AIR - Air NZ.

[percy]

your friend should know better percy. There are enough passenger aircraft crossing the tasman to carry frieght that there is noo need for a freighter (except DHL's own).

the 777-300er carries 40% more freight than a passenger 747 and emirates are flying a number of them daily from nz to sydney with an average passenger load of around 50-60%, well below what is economic. They have MASSIVE excess capacity to carry frieght and try and make up of the losses on the route. AIR can't and doens't want to compete in this market because they will lose money - AIR actually entered an agreement with emirates to cooperate by acting as a freight reseller for Emirates - effectively clipping the ticket.

Further AIR had a freighter and got rid of it. You can be assured they did the numbers.

I beleive AIR got rid of their freighter , {a DC 8 series 50}which was the wrong aircraft 20 years ago.
Emirets out of Auckland and Chtristchurch carry up to 40 to 50 tons a day.This capacity can be booked up months in advance.
Qantas and Singapore carry 100 ton out of each ChCh/Auck a day.Because AIR are full of passengers their capacity is only 2 tons per plane.ChCh with fish/meat is stretched.

[Jay]

This service stated about 4 years ago.Sydney,Auckland,christchurch,Sydney.was 4 days a week using a 767.they then brought a 767-200 from USA,which ran 5 days a week. They have now brought a freighter x ANAreg VH-ERF which works 6 days a week.Qantas are more than happy with the loads they are achieving.

Thank for the info percy

[modandm]

I beleive AIR got rid of their freighter , {a DC 8 series 50}which was the wrong aircraft 20 years ago.
Emirets out of Auckland and Chtristchurch carry up to 40 to 50 tons a day.This capacity can be booked up months in advance.
Qantas and Singapore carry 100 ton out of each ChCh/Auck a day.Because AIR are full of passengers their capacity is only 2 tons per plane.ChCh with fish/meat is stretched.

re AIR NZ freighter - the 747 RTW freighter service commenced in 2005 and ended in march 2009 - pretty much ends the discussion.

Air NZ 747 freighter - http://www.airnewzealand.co.nz/press...auckland-05apr
http://www.airnewzealand.co.nz/asset...esentation.pdf - termination of lease march 09

But Percy - thanks for the info - the point your friend brings up is interesting isn't it. I think the problem for Christchurch is that Air NZ only flys a320's there which as you say are limited in their freight capacity. Focusing on Chch origin trans tasman

Emirates with the 777-300 40-50 tons trans tasman sounds right
Qantas freight 767 maybe 50tonnes a trip tasman. 1 trip per day.
Air NZ a320 under 10t daily.

Then to asia
SQ flys the 777-200 to Singapore - and would carry 10-20 tons max I would guess.

So I guess from the perspective of a farmer paying air freight from CHCH you would bemoan the lack of competition. Still there is not much of an under supply. Should emirates go twice daily the market will be oversupplied. Hardly room for NZ to employ a dedicated 767, much less a 747. What could happen is AIR upgauge a a320 to a 777 but this is unlikely to happen as the 777s are needed for long haul from akl.
Out of Auckland the picture is alot more balanced -

NZ dominates to USA/Canada maybe 20-30tonnes daily
NZ dominates China - maybe 10-20tonnes daily
NZ has a presence trans tasman with widebodies to MEL, BRI but codeshares with EK to SYD because 2 767's to SYD don't cut it.
EK dominates TT with multiple 777s and a380
SQ KE TQ carry 10-20t per flight on to their hubs unopposed
QF no presence besides freighter

When might it change?
when 787s replace 767s there will be a big lift in cargo AKL-SYD
if AIR converted a 767 to 767ERF to face up to QF

thats pretty much it.

I think we both understand now that there is no economic justification for an AIR freighter. It costs too much and cant compete with EK once one off spares training pilots are taken into account. Chch will continue to go underserved im afraid

[Jaa]

Modandm is right, freight is really only a bonus to airlines.

