One analyst the other day asked whether AIR do/would fly any international sector at a loss for a while if they had to
I think it was Rob who said it was just a few years ago AIR weren't profitable internationally and they have come. Long way. Reading between the lines I got the impression they would be prepared to lose money on a couple of key sectors so they were still around to make heaps when the competition pulled out because it was just too competitive - thats forward thinking with an eye to sustainable dividends in the future.
Currently understand they are all profitable...if it gets tough AA will leave the Auk-lax sector, they are already under stress as a company in the overall market and Qantas can't match until it has its 787s and some cases with fuel prices going up can't fly the old crates around for much longer. China and Asia is tougher to compete however while the market is growing they don't need to win every market...just a fair share
Layman's view....This is already end of August and I am sure Management has very good picture of booking/cost etc until end of January (assuming most of the holiday bookings done). Basically for next financial year risk factor is 5 months Feb-June. I am pretty confident 500mn can be easily achieved based on these assumptions.
Holding tight and planning to re-invest dividend back.
Welcome to the forum keerti. I had a good look at forward bookings, as you probably realise they're disclosed as a liability in the balance sheet as they're technically unearned income as at 30 June 2016. Nothing wrong with the level of forward bookings from what I can see and as you quite correctly say senior management are the ones best placed to have insights into how things are looking / tracking this year.
Naysayers just concentrating on the negative aspects of the indsutry, not thinking about the significant extras efficiencies of running 9 new ultra efficient dreamliners this year, none of which need deep cycle maintenance for the first nine years of ownership ! They're tremendous cash flow machines just like this company is
Isn't another key bit that its not unheard of that MorningStar gets it wrong?
Sure, you can't rely on that either ... but anybody promising a sustainable dividend over several years in an industry so dependant on economic cycles, fuel prices low, (pilots, ground staff, air controller, border control staff) strikes (or the lack thereof), terrorists playing it nicely, war parties not taking down civil planes, viruses stopping to mutate, pilots controlling their mental illnesses, volcanoes remaining calm must have a truly amazing crystal ball!
In the last seven years AIR had only three years (the last three) where EPS was above 20 cents (which would be sort of a minimum requirement for a sustainable dividend of 2-0 cents pa):
OK - so, this is a cyclical industry, competition is heating up, AIR have no moat whatsoever, major cost factors (fuel) are outside of their control as is the demand (which goes off the discretionary budget of most travellers). And MorningStar claims that they will be able to sustain-ably pay a dividend which is higher than the average EPS over the last 7 years?
Hmm ...
I think what's going on here is that AIR is saying "this time is different" and "it's the end of boom and bust".
It does look like they are aiming for a sustainable dividend of 20 cps in the medium term which is promising. I will be interested to see how successful they are at keeping profit and dividend up in the next downturn, especially given that aviation has notoriously slim margins.
Only AIR management know what policies they have in place to keep profit high and only time will tell if the policies really are effective.
In a volatile business like aviation, the market will come to appreciate a consistent profit and dividend with time.... but only if AIR can achieve it. 2 years of high profits (in a time of low oil and high tourism growth) doesn't change a history of volatility.
But if they keep things consistent then the SP and PE will rise over time. Prove you're consistent and the benefits will follow. We shouldn't just take it on faith from management and believers that this time is different though.
Welcome aboard keerti. Roger and keerti have both made statements that I have not factored in. How many shareholders will be reinvesting their divies not only after ex date, but also before ex date as Roger mentioned a couple of days ago. So if sp does go back down to $2 with 10%ish yld, then investors will come back in and push it up again. So just sit tight and enjoy the ride.
Went out to the airport yesterday to check out AIR, making sure they are all working hard. And yes they were all hard out at the grindstone. Counted 30 AIR planes taking off or landing, that was about one plane every 3 minutes. Keep it up AIR you little beauty.
see weed - had lunch down on the beach in the sun today - juicy scallops and chips (no oysters in stock) and watched AIRplanes come into WLG
Only seemed to be the small ones at that time of day -bet you load factor was over 95%
Last edited by winner69; 29-08-2016 at 04:18 PM.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
My view is that Air NZ is a fantastic company that has a superb marketing team and strong management at present, whom are not afraid to make the big decisions e.g. VAH stake. I believe their CapEx model over this cycle high is sensible as they will create one of the youngest fleets in an environment with low interest rates resulting in a low cost of capital. They are extremely well positioned against any fluctuations in oil due to the efficient nature of their fleet e.g. 787's, and their optimisation of cheap capital, which will see them out compete on a return basis compared to others in the long run. This helps to achieve a more normalised return across the whole industry cycle by raising gross profit at the bottom due to lower fuel costs and capital expenditure, yet still able to deliver strong results at the top.
Right now we are seeing massive gains in most airlines because of the combination of cheap fuel, low interest rates and high tourism/migration numbers, which will see any well run airline boom. New routes and more planes are being brought on board to accommodate this and also to reduce the super-normal profits by some airlines. However this overly competitive environment is causing a reduction in passenger yield, which we are well aware of, which is tailing off FY17-18 earnings, with an expected bottom during FY19. I suspect competitive behaviour in this industry will stall in the short-medium term as airlines begin to adjust route supply to accommodate falling yields and capped demand.
Having an efficient fleet and putting in the hard capex now, Air NZ is able to hedge against any future oil rises and cash rate increases, giving us a less risky outcome. Having some knowledge of Qantas' operations, they are currently putting off retiring their thirsty discontinued 747's to chase higher revenue. Their fleet is simply not as efficient as Air NZ's, so we will naturally see a greater yield going into the future due to AIR's low capital requirement and modernisation after re-hauling the fleet now.
I don't see any slow down in the economy or tourism numbers any time soon due to attractive pricing to fly and also the upcoming Chinese middle class. As Roger pointed out numerous times, AIR's ability to pay ~20cps p.a. on current metrics is extremely attractive in any industry. On a current ex-div basis, a gross yield of 14.4% [((0.20*0.28/0.72)+0.20) / (2.28-0.35)] is probably one of the best sustainable yields you will get within in the NZX, and certainly something the hounds have already descended on by the looks of it.
Overall a well run, efficient company that will perform strongly compared to its peers given any headwinds in the future. I'll be looking to reintroduce AIR into my portfolio after ex-div date depending on its movement as I suspect there are a few cats in it just for the top shelf meat being served next week. However the long-term charts aren't looking too flash at present, so it will be interesting to see where the price is heading relative to the MA's and support levels.
Load factors on AKL-LAX-LHR don't seem to have been affected by competition to date. I booked this flight 8 months ago and paid for an upgrade on both sectors and being Gold Elite thought I had a good chance of getting this. Wrong, missed on both sectors. Business and Premium Economy 100% full with full-fare pax according to cabin crew and Economy 95% full. AIR's decision to expand the profitable BP and PE seating in the 777-300ER aircraft makes sense and leave the competitive minimum-profit Economy seats to everyone else. I'm booked Premium Economy on LHR-AKL in a few weeks so will be interested to see if I can get the BP upgrade I paid for.
Air NZ service the usual efficient friendly and breezy service they are renowned for, nothing but compliments from passengers around me.
Originally Posted by winner69
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. Scallops sound good, might get some tomorrow.
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