Who knows. Oil production in America is set to ramp up quite significantly in the near term.
AIR basic forward cover methodology is that they take enough cover to give them time to adjust their business model to changing input costs.
Oil goes up and stays up they have to increase fares and other airlines will be likely to rationalise capacity on long skinny routes to this part of the world.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Beagle respect your opinion but US oil production has stagnated - gone no where in the past 6 months ( in fact production has fallen since dec 2018) I think you will find a lot of forecasters are in the process of eating humble pie regarding US LTO projections and are in the process of back tracking production forecasts. Clearly AIR are well placed but a higher POO the will impact all carriers bottom line , end of story ....
F20 guidance is Earnings $350m to $450m .......assuming an average jet fuel price of US$75 per barrel. I presume that guidance takes into account hedging
Doesn’t fuel over US$75m for a period of time imply lower earning than expected?
When investors are euphoric, they are incapable of recognising euphoria itself
F20 guidance is Earnings $350m to $450m .......assuming an average jet fuel price of US$75 per barrel. I presume that guidance takes into account hedging
Doesn’t fuel over US$75m for a period of time imply lower earning than expected?
To some extent within the bounds of competitive constraint yield and fuel costs are inextricably related. It is a mistake to look at oil input costs in complete isolation in my opinion. AIR provided a cost matrix with their most recent annual result. See page 18 http://nzx-prod-s7fsd7f98s.s3-websit...567/305887.pdf
That matrix can be used to measure the extent of extra costs after provisioning for their forward cover.
Early signs are that Brent futures have moved up about $6 per barrel or approx 10%. I'm not going to endeavour to crunch the numbers at this stage as the situation is too fluid. One must keep in mind that many carriers do not undertake any forward cover at all and one would expect that those who do are in a better position to whether any change. I would expect that airlines will be moving pricing north is oil stays elevated and AIR many be a net beneficiary of yield enhancement after deducting cover from its futures positioning.
Retaliation against the Iranians is something I consider likely now, considering the recent effort by the Iranian republic guard to undermine the freedom of shipping through the straight of Hurmuz. https://www.cnbc.com/2019/09/15/trum...il-supply.html
Given the extremely limited current oil output from Iran I don't think there will be much further consequential effect on Brent oil futures buy anything is possible in the short term.
AIR are well positioned with very good level's of forward cover on oil futures, unlike many other airlines.
Last edited by Beagle; 16-09-2019 at 02:39 PM.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
http://nzx-prod-s7fsd7f98s.s3-websit...225/307983.pdf
Load's are good but RASK is down a bit. https://www.msn.com/en-nz/news/world...cid=spartandhp
I think retribution in the form a measured military strike of some kind against Iran is likely in the near future.
Where it goes and its effect on oil prices from there is anyone's guess but I think a new geopolitical risk premium will apply to Oil going forward for some time so have reduced my stake in AIR temporarily as a prudent risk management measure.
Last edited by Beagle; 19-09-2019 at 10:47 AM.
Ecclesiastes 11:2: Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
http://nzx-prod-s7fsd7f98s.s3-websit...225/307983.pdf
Load's are good but RASK is down a bit. https://www.msn.com/en-nz/news/world...cid=spartandhp
I think retribution in the form a measured military strike of some kind against Iran is likely in the near future.
Where it goes and its effect on oil prices from there is anyone's guess but I think a new geopolitical risk premium will apply to Oil going forward for some time so have reduced my stake in AIR temporarily as a prudent risk management measure.
Fair enough, but nice divvie in the bank account today.
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