AIR - Air NZ.

[thestg]

Yes Winner, I have built a trailing stop loss into my spreadsheet. It follows the rising price at a slightly lower percentage than the price rises. When/If it gets to the price that I bought in at, it highlights the share to show me that I am now in profit with my trailing stop loss. So far this year I have achieved that with 3 shares ATM, EBO & SCL.

[winner69]

AIR is a cyclical stock

Disc: Have AIR stocks

OMG Hoop - this 'AIR is a cyclical stock' and another comment posted by somebody else saying 'air travel is largely commodified, and consumers are price sensitive.' will outrage some on this thread. Even worse I posted a comment that airlines are obsessed with profits

They might even ask us to refrain from posting on this thread

[winner69]

Yes Winner, I have built a trailing stop loss into my spreadsheet. It follows the rising price at a slightly lower percentage than the price rises. When/If it gets to the price that I bought in at, it highlights the share to show me that I am now in profit with my trailing stop loss. So far this year I have achieved that with 3 shares ATM, EBO & SCL.

For AIR I use a trailing stop loss based on 2 times Average True Range. Currently that is $2.52

That 2 times ATR is pretty tight to reflect inherent risks in airline shares and as Hoop says it a cyclical stock. It also reflects that I bought at a time with a fair amount of hype around AIR and as we all know anything can happen when this is the case.

Hopefully his will be a long term trade ......if it starts well I probably be more generous with the stop less.

[banter]

Here's a list of the three biggest corrections (dividend adjusted prices) over the past 18 months in AIR.
Dividend adjusted prices exaggerate the falls,.

The corrections are given as a percentage, and ATR measured over the 50 days prior to the correction.
I held throughout.

Hi date	hi pr	Lowdate	Low pr	Fall%	ATR-C	ATR-C-M
23/06/14	1.960	28/07/14	1.555	20.7%	1.43%	14.48
08/09/14	1.935	14/10/14	1.625	16.0%	1.24%	12.91
29/05/15	2.895	18/06/15	2.300	20.6%	1.32%	15.58

[banter]

For 2016, I took AIR's figures for 2015, and added 10% for inherent growth, added fuel savings ($363m), subtracted currency losses ($70m), took off 28% tax from the fuel and currency adjustments, and added $27m, for Virgin to break even.

For 2017 I assumed fuel cost and the exchange rates remained the same as those used in AIR's 2016 projections.
And added another 10% for inherent growth. VA to break even again.

Those assumptions give the following:

	15a	16	17
npat ul 1)	357	623	459
eps ul	0.319	0.556	0.410
po %	50%	50%	50%
gdps	0.222	0.388	0.286
gy%	8.9%	15.6%	11.5%

As to historic PE - since 2007 the median annual low PE is 8.4; median annual high is 12.7.
Mid point is 10.6
Morningstar figures used.

If those figures are right, it would seem reasonable for the market to 'look through' the abnormally high 2016 profit and use some estimate of 2017 profit to value AIR - with due allowance for a special div of say 15cps in 2016.

A PE of 10 on the 2017 eps would give $4.10 in 2017.
Or say $3.38 now (discount $4.10 at 10% for two years), plus 15c = $3.53.

Thinking more about 2017 profit - as others have said, AIR might well lock in 2016 fuel cost and exchange rates for 2017, by hedging.

After that - those two things have as much chance of going up as going down - so the mid case could be to use today's values for both.

Doing that gives this:

	15a	16	17
npat ul 1)	357	623.6	686
eps ul	0.319	0.556	0.612
po %	50%	50%	50%
gdps	0.22	0.388	0.427
gy%	8.3%	14.5%	16.0%

PE 10 as above gives values in 2016 of 5.56, and 6.12 in 2017
Virgin again assumed to break even both years.

[Beagle]

OMG Hoop - this 'AIR is a cyclical stock' and another comment posted by somebody else saying 'air travel is largely commodified, and consumers are price sensitive.' will outrage some on this thread. Even worse I posted a comment that airlines are obsessed with profits

They might even ask us to refrain from posting on this thread

Okay I'll have a little nibble at that. People keep saying its a cyclical stock and history suggests it is BUT how is it that for about a year now its been well known that Dairy prices were going to come under severe pressure and they did getting to their lowest level in about 10 year's early in winter. This caused consumer and business confidence to hit multi year low's, just this week we had the NZIER saying business confidence was at a four year low and earlier in the month we had another survey saying consumer confidence was at a multi year low. This week we also has the IMF warning we are on the brink of a world-wide recession and consumer and business sentiment has been poor for the vast majority of 2015. Somehow the brokers consider all of the above to be the peak of the cycle and yet throughout all this time aircraft loadings have been very strong at circa 83% all year and most of last year. I have been saying for quite a while now that with low oil and 83% aircraft loads the cash register at AIR is ringing like crazy and now we have confirmation of this from the company this week.

Against this backdrop of low confidence both here and amongst almost all of our trading partners people are still spending money with AIR to such an extent that it is quite plausible that they will get close to doubling last year's profit, itself an all time record !

How does one explain this strong demand in such sustained soft economic conditions ? Have we seen a shift to a point where people think nothing of taking a flight to Queenstown or Australia seeing as often it costs little more than filling up the gas tank of a decent sized car ? In real inflation adjusted terms is Air travel now so relatively cheap demand becomes almost completely inelastic irrespective of economic conditions other than perhaps another GFC ?, (this assumes one thinks we're out of the first GFC).

