AIR - Air NZ.

[modandm]

sudden jump.., more tommorow..

more great contributions please...

Quick update - operating stats

Very good operating stats in Dec and Jan saw group yields YTD rise from -1.4% to now +1.3% - looks small but actually very significant. Means Dec and Jan yields were up 7-8% on prior period. My base case of 3% pax revenue growth in the first half has proved conservative (although above concensus). The end result was +4.6% from 4.3% RPK growth and 0.3% yield growth. Very pleasing! January result was strong and GS have suggested strong yield trends remain based on their surveys. Continuation of this stronger +7% yield for the rest of the year and RPK growth of 3.5% (unchanged estimate) would see total pax rev growth of 7% which is way above what the market expects and indeed what I expected. My bull case scenario with 4% pax revenue growth now looks to bearish. Driver of this improved yield is being attributed to demand and macro environment. Also capacity switches from lower yield routes (china, london, japan) to higher yield routes PER, HNL, LAX, SFO.

Just to give an idea - if 7% is the full year number AIR could make eps of 24c in 2013. Concensus is around 13-14c. My new estimate uses 5% and is 19.5c. Previously I was looking for 15-16c. Half year results will give me the chance to measure the effectiveness of my assumptions and refine this forecast again.

No other real news of particular interest - ongoing dramas with 787 aside.

Preview coming next

[modandm]

Okay laying it all out there - lets see how right (or wrong) I can be...

in brief:

pax rev 1950 (+4.6% already known from op stats), cargo 158 (+5%), contract 156, ancillary 130 (+15%) = total revenue 2395.

labour 525 (fall), fuel 628 (estimate from fuel stats), maintenance 145 (down), ops 210 (+5%), pax serv 125 (up 3m), s&m 140 (flat), FX losses 20m (could be too low here), other 130 (from 125) = total costs 1922

EBITDRA 472, D&A -185 (up), rent -100 (down), EBIT 187, net interest cost 29m, for NORMALISED PBT of $158.5

This is the key number and compares with guidance of 120-140 PBT and analysts at between $130-145m. So I am a good 15m ahead of the bull on the street.

To finish up NPAT of 111 (can easily be different due to effective tax rate changes) and EPS of 10cps. Hoping for a 5c dividend (as a signal to a market which seems not to love AIR).

Areas of interest: forward demand and yield outlook/deployment of more capacity to USA, ancillary revenue growth, cost control, strategy guidance (more next month), dividend policy.

Final Comments: This is my best estimate based on good reasoning - if it comes out high I won't be too disappointed. There are many big numbers and 10m is almost a rounding error - what is important is the strong revenue growth trend that is in place and the cost control as a result of operational improvement, stable fuel prices, and a strengthening NZD. This sets up for a good FY 13 result.

Hope you enjoyed reading. Hopefully we will be popping champage and watching the SP race upwards over the next few months.

[biker]

Terrific result. Congrats to holders!

Yes indeed, and more to come.
Great to see the international airline in the black which will help cushion the effect of any possible increased market share by Jet Star in the domestic market although new marketing initiatives will hopefully stem this.
2 more efficient 777s will replace the 2 remaining 747s next year.
Greater emphasis on marketing generally which is needed, as long as it is progressed very cost effectively.
Go the National Airline!!

[golden city]

good result, but dividend not as high as i expected

[modandm]

Slightly below my expectations (was close on EBITDRA) - mostly because I had overestimated RPK growth and pax revenue by 20m. Need to look into this... Dividend hike a bit weak.

Regarding the stronger yields - the CFO put this down to a disappointing prior Dec-Jan, not sure that this is reflected in op stats. Will be keeping a close eye on them going fowards.

Guidance from CFO is we should interpret as more positive than prior which was 'more than double PBT'. But then my expectations were already to nearly tripple - but this now looks a stretch (unless yields stay high). Base case of 15-16c earnings in FY13 remains in place... need to see continuing stronger yields to have this rise further. FY14 can expect to be better again as FX gains come through and network changes and capacity growth take effect.

Can expect a rally up to 150 over the next few weeks I would expect after brokers start upgrading.

I guess the disappointment is that this is not as big a shock as last time. It seems this is a stock where you get paid to be patient and people will set a price based on what the company delivers today - I wish people would value it on a decent multiple and for growth. This stock trades on a PE of 7x 2014 i(ex virgin!) - QAN VAH SQ etc trading on 12-15x FY14! That would see NZ at 240-300. Lets see what the analysts come out with - a few have had itchy fingers and have been looking to increase price targets.

Additional 777s not a surprise (should have exercised options they had awhile back but chickend out) CEO says we want to grow, CFO says these replace 747s.. Dont like the new CEO so far - a lot of buzzwords, he is a sales expert though so what do you expect. The CFO is the brains operationally.

FX looks good effectve rate over 80c for 2nd half and 50% hedged at 82.9c next year - so can expect effective of over 83c for next year.

Will rework the model extensively and come back to you on valuations.

[biker]

Can't complain too much I guess - have made over 50k tax free today...[/QUOTE]

Which means you hold a million shares?

[CJ]

Can't complain too much I guess - have made over 50k tax free today...

Wow - that explains why you do so much research on this share. Well deserved.

[QOH]

Can't complain too much I guess - have made over 50k tax free today...

Well done on your research, I finally got out of them today at exactly the price I paid for them in Feb 2011.
Was sitting on a big paper loss at one time.

[Soolaimon]

Well done on your research, I finally got out of them today at exactly the price I paid for them in Feb 2011.
Was sitting on a big paper loss at one time.

I also bought back then and have held on but will probably hold till divi then bail.

[percy]

modandm.Well done.