AIR - Air NZ.

[modandm]

There is no way Qantas will enter AKL-LAX/SFO. As noted by others NZ has a strong position and lower costs here. There is a risk a US carrier enters, but I think its relativly low.

The stock price has seen recent strength on broker upgrades, but I still see alot to go for. Recent NZD strength is positive and incrediby timely given the huge USD capex occurring in the next 2 years.

Per my current base case EPS of 30c for FY15, growing to 35c in FY16. Choose your PE multiple, and remember this give 0 value to VAH stake (worth 30c per share)

Assumptions are:
Jet $128 USD
NZD 0.83 USD
Revenue growth of 1.5% this year, 6% FY15, 4% FY16

The interesting things will be:

- VAH recovery?
- Rising free cash flow generation - leverage rises with new fleet short term, then falls fast given super-strong operating cash flow generation
- What will management do in FY16-FY17-FY18 with the fast growing cash pile, special dividends please!!

My approach here is to enjoy the ride until I see turbulence ahead.

[modandm]

Oh and as an aside, its been an incredibly rewarding investment for me over the last 2-3 years, I hope others have enjoyed the gains.

Watch the business, not the stock price.

[psychic]

Oh and as an aside, its been an incredibly rewarding investment for me over the last 2-3 years, I hope others have enjoyed the gains.

Watch the business, not the stock price.

Very much so and largely because of your analysis Modandm. Thank you for sharing.
Topped up again today, a great ride.

[Robomo]

Oh and as an aside, its been an incredibly rewarding investment for me over the last 2-3 years, I hope others have enjoyed the gains.

Watch the business, not the stock price.

I've stuck with AirNZ having believed in the direction the airline was taking under Rob Fife and then Chris Luxton. Reinvested in shares when this was available and purchased a few when they were cheap and now have a sizeable holding.

Modandm is quite right - watch the business, not the stock price.

All the ducks are lined up for AirNZ - US self-sufficient in oil so this will dampen any trends to increase fuel price, new fuel efficient planes (bought at very good prices as the GFC hit airline orders in 2008), more travellers as airfares drop, near-monopoly domestically, good exposure to Australian market (Virgin are looking reasonably good to becoming more profitable in the medium term as Qantas continues to bleed), good staff morale and vigorous and agile management.

Even though airlines are traditionally a risky investment it's hard to see any dark clouds on the horizon for Air NZ.

I won't be selling and I expect that dividends will reflect the increasing share price.

[Beagle]

Some great points noted above. Yeap, the development of the massive shale reserves in Amercia and Canada have gone ahead at considerable pace and there's plenty there. I've heard that shale reserves are more easily refined into diesel and jet fuel, rahter than regular petrol, can anyone confirm that ? Another good point about plane orders during the GFC, I'd imagine if those same planes were ordered today the price would be materially more expensive.
Budget predicting 4% economic growth...rock star economy...lets hope the Reserve bank takes a more reserved approach towards any further application of the brakes...just let the economy grow for goodness sake.

Anyway here's a few comparitive PE's from airlines I chose at random this morning, no doubt others will have a view on what's the best comparitive airline but here's a bit of research to hopefully spark some discussion on what PE is apprpriate and fair for AIR at this stage of the economic cycle because too me it seems AIR is very cheap
What's the right PE Ratio for AIR ?

Here's some comparisons but please feel absolutly free to add to the list

Cathay Pacific
Consensus view of 22 analysts for Dec 14 earnings HK$ 1.13 per share, current SP
$15.26 current year PE = 13.5
http://www.reuters.com/finance/stock...symbol=0293.HK

Delta Airlines
Consensus View Dec 14 EPS of $U.S2.98, current SP 38.13 = PE of 12.8
http://www.reuters.com/finance/stock...t?symbol=DAL.N

Singapore Airlines
Consensus view Mar 15 EPS of 51.57 cents current SP$10.25 = PE of 19.9
http://www.reuters.com/finance/stock...symbol=SIAL.SI

Even if we use a conservative forward PE of 10 for AIR given its a relativly small regional player and assume a forecast earnings of $350m for 2015 which would appear to be quite plausible for EPS pf circa 32cps that gives a $3.20 SP this time next year all going well, a 50% gain on this mornings price of $2.13.
What am I missing here ????, this stock seems far too cheap.

[biker]

Although this is about QAN and VAH it relates to AIR also indirectly.


Qantas has finally blinked in a vicious capacity battle with Virgin Australia that could result in the larger carrier reporting a record loss approaching $1 billion.
Qantas will freeze domestic capacity in the first three months of the financial year because of weak consumer confidence and a slowdown in the mining sector that have hit at a time when capacity has outstripped demand.
It marks the formal abandonment of a strategy of maintaining a line in the sand at 65 per cent domestic market share, which was meant to maximise profitability.

Alan Joyce: happy with 63 per cent.
In January, Qantas chief financial officer Gareth Evans said ''stepping back from the 65 per cent would effectively be waving the white flag''.
Qantas chief executive Alan Joyce had led a campaign seeking a debt guarantee from the federal government to level the playing field against foreign-backed Virgin, in a move that might have prolonged the capacity battle.
But Prime Minister Tony Abbott in February turned down the request, offering instead to push for foreign ownership restrictions on Qantas to be lifted, in a move that has yet to be approved by the Senate.
In a presentation to investors at the Macquarie conference in Sydney this month, Mr Joyce indicated the carrier's market share stance was softening.
He said the airline was comfortable with its current position of about 63 per cent and was more focused on maintaining frequency and network advantages that help attract and retain customers.
The airline on Wednesday told investors total domestic capacity growth, including Qantas, QantasLink and Jetstar, would be ''zero in each of the first three months of financial year 2015 compared with the prior corresponding period''.
But the statement left room for Qantas to cut capacity in the mainline division while adding it in Jetstar, if it chooses, in line with long-running trends.
Qantas provided the update to the market alongside weak April traffic statistics, with the timing linked to it pulling some flights and placing smaller aircraft on others for the July-to-September period.


Read more: http://www.smh.com.au/business/qanta...#ixzz32OJfh23c

[Beagle]

http://www.stuff.co.nz/travel/news/1...st-test-flight

Finally !! Take-off for the first of our beautiful new super efficient Dreamliners, doesn't she look impressive !!

[macduffy]

http://www.stuff.co.nz/travel/news/1...st-test-flight

Finally !! Take-off for the first of our beautiful new super efficient Dreamliners, doesn't she look impressive !!

Yes, looks great! I wonder how it travels back in "coach" class?

[modandm]

Nothing that moves the needle short term, but a decision has been made with regard to replacing current A320 international aircraft (currently on lease).

Points of interest:
- decision taken to wait for the A320neo, rather than take ceo's earlier and have full commonality with domestic fleet
- ordering a minimum of 3 A321's with options to convert A320's
- rapid arrival schedule (13 in 2 years!!)

My thoughts:
- although the leases are ready to exit in the near term, the economics of the NEO, especially on the longer sectors NZ operates (3 hours is the shortest), have been too significant to ignore
- A321 clearly offers growth potential, and lower CASM
- reflecting the fact NZ would prefer them sooner, they have gone for an accelerated delivery rate

This does mean the current A320's will probably be strung out till replacement. They are generally in okay shape so I wouldn't expect a refit. Expect complaints in 2016 and 2017 as they look old though

Looking forward to 30 August

mod

[Schrodinger]

Great timing with the plane announcement. This will drive further efficiencies through to profits (hopefully). If the NEO is already in production this is a great move. The 787 delay has cost the company 2 years of progress.

Should be a solid future for Air NZ.