Each day I get the daily deals on www.grabaseat.co.nz. Today's one that tempted me was $49 Auckland to Nelson...you can hardly buy a decent dinner and drinks for that. Maybe 99% of their customers don't care what the GDT auction price is or that the China economy is soft or that Greece can't pay its bills or that Putin is a ........ or insert whatever other N.Z. or global worry you care to mention. T.C and I had a little chat about the cash flow of the company after the meeting. Everyone knows they have $2.6b for new aircraft capex over the next 4 years, not everyone knows this will be an absolute doddle of a walk in the park for them and their will be cash to burn if oil stays at a moderate level... (read special dividend(s), share buy-backs or both).

$1.1 billion in cash flow last year. Nearly $1 a share. Wonder what this year's cash flow will be ?

Nice analysis Banter. Virgin is forecast to be profitable in FY16 and more so in FY17

thestg Welcome to the forum and welcome aboard as a shareholder. Dividends will easily cover your interest payments so I think you're well positioned.

[couta1]

Now that your an Air shareholder winner(Congrats) you will be able to put your wooden spoons to good use and bake a nice cake and decorate it with toy planes PS-I see Air was just awarded longhaul airline of the year.

[Poet]

Damm I checked my e.mail inbox for the invite from Chris Luxon and all I found was yet another contract note for another 10,000 AIR shares...how disappointing

http://www.stuff.co.nz/travel/news/6...ity-One-lounge

Would seem to me that the company (and shareholders) would benefit by extending these invitations to their larger shareholders - an incentive to hold the shares rather than sell maybe, might be particularly attractive amongst the institutional holders where it isn't their own money they have invested.

[winner69]

Okay I'll have a little nibble at that. People keep saying its a cyclical stock and history suggests it is BUT how is it that for about a year now its been well known that Dairy prices were going to come under severe pressure and they did getting to their lowest level in about 10 year's early in winter. This caused consumer and business confidence to hit multi year low's, just this week we had the NZIER saying business confidence was at a four year low and earlier in the month we had another survey saying consumer confidence was at a multi year low. This week we also has the IMF warning we are on the brink of a world-wide recession and consumer and business sentiment has been poor for the vast majority of 2015. Somehow the brokers consider all of the above to be the peak of the cycle and yet throughout all this time aircraft loadings have been very strong at circa 83% all year and most of last year. I have been saying for quite a while now that with low oil and 83% aircraft loads the cash register at AIR is ringing like crazy and now we have confirmation of this from the company this week.

Against this backdrop of low confidence both here and amongst almost all of our trading partners people are still spending money with AIR to such an extent that it is quite plausible that they will get close to doubling last year's profit, itself an all time record !

How does one explain this strong demand in such sustained soft economic conditions ? Have we seen a shift to a point where people think nothing of taking a flight to Queenstown or Australia seeing as often it costs little more than filling up the gas tank of a decent sized car ? In real inflation adjusted terms is Air travel now so relatively cheap demand becomes almost completely inelastic irrespective of economic conditions other than perhaps another GFC ?, (this assumes one thinks we're out of the first GFC).

Each day I get the daily deals on www.grabaseat.co.nz. Today's one that tempted me was $49 Auckland to Nelson...you can hardly buy a decent dinner and drinks for that. Maybe 99% of their customers don't care what the GDT auction price is or that the China economy is soft or that Greece can't pay its bills or that Putin is a ........ or insert whatever other N.Z. or global worry you care to mention. T.C and I had a little chat about the cash flow of the company after the meeting. Everyone knows they have $2.6b for new aircraft capex over the next 4 years, not everyone knows this will be an absolute doddle of a walk in the park for them and their will be cash to burn if oil stays at a moderate level... (read special dividend(s), share buy-backs or both).

$1.1 billion in cash flow last year. Nearly $1 a share. Wonder what this year's cash flow will be ?

Nice analysis Banter. Virgin is forecast to be profitable in FY16 and more so in FY17

thestg Welcome to the forum and welcome aboard as a shareholder. Dividends will easily cover your interest payments so I think you're well positioned.

I thought you, me, Luxon et al agreed the other day that economic conditions have little impact on demand for air travel.

The so called 'cyclical' nature of airline stocks is because of price of oil / currency impacts on earnings (not demand)

As an aside the NZ economy is chugging along quite nicely methinks

[winner69]

Here's a list of the three biggest corrections (dividend adjusted prices) over the past 18 months in AIR.
Dividend adjusted prices exaggerate the falls,.

The corrections are given as a percentage, and ATR measured over the 50 days prior to the correction.
I held throughout.

Hi date	hi pr	Lowdate	Low pr	Fall%	ATR-C	ATR-C-M
23/06/14	1.960	28/07/14	1.555	20.7%	1.43%	14.48
08/09/14	1.935	14/10/14	1.625	16.0%	1.24%	12.91
29/05/15	2.895	18/06/15	2.300	20.6%	1.32%	15.58

Trailing stop losses based on ATR would have locked in good gains in all those instances. Short to medium traders keen on the stock would have had had several re entry levels as well.

If dividend adjusted prices exaggerate the falls isn't there a danger in using them -see Hoops comments earlier