AIR - Air NZ.

[Beagle]

Only need 10,000 AIR shares to get $2,200 divvies a year, enough for a free flight to Europe, how cool is that !
Need quite a few more to afford to stay there in decent digs for a couple of weeks though

[bull....]

price war begins

https://www.nzherald.co.nz/business/...ectid=12208482

[Beagle]

I reckon Chris Luxon had his toughest year ever last year. Looks like he has plenty of gas left in the tank so too speak which is a good thing in my opinion.
https://www.msn.com/en-nz/money/news...cid=spartandhp

[couta1]

price war begins

https://www.nzherald.co.nz/business/...ectid=12208482

$35 one way from WGTN to Q/town sounds good but add 2x 23kg bags and see if it betters Air. Haha I just checked and Jethole is $448 return with 2×23kg bags versus Air at $256, the Devil is in the detail with the Jetty one.Lol

[Joshuatree]

You'll have to ride with the beagle dog in the Hold your breath cargo section with a load like that.
Thats why they named it cargo HOLD btw

[Raz]

Only need 10,000 AIR shares to get $2,200 divvies a year, enough for a free flight to Europe, how cool is that !
Need quite a few more to afford to stay there in decent digs for a couple of weeks though

Yeah Switzerland is rather expensive yet so memorable...less domestic flights when you go like this... there and that you will be able to afford here!

https://www.glacierexpress.ch/en/win...SAAEgKYpvD_BwE

[Beagle]

Trying to get my nose to work on this one and see if we're close to a bottom but the fumes from burned jet fuel are very strong so will rely on gut feel as well along with FA but TA says stay out, have to acknowledge that.

I really would be extremely surprised if Snow Leopard got his desired $2.04, (but stranger things have happened in the aviation industry) and to be honest part of me would like to see this level so I can really open my shoulders and do a Couta1. I think we are pretty close to a bottom, (especially if one looks through the immediacy of the near term dividend and takes a view that they're effectively investing at $2.47 - 0.11 = $2.36 ex divvy). I think most professional investors and the analysts are trying to look through the remaining effects of the trials, tribulations and costs (both direct and indirect), of the long running Rolls Royce fiasco to determine how the airline will perform in the lower growth environment in FY20 once these issues are resolved.

I think the starting point in considering this medium term investment case is there will still be some lingering RR issues in FY20, especially the first half and Luxon admitted in the call they still expected to have one "dream"liner on the ground by September 2019, two at present, but worth noting they have had up to 5 in the first half of FY19 just gone.

My view is they can make somewhere around 30 cps in FY20...I really don't want to be more prescriptive than that as forecasting in the airline industry is fraught with serious risk !
This is in line with how the analysts are seeing it for FY20 and beyond, see here..https://www.marketscreener.com/AIR-N...07/financials/ Average analyst view is actually 31.4 cps in FY20, I will stick a little lower at this stage.

So medium term what's the investment case seeing as TA looks so terrible ?

Looking through the immediate 11 cps dividend and looking at this as effectively a $2.36 ex divvy investment for the medium term what do the metrics looks like ?
1. FY20 forward PE 236 / 30 = 7.9. Looks cheap but where are we in the cycle ?...anyone's guess how demand would hold up in a recession so maybe not so cheap ?
2. Dividend sustainability. Management are extremely confident about their ability to pay out the current level of dividend on a sustainable basis and barring a quite significant recession I think their confidence is well founded. 22 cps per annum grossed up for imputation credits = 30.55 cps / 236 = 12.9% per annum gross. I think that's extremely attractive but its not without risks, its the aviation industry, enough said !

How did QAN fare with the fuel price pressure compared to AIR's profit reduction ? https://www.asx.com.au/asxpdf/201902...1n99nr8qn5.pdf
I think its clear they did better, (but weren't handicapped by RR engine issues), and Luxon and his team have some serious work to do in terms of their strategic review.
RR engine issues appear to be drawing slowly towards an eventual resolution, see https://www.marketscreener.com/BOEIN...-end-28091275/

Medium term I think AIR are well positioned in terms of their fleet requirements and the new A321 Neo fleet, (provided they prove to be operationally robust), should deliver some very good efficiencies on short haul routes and it will be good to see all the 787's operational again. Who knows how long it might take before FAA to grant extended ETOPS again but I doubt it will be in the near future.

