AIR - Air NZ.

[Beagle]

Really? And here was me thinking this site was about sharing..... not every shareholder can attend every meeting.

I need to crunch the numbers and work out my forecasts for FY16 and FY17 and then I'll share some more.

[winner69]

So if they make $95m in second half they beat last years earnings

[winner69]

And share price will double

[sb9]

I need to crunch the numbers and work out my forecasts for FY16 and FY17 and then I'll share some more.

Fair enough Roger, can you share that question you asked Tony in the meantime pls.

[sb9]

Very good article from NBR article today, not paid content.

http://www.nbr.co.nz/article/air-nz-...-400m-b-179786

Interesting to note that all 7 directors didn't accept pay rise despite being approved by shareholders, leading by example....great stuff guys!!!

[Beagle]

I am pretty sure Tony Carter was being a gentleman and many have asked more insightful questions over the years. But for what its worth I asked three questions in the meeting.
I'll post the first one and their response now and the others later when I get more time.

During the review of the FY15 financial results and FY16 outlook part of the meeting after complimenting them on their hard work and the financial performance of the company I asked them how is it that the company is going from strength to strength and more specially in light of the bullish current year profit guidance how is it that customer demand is so robust when almost every other day we have reports in the media from expert commentators that the economy is weak, business and consumer confidence are plumbing multi year lows and now we have the IMF coming out and saying the world is on the brink of slipping into a recession. Its seems something of a mystery ?

Chris Luxon gave an elongated reply. Heavily paraphrasing as best as I can recall he basically said a large portion of their customers see travel as an aspirational thing to do and weren't deterred by economic conditions.
I feel he didn't answer the question all that well and he answered it better in the article that's reported in the October 2015 Australian aviation magazine. (Worth buying a copy at Whitcoulls if people are interested)
Basically a large percentage of their customer base will travel regardless of economic conditions. Demand is strong against the backdrop of weak economic conditions both in N.Z. and also with most of our trading partners.
The naysayers will have to get used to being disappointed their negative expectations will not be met. The profit forecast in a weak economic environment says it all.

More on the other questions later. In the meantime here's a juicy titbit...the Dreamliners cost them $150m each and they're exceeding the companies high expectations of them both in terms of operational efficiency and customer feedback has been extremely positive. IIRC the retail on these is $260m. WOW what a discount !!!!! I wish I could buy a new boat with that sort of discount. They have 5 online now and one more to come later this month.
https://en.wikipedia.org/wiki/Boeing_787_Dreamliner Edit, according to Wikipedia the retail on a 787-9 is $U.S264m so it appears they got a whopping 43% discount on retail !!

[winner69]

Roger - I would hazard a guess and say those who fly (here and overseas) wouldn't even know what a 'recession' or 'slowing economy' looks like.

As they as they have a job (or spending their retirement money) they are happy (unaware of any recession or whatever) and will still fly.

In other words there isn't really an answer to your question because economy has little impact on demand - Luxon's reply is thus spot on.

Share price to rocket today?

[garfy]

A very sincere "Thank You" to Roger and Modandm for their input into this thread. Their well-reasoned positivity is appreciated. I enjoyed reading the report of the ASM, and, to date, I am giving more credence to the management of AIR than I am to the nay-sayers.

I am concerned for the 'worrier' of AIR's handling of the "Hong Kong incident", and politely suggest he sell his AIR holding, and perhaps reinvest in Qantas.

AIR is one of NZ's best companies - and David is coping very well with Goliath(s)!

[Beagle]

Roger - I would hazard a guess and say those who fly (here and overseas) wouldn't even know what a 'recession' or 'slowing economy' looks like.

As they as they have a job (or spending their retirement money) they are happy (unaware of any recession or whatever) and will still fly.

In other words there isn't really an answer to your question because economy has little impact on demand - Luxon's reply is thus spot on.

Share price to rocket today?