I would say today's announcement of Air NZ's new OneSmart Airpoints/MasterCard card is more significant. Loyalty is where the majority of Qantas's profits come from and the OneSmart card looks pretty compelling. I am travelling overseas at the moment and no ATM fees would be useful. The key decider for me will be the exchange rates used as this is where the banks make a lot of there money. NZ bank spreads are often 2% or more. I found this bit of information which is intriguing but just a tease.

What is the exchange rate when I transfer money between currencies on my OneSmart Account?

Answer: Specialist foreign exchange providers are worked with to obtain great exchange rates at the time of your transfer. You can get a quote or view up-to-date exchange rates by logging in to your OneSmart Account and selecting Manage Wallets.

Have been disappointed with Air NZ's performance of late which I think has been heavily affected by the earthquakes in Christchurch and to a lesser extent Japan. Any long term structural shift away from Christchurch to Auckland is bad news for Air NZ as it reduces the need for people to fly domestically regularly, especially high value business travellers.

[percy]

modandm,
thank you for the post.most informative.No more from me about a freighter.!!!!! I did also learn that Emirates takes that freight a lot further than Sydney.

[CJ]

I would say today's announcement of Air NZ's new OneSmart Airpoints/MasterCard card is more significant. Loyalty is where the majority of Qantas's profits come from and the OneSmart card looks pretty compelling. I am travelling overseas at the moment and no ATM fees would be useful. The key decider for me will be the exchange rates used as this is where the banks make a lot of there money. NZ bank spreads are often 2% or more. I found this bit of information which is intriguing but just a tease.

I agree the card looks promising. there is an account fee (though not always payable and cheaper than a credit card). I also think I did see the exchange rate (check the account fees page maybe). I think it said Mastercard and 2.5%????

[modandm]

Modandm is right, freight is really only a bonus to airlines.

Have been disappointed with Air NZ's performance of late which I think has been heavily affected by the earthquakes in Christchurch and to a lesser extent Japan. Any long term structural shift away from Christchurch to Auckland is bad news for Air NZ as it reduces the need for people to fly domestically regularly, especially high value business travellers.

you and me both Jaa. Although I disagree with you on the causes.

From my ss which tracks operating stats:
- Domestic RSK growth has averaged 4.6% over the 8 months since the quake
- Tasman Pacific RSK growth has averaged 7.9% over the same
- Longhaul RSK growth has averaged -6.8% over the same

My take is that the domesic and trans tasman business are in rude health (even after chch) - as good as they have ever been. The intro of grab a seat and s2s has really stimulated demand across both businesses and capacity is set to increase significantly over the next 4 years with the A320s and new ATRs domestically.

Its the Intl business thats slow - and its not just japan. The Uk and US are having a poor year with the current economic woes. Looking forward to the preso this week and hearing about upcoming changes to fix the longhaul business.

As you say increasing loyalty and that business is great for the co. The new cards are a good idea - and the trial of oneup will be interesting.

No doubt about it the level of innovation at NZ is fantastic - this follows the success of reverse auctions grabaseat et al. Lets see it drive SH value over the next year.

[modandm]

A belated update from me on the investor presentation, fallout, recent operating stats, and outlook - a month before the interim results announcement.

Also - read my outlook at the end for new destination predictions including a south american destination - something I know some of you have long been waiting for

INVESTOR PRESENTATION SUMMARY:

- NZ present on loyalty strategy (onesmart)
- Discuss a/c funding strategy
- Business update:
- Domestic recovering well from Chch and continuing to be company's goldmine, new A320s going well and ATR-600 ordered, looking to grow
- TT & PI sustainable profitability amazing VBA alliance going well, new destinations 2012 (Hobart, Canberra or Newcastle my guesses)
- Intl - little said of value - more later

Trading environment: Commentary that operating conditions remain "challenging" and overall still expect "some improvement" on 2011 depending on economic conditions.

