AIR - Air NZ.

[janner]

Your enthusiasm is to be commended..


Your Dollar numbers suppliesd are not..

It matters to me one whit ..how much you have invested..

Why .. Is good..

Please keep those reasons coming

Just been playing with my model so a quick update.

The NZD has run up to above 84c vs the USD - what does this mean for AIR going forward?

Well assuming Jet fuel stays flat at 130USD/barrel the change in fuel cost in NZD will be $1206m in FY13 to $1116m in FY14. This adds about 6cps to earnings taking my FY14 estimate from 20c to 26c. FY13 the airline is hedged 79% at 80c but I expect they will get a good benefit in FY14 should the USD continue to remain weak or weaken further.

Note that I haven't taken into account savings on a/c acquisition or lease costs or any other USD costs (because these aren't broken out) and because some revenue is in USD too so it doesn't make sense to.

For reference key assumptions in my model are 3% pax revenue growth p.a, 15% ancillary revenue growthp.a, labour costs rise at 3% p.a, fuel remains $130usd barrel and FX as mentioned at NZD=US 0.84c.

My numbers now run ahead to FY15 (extrapolating current trends) and keeping the same growth rates and Fuel FX assumptions I reach an EPS of 32cps. Obviously this should be taken with a pinch of salt. Alot can happen in 2 years in the airline business. Note that I don't assume any dividend from VAH either which would increase earnings.

As far as a valuation I consider a 10x PE on FY14 earnings of 26c (at current fuel/FX) = $2.60 per share - still attributing no value to the VAH stake which is worth about 24cps. Also not giving credit for the $1bn NZD of cash on the B/S because this is an ongoing liquidity requirement in my view.
With at least 10c in dividends on top of the capital appreciation you are looking at over 100% return over a 12-18month time frame.

Sure there are risks as Jaa mentions - but there are also risks to the upside:
1. NZD strengthens futher vs USD
2. Fuel falls as shale oil depresses energy costs
3. Management deliver cost savings (not all factored in)
4. Stronger than 3%pa pax revenue growth

Overall I maintain my conviction and as said before I am heavily invested.
Cheers

For posterity - AIR currently trades at $1.33 - with concensus at about $1.55 following recent u/gs. FY13 concensus EPS is 14c vs 15.7c my estimate.

[golden city]

why air stock is dropping ,does the forecast comes with credential

[GBHcorp]

why air stock is dropping ,does the forecast comes with credential

I have been wondering too, put it down to the grounding of the 787 Dreamliner which AirNZ have purchased. Not sure weakness is warranted, presumably they will be insured against any defects??

[CJ]

I have been wondering too, put it down to the grounding of the 787 Dreamliner which AirNZ have purchased. Not sure weakness is warranted, presumably they will be insured against any defects??

AirNZ hasn't taken delivery so no direct effect and have to assume problem will be fixed before they take delivery. However, it that date gets pushed out (again) the fuel savings the planes are meant to deliver get pushed out as well.

I ink they are seeing increased competition from Emerates on the Tasman and onward route and from another airline on the Hawaii/pacific route. Haven't been follow to closely recently so could be wrong.

[CJ]

Come on CJ, tell the truth...every dog has its day, AIR has just about had it good times

I got out recently because I got sick of seeing to many bad times that seem to effect the airline industry more than most!

They have had a great recovery recently but I think since I first bought in, this was a very bad investment (I orginally started with B shares :0 )

[Jaa]

The answer is simpler that all that, they have stopped the share buy back for now.

Last buyback notice was on the 21st Dec for 250k shares at $1.2881.

I always thought this buyback was designed mostly to stoke Rob Fyfe's ego by boosting the share price a bit letting him leave the airline with the share price higher than when he started...

[CJ]

The answer is simpler that all that, they have stopped the share buy back for now.

forgot about that. That was another reason I sold out when I did as in theory, that had to be holding up the price.

[slimwin]

That was my thought and why I jumped.

[modandm]

Okay - a few people patting themselves on the back because they 'foresaw' recent weakness - and come-on it is down like 5% - big deal....

The answer is simpler that all that, they have stopped the share buy back for now.

Last buyback notice was on the 21st Dec for 250k shares at $1.2881.

I always thought this buyback was designed mostly to stoke Rob Fyfe's ego by boosting the share price a bit letting him leave the airline with the share price higher than when he started...

That's too cynical for me. You can't deny the improvement in financial performance over the past 6 months - although all will be revealed in a months time. I won't rehash my prior posts because nothing has changed.

As to the recent shareprice decline I think both points mentioned are valid. The decline did coincide with the 787 problems - imho a temporary problem which shouldn't impact the -9.
The 787 will have no effect on AIR's financial performance in FY14, and only a marginal effect in FY15.

so shouldn't we be focusing on what matters... and ignoring the noise...

More important is NZ progress on cost cutting and in this regard news flow has been positive:

- Call centre rationalisation - i think I read $2m saved - straight to the bottom line
- Ground services contract Qantas out Menzies in - must be a good saving here would be a big contract

Other newsflow

- Emirates and Qantas denied co-operation on the trans-tasman
- CEO announces additional A320 to be added to domestic fleet this year - accelerating switch from 737

With concensus at 1.50 I think people are taking a wait and see approach with regard to the half year results. As you know I am a raging bull, and bought another 35k shares at 1.25 last week.

I expect a strong result and a significant increase in the half year dividend (possibly double last years) to perk investor interest.

Also we can look forward to an analyst day in March where the new CEO will be outlining his strategy.

[CJ]

Okay - a few people patting themselves on the back because they 'foresaw' recent weakness - and come-on it is down like 5% - big deal.... .

It's still above the point I sold out at