That's essentially it mate. As reported in the Australian Aviation article in the Oct 2015 edition he says a large part of their customer base demand doesn't change with charging economic conditions.
Tourism is booming... up 7% last year, demand has grown essentially in line with that as has their seat capacity.
The company is growing at its strongest rate in its 75 year history and they're doing that off essentially a static cost base, (they had 11,000 employees in 2013 and they still do in the FY16 year).
Fuel is cheap, labour relations are in good shape, international finance and operating lease rates are very low on the back of 50 year low interest rates, they have a very modern fuel efficient fleet, streamlined aircraft types e.t.c.
Just dumping the inefficient 19 seat Beechcraft planes saves them $1m a month.
Staff retention is very good. People simply don't want to leave. They are N.Z. most popular employer, (little wonder when the average salary is over $100,000 amongst 11,000 staff) and of the 1,000 positions that were filled last year, (indicates an average staff tenure of over 10 years) they had 55,000 applicants so they can easily pick and chose the cream of the crop.

Other snippets while they're fresh on my mind. All the old 133 seat 737's are now retired and Chris said the new 168 seat $50m A320's are only slightly more expensive to run but offer 26% more capacity.
ATR aircraft I understand are an accountants dream in terms of their operational efficiency. Chris Luxon talked a lot about the operational benefits of simplifying and streamlining the fleet.

He went on to say the company has never been in better shape and they are not afraid of competition at all. He said demand on the new routes is excellent, (a stronger adjective than what's used in the official text of the NZX press release).
I understand they are especially pleased with demand out of Australia for the new routes.

Still working on refining my EPS calc's for the next two years. Thanks Garfy, you're welcome. I suspect Mod will be hard at work on his revised projections. His bull case looks too conservative to me.

[Beagle]

Okay some preliminary calculations. Key point is the company has stated they are on track to EXCEED $400m before tax in the first half and that's BEFORE the positive contribution expected from Virgin.
I have assumed $430m inclusive of the Virgin contribution which is up ~ 100% on last year's $216m.

Last year with the route expansion into Singapore in the second half AIR earned just 43% of its profit in the first half. This year we have two new routes and the company is extremely bullish on sales demand on those routes and is on record as saying they'll be profitable from day 1.

Further, in this first quarter they still had some residual fuel futures contracts to work through at historical and less favourable rates. This won't be repeated in this quarter or the second half.

Nobody can reliably predict where fuel costs and exchange rates will go but based on the current rates for same being maintained this year I see no reason why with the two new routes and greater demand in the peak summer and autum seasons why the company won't make a very similar percentage of its annual profit for FY16, (57%), in the second half as it did last year.

On this basis my preliminary estimate for FY16 net profit before tax is thus $1b ($430 / 0.43) translating after full provision for company tax at 28%, (they seldom pay the full tax rate for a range of taxation reasons) to net profit after tax of $720m and based on 1,121m shares on issue this gives 64.2 cps.

I know that figure seems outrageously high but that's what the company is implicitly guiding towards based on best known currently available information.

Further, in FY17 they'll enjoy a full 12 months of the new routes (7 months this year) both international and increased capacity and frequency on domestic and with low international economic growth I see the IMF predicting we'll still have oil at $55 barrel during calendar year 2017 so assuming the currency and oil are stable around their present level's I see no visible reason at this stage why we can't enjoy 60 cps + EPS in FY17.

Going forward from there and assuming oil reverts back to $80-$100 barrel and the currency around 70 cents I see EPS of 50 cps being sustainable. Apply whatever PE you like but I'll use 11 so I can see the stock over $5 within two years when the market finally wakes up to what a massive cash flow machine this company is. $1b cash flow last year, nearly $1 a share !!

On this basis I estimate the shares are trading on a forward PE of only 4.3 for FY16. In my experience when companies are trading on ludicrously low PE's a lot of money can be made. Sure there are risks to the downside and upside but this is my best estimate of EPS at this stage.

DYOR but for what its worth I have tripled the size of my shareholding since yesterday's meeting. I think this is the stand-out opportunity on the market and the opportunities for special divvies in the years ahead along with capital price appreciation make this a compelling investment opportunity. I think the stock should currently be trading at close to or in excess of where QAN is presently priced.

I've been investing for about 30 years now and by my reckoning you'd be doing well to find a company that's better managed than this one. Directors and senior management are doing a stellar job and we are extremely well served by them. Its a true mark of the directors professionalism that despite the company growing profits strongly over the last three years and looking to approximately double last year's record profit this year they refused to take any increase in directors fees, simply enlarged the pool slightly for additional directors in the future. This company didn't win the Deloiite company of the year last year without very sound reasons, likewise Tony Carter Chair person of the year.

The company is extremely bullish on their outlook and so am I.

I'll post the other questions and answers later when I have more time.