AIR - Air NZ.

[iceman]

Base salary $1.4m for running an organisation with over 10,000 staff and with turnover over $5,000m and looking at circa $1,000m profit before tax this year...we're lucky to have him and I would think he'd be well entitled to a decent bonus if he beats the airline index. How does that base salary compare to your mate Jeff running HBL looking at $50m profit this year ?

Delta Airlines announced yesterday that they will pay USD 1.5 billion bonus to its 80,000 staff members. They get $18,750 each, including the CEO !!

[brend]

AIR announced Vietnam as a new destination back in November..They must be due to release the second new destination soon. Wednesday perhaps?

[Beagle]

Yes especially given it was January. I was underwhelmed, like the market reaction. Management in cruse mode.

I presume you meant cruise mode ? Really ? The facts suggest they're actually in overdrive.

First up AIR in its entire history dating back nearly 76 years has never grown anywhere near as fast as its growing this year.
YTD Available seat Kilometres have grown a whopping 15.8% and revenue passenger kilometres have grown 16%. This on top of last year which was historically considered a strong growth year when ASK's and RPK's grew 6% by comparison.

AIR's management have launched two brand new routes this year and a third is planned shortly for Vietnam.
The management and (marketing team in particular), have done a brilliant job of stimulating demand by a whopping 16% in what is generally considered to be softer economic conditions than last year while launching these new routes and I note this growth rate significantly outstrips the general tourism growth rate, itself a strong 10%.

RPK growth for January itself was in fact 9.8% on ASK growth of 12%. This against a backdrop of launching two new routes. Being realistic about it and understanding that new routes take time to develop I think January's result was very pleasing.

Yield in $N.Z is only down 1.1% YTD despite new routes, (historically launches with cheap specials) and demand growth being stimulated by 16% and all this while burning jet fuel that's dramatically lower than last year.

I'm not sure how anyone looking at the facts objectively could be disappointed with management's efforts. They've grown the airline very strongly at a great time to do so when fuel is dirt cheap and filled the planes well with minimal impact on yield. Credit where its due, management are doing a brilliant job in my opinion. Surely Chris Luxon and AIR New Zealand are hot favourites in the Deloitte 200 top business awards to get the CEO and company of the year awards this year.

I realise many people are disappointed by the recent SP performance but please don't blame management. This is simply Economics 101, the laws of supply and demand. Its clear that one or more institutions want to reduce their investment for reasons that you'd be best to ask them but may be to do with concerns over future competition. The way management are performing I am more than comfortable that they'll rise to any foreseeable challenges ahead and am more than happy to hold what's my #1 investment position.

[winner69]

Roger - I was saying Jan growth was slightly less than previous months. Like the 10% increase in RPKs was less than the 18% in December

Spose can't count on 18% every month

Maybe in cruise mode means reached full speed but in cruise mode maintaining the momentum (or something)

All good

Plenty of cash to give back to shareholders - yes?

[Beagle]

Yes December was a ripper set of stat's, so I suppose some were disappointed January didn't replicate them but anyone with a rudimentary understanding of airlines and networks understands you don't build new routes into super profitable parts of the network overnight. Operating cash flow for the first half will be a real highlight. They'll need to factor in some capex for new and bigger cash registers this year...

P.S. I checked my Mercedes manual and you're quite right about the cruise control...it can be set to maintain the maximum speed of 250 k.p.h.

[Raz]

Roger - I was saying Jan growth was slightly less than previous months. Like the 10% increase in RPKs was less than the 18% in December

Spose can't count on 18% every month

Maybe in cruise mode means reached full speed but in cruise mode maintaining the momentum (or something)

All good

Plenty of cash to give back to shareholders - yes?

Well said, I intended the double meaning however i will put my hand up that i was in a sarcastic mood. Bad me. All that has happened was the rate of change (growth) decreased..

In a growth oriented world it is interesting our expectations, a lower growth rate is seen as a bad thing (even if it is monthly rather than YTD figure) yet in reality the share price did not move in a growth oriented news bite. Expectations seem very high.

I know that I'm not the only one questioning some of managements recent actions however we will get an overall reasonable result as shareholders. This coming week will be interesting.

[Beagle]

If you call being on track to more than double last year's interim record profit "reasonable" then you're a very tough person to please.

[trader_jackson]

Air NZ have done well, in fact even a bit better than every other airline (that is also doing well right now)

Enjoy the good times while it lasts...

[Baa_Baa]

Air NZ have done well, in fact even a bit better than every other airline (that is also doing well right now)

Enjoy the good times while it lasts...

AIR SP doesn't seem to respect it's fundamentals, which by all accounts are extraordinary. It does correlate well to international market sentiment. The question one might ask is 'for how long does the excellent returns to shareholders outweigh the capital exposure to market sentiment'?

[Raz]

AIR SP doesn't seem to respect it's fundamentals, which by all accounts are extraordinary. It does correlate well to international market sentiment. The question one might ask is 'for how long does the excellent returns to shareholders outweigh the capital exposure to market sentiment'?

Investors looking forward know AIR has had a golden period of limited competition on some sectors which is now changing. Share price is just as much about future fundamentals vs current, in addition to market sentiment. It is already partly priced into the share price with uncertainty showing.

Current Fundamentals - sure historical trading has been extraordinary as they have benefit from lack of competition on some key sectors, as an example - AUC to LAX, sector prices rose on average $300-400 across that period after the loss of competition, a licence to print money. They have gained from monopolistic pricing however it can created whiplash when that time comes to an end, as many business case studies show. AIR naturally has diversified from the opportunity into new sectors yet the results are too early. More uncertainty. They may come through it well yet uncertainty on that plays out for now.

A higher than expected dividend is already the expectation..we wait to see on that one.

I was in Wellington last week where all the talk was about the overall multiplier effect of the loss of export income on the wider economy..more uncertainty yet the media is just talking about Dairy in isolation for now, so more to play out yet on that. That is before you take a world view...

To me there is no surprise with the current fundamentals disconnect with share price as it all in transition = uncertainty.