- Partnerships explained types and NZ experience and seeking to grow partnerships

Long Haul: target $110m profit improvement by FY15 - interesting wheel of sources keys are fleet (787), ancil rev(more travel packages i think), alliances (ANA announced - whos next?), also grow Pac rim business
787-9 - leisure configuration expected (seats IFE food) - a bit cryptic here. Clearly the config will be high density low premium seatcount relative to 777-300er but how will IFE and food be "leisure" orientated? Can't imagine buy on board for flights to China/Japan.
Grow Pac rim business - China deepen and grow (will they increase agreement from 7 weekly?), recover Japan (of course), explore new markets in South America, Asia, USA - (here more indications of ambitions and priority I think)
Fleet - Noted opportunity to replace 777-200 with 787-9 (1st time I have seen acknowledged but a clear must do)
Cost base - Renewed focus on cost base (long overdue in my opinion - must be tackled and redundancies inevitable unfortunatly)

FALLOUT

Analysts from all major brokers downgrade FY12 estimates on the back of management downtalking results. Clearly commentary from management is less optimistic than at FY11. Recovery taking time and ongoing EU weakness having an impact.

I won't break down every research report but most have downgraded target from $1.30-1.50 to $1.10- 1.20. Very disappointing for all shareholders.

And the shareprice falls from around $1.10 to around 85c-90c and is currently at around 90c. More research comes out from DB saying that AIR is now at the same discount to BV as it was in GFC 2008.... around 0.6 P/B. Actually DB still have $1.43 12 month target so what I wrote above re target prices was a bit worse than is the case. Concensus is now $1.27 - must have been around $1.40+ prior to preso. CS at 1.15 UBS 1.19 GS 1.20.

Interesting that DB has (i think) the highest target price and is also the IB advisor for AIR (see VBA purchase).....

RECENT OPERATING STATS

Quick comments only on Nov and Dec stats.

Overall yoy growth is negative 1% roughly
Domestic growth anemic at 1.8%
tasman pacific growth slowing - seats to suit now 15 months old so growth slowing as last year growth was 13% for nov and dec (anything above 4% is good now)
longhaul growth -5% - this is the big weight on the business. North America not growing (but profitable) and same sad story for Japan Asia UK.

Really its just the same story every month. The sooner the longhaul review takes effect the better.

MY OUTLOOK ON THE LONGHAUL REVIEW CHANGES EXPECTED TO BE ANNOUNCED SOON

1st: Redundancies in the UK office and further tie up with Virgin Atlantic (maybe virgin holdiays take over some functions?) other redundancies in head office no doubt. -My sympathies to anyone affected.

2nd: As indicated recently a reduction in flying to the UK (not sure how this will be implemented most likely just freqency reductions and seasonal increases

3rd: I am expecting an announcement imminently of new destinations, possibly even 2 new longhaul and at least one trans-tasman. My pick is EZE 3x weekly with the 777-200 (ETOPS 330 on 777-200 coming soon!!! FINALLY) and Taiwan to resume services 2x week (its out on a limb but with EVA joining star makes sense) otherwise can't figure out where else they could go in Asia. India is often talked about but it is too far for direct service without the 787.

4th: I should mention NZ will now codeshare with ANA - JAL dumped. Great news as ANA now pre-eminent Japanese airline so lets see what impact this had on Jap routes - comes into place in march 25th


FINAL NOTES

Interim result should be interesting looking forward to it - lets hope its a better one than expected by extrapolations of commentary in November.

Thanks for reading - comments discussion welcomed.

[Blendy]

thanks - i always appreciate your in-depth analysis on AIR.

i'm being a bit lazy - is the investor presentation online yet? I'm about to write an essay for my MBA with a focus on AIR and this is just the sort of info i'm after.

[modandm]

thanks - i always appreciate your in-depth analysis on AIR.

i'm being a bit lazy - is the investor presentation online yet? I'm about to write an essay for my MBA with a focus on AIR and this is just the sort of info i'm after.

yes it is
http://www.airnewzealand.co.nz/inves...-presentations

The 2011 analyst presentation was not as interesting as I expected. I was hoping to hear outcomes of long haul review but they have kept quiet over christmas and the announcement will be in February (likely prior to Interim results with rationale detailed further in interim results presentation). Exciting times