AIR - Air NZ.

[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-re...-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-th...cal-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.

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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-p...ectid=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!!!!

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/ar...ectid=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.