Looking out to FY21 and beyond I think AIR are well positioned and hopefully having put some very serious operational issues behind them and with the benefit of a strategic review they should be more slightly most cost efficient and very well placed to compete and capable of earning 30-40 cps on an ongoing basis.

Investing now I guess it comes down to whether you back Luxon and his team to do a thorough strategic review or not and whether you think this is close to a bottom or not ?. I am quite pleased that they are taking their time with this review which gives encouragement that it will be comprehensive. He looks well energised in the video I posted yesterday after a tough year and I expect he will stay on for quite some time which I think is a good thing.

Nobody should rely on me to be picking the bottom here, (aviation is simply too volatile) but on an ex divvy basis buying at $2.36 or cum divvy at $2.47 the metrics especially the gross yield look encouraging.
Disc: Accumulating for dividend income and not expecting much if any capital gain in the near future..but over the due course of time I expect we will see north of $3 again and the possibility of a special divvy in FY21 or Fy22 is very real in my opinion.

My rating BSA (Beagle slowly accumulating)

[BlackPeter]

Good analysis ... (where is the reputation button when you need it?) - even if I personally would still be a bit careful with accumulating ...

The dip in tourism and immigration might cause (temporarily) more damage than we currently think / hope.
Not sure about this price war on the home turf either ... great for customers but not so great for shareholders.

But - while I personally expect the SP to drop further, I agree that in the long run it probably is at least a "fair" buy.

[Baa_Baa]

Thanks for the thoughts Beagle. I was surprised by the impact of Jet fuel on the results, Jeff McDowell said "We delivered earnings before taxation of $211 million. And although this is a decline of 35%, you'll see shortly that this was largely the result of a significant increase in fuel prices." ... "earnings were hugely impacted by $131 million headwind from increased fuel prices. That $131 million net impact was driven by $146 million, or 31% increase in the average price of jet fuel from USD 67 to USD 87 per barrel, which was then partially offset by an additional $15 million in gains from our fuel hedging program."

That knocked the wind out of the results which otherwise showed growth in revenue and other key metrics. The volatility of jet fuel prices clearly isn't sufficiently offset by the hedging program having only a relatively minor ($15m) effect on the period results. I'll be monitoring the price of jet fuel more closely given its impact, as you can see here (IATA Jet Fuel Price Monitor), prices are rising off 2015/16 lows but still nowhere near highs as recently as 2012-2014.

I'm more inclined to continue to forego the dividends and keep an eye on the TA chart for a re-entry on potential further SP weakness in the cycle. The TA currently, by itself, suggests a very risky proposition buying in now. Best imho for the capital sensitive types to exercise patience.

[Beagle]

Thanks for sharing your thoughts guys. Always useful to have good thoughtful constructive counter views
Quick check of comparative PE's suggests AIR is not especially cheap, what on earth is with American airlines PE ?...but here we are...looking ahead
QAN FY20 9.1 FY21 8.9
Delta FY20 7.0 FY21 6.4
American Airlines FY20 5.5 FY21 4.8
United Continental FY20 7.3 FY21 6.6
AIR FY20 7.5 FY21 7.1 (based on average analyst forecast and based on ex divvy price of $2.36).
Seeing as 97% of all AIR stock is held by parties other than retail NZ shareholders one ignores those international PE comparisons at their peril.

Hmmmm might pay to go a bit slower on the accumulate and watch the technical's more closely.

That said I do expect AIR (barring a major exogenous shock) to trade in the ~ $2.00 ~ $3.50 range in the years ahead and its currently trading in the lowest quartile of that range, (hence my accumulate approach) and at a close to 13% gross yield I don't regret getting a few more this week.

My view is AIR is currently priced about right, (very slightly cheap) until such time as the uncertainty of RR issue is fully resolved and the outcome of the strategic review is known, which brings me back to the yield of 12.9%. I'm not aware of any other company listed on the NZX paying a similar yield that also doesn't carry material risk. HLG for example another stock paying a similar yield but also not without risk if the economy goes pear shaped.