedge the spread between Oil and Jet. So if Jet stays at $96, with Brent at $70 AIR lose even more on the hedging program, and don't get cheaper Jet.

[modandm]

Also does anyone have the recent research report on AIR released by Forsyth Barr? It's one of the few I don't have access to. If so could you PM me?

[modandm]

"Put all your eggs in one basket and then watch that basket."
I'm still of this thought with near 50% of my holding with AIR. Though people do keep telling me its nuts to have that much exposure, I couldn't bring myself to do anything else at the moment.
I guess it all comes down to risk tolerance.

I'm in this camp, except AIR is 90%. Look at anyone who has made serious money, its through very big bets on individual companies. I don't see the stock market as a game to play - and I have no interest in gambling on speculative growth stocks like Xero and PEB, instead I view it as a means to invest in companies and be rewarded by dividends and rising capital values through profit growth. What is great is that you can find opportunities where good companies with attractive prospects are stupidly cheap because the market is overly pessimistic and short-sighted. Two years ago, the market was pessimistic on AIR. Today people are still afraid of investing airlines (Warren said don't!) being short sighted and slow to price in change:

1. Change in the company - improving fleet, growth, cost management
2. Change in the industry - Airline management teams are becoming more rational and conservative = less over capacity = Airlines can make their cost of capital
3. Change in the fuel price - analysts still using $90-100 brent. Some are using their 'economists' projections of oil which are $110bbl... Seriously who would listen to these guys

Air is stupidly cheap now given the growth in profits expected, and relative to other companies and airlines globally.

In my view there's 60-70% upside in AIR over 18 months. If you can pass that up thats fine - I'll take some - lets get rich and retire at 40!

[Beagle]

http://www.indexmundi.com/commodities/?commodity=jet-fuel&commodity=crude-oil-brent

Mod, I take your point about the potential for margin disconnect between Jet and Brent, here's a look at the two on a FOB basis in the U.S.

Over time I'd suggest the margin normalises and thankfully U.S. shale oil is ideal for refining to heavy distillate fuels such as Jet and diesel.

The market does seem to be infatuated with keeping AIR in and around its long term PE average of 10 and yet many other carriers with arguably inferior management are trading on PE's vastly north of there, go figure ? There's also the fact that PE's generally have expanded a bit with ultra low interest rates but AIR's hasn't.

[Arbroath]

Roger - I think its the ghost of Ansett. For all the reasons many hate airlines that is what provides a great opportunity to own probably the best run airline on the planet at a very reasonable price. Take all the dividends and wait for 2016 when they could be north of $3 as long as global markets remain sanguine. Thats a pretty big "if" but AIR remains a very good investment risk-adjusted.


http://www.indexmundi.com/commodities/?commodity=jet-fuel&commodity=crude-oil-brent

Mod, I take your point about the potential for margin disconnect between Jet and Brent, here's a look at the two on a FOB basis in the U.S.

Over time I'd suggest the margin normalises and thankfully U.S. shale oil is ideal for refining to heavy distillate fuels such at Jet and diesel.

The market does seem to be infatuated with keeping AIR in and around its long term PE average of 10 and yet many other carriers with arguably inferior management are trading on PE's vastly north of there, go figure ? There's also the fact that PE's generally have expanded a bit with ultra low interest rates but AIR's hasn't.

[Beagle]

You could well be right Arbroath but perhaps it goes all the way back to the Eerebus disaster and Gordon gecko on Wall Street not liking airline stocks. Any way you slice and dice it some people's reluctance to invest in what is an extremely good airline stock trading on very compelling fundamentals seems somewhat irrational.

[Beagle]

One of the most well respected brokers has upgraded, (as I suggested they would yesterday). 12 month price target $2.64. Gross dividend yield of 7.2%.
Recommendation BUY. I expect all the other analysts will be upgrading if they haven't already. EPS forecast for 2015 29.26 cps.

Interestingly that broker valued VAH at half their present market price to arrive at $2.64 which was also before the collapse in oil prices. I'm not sure that taking such an aggressive approach to discounting the strategic value of VAH is appropriate given, a) The aforementioned dramatic drop in oil prices, b) The fact that VAH recently announced at the ASM that they're currently trading profitably and again this was before the Opec discord, c) The strategic route expansion opportunities the VAH shareholding brings to AIR, d) VAH are already working their rationalisation of routes and fleet with their yet to be finalised takeover of the 40% of Tiger they didn't already own for $1.
I reckon it's worth the face value they're trading at on the (ASX 41 cents) so that takes the fair value to $2.85 BEFORE oil prices fell off the face of a cliff.

[winner69]

You could well be right Arbroath but perhaps it goes all the way back to the Eerebus disaster and Gordon gecko on Wall Street not liking airline stocks. Any way you slice and dice it some people's reluctance to invest in what is an extremely good airline stock trading on very compelling fundamentals seems somewhat irrational.

Maybe mate but not totally irrational

Many times in my life I have tempted fate and fate generally seems to win.

God, or somebody else, sends messages in funny ways and those messages usually turn out to be true.

I have that feeling that if I buy AIR shares one of their planes will crash and kill hundreds of people. Like Master I will be very sad and blame myself. Fate works in funny and strange ways and god has sent me that message.

Nothing to do with Warren or Gordon - I won't be buying AIR shares. You and others, modandm in particular, should be glad I'm not eh.