AIR - Air NZ.

[skid]

https://nzx.com/companies/AIR/announcements/276898

Dec stat's are out and are stunning exceeding my best expectations. Revenue passenger kilometres growing at over 18% and capacity growing at the same rate. Load factors are very high at 85% and group wide yields are only slightly lower than last year despite AIR very low fuel prices. Given that Houston and South American flights started mid way through December IIRC ? I expect a full months flights from January onwards will see even higher growth rates in passenger kilometre's flown.

Well then, it may have been good timing to get that competition announcement out of the way the day before.
Remember though,to keep those numbers they have more competition to deal with..the next update will be more telling on how this plays out...but as Ba Ba says --its the ''now'' that counts...for now

[stoploss]

Roger , the announcement all reads well ( first 6 paragraphs) but I would like to know what the last paragraph means for overall profitability ? Can you shed some light on this for the uninitiated please ?

Group-wide yields for the financial year to date were down 1.1% on the same

period last year. Short Haul yields were down 0.5% while Long Haul yields

were up 2.0%. Removing the impact of foreign exchange, Group-wide yields were

down 4.6%.

[Beagle]

Roger , the announcement all reads well ( first 6 paragraphs) but I would like to know what the last paragraph means for overall profitability ? Can you shed some light on this for the uninitiated please ?

Group-wide yields for the financial year to date were down 1.1% on the same

period last year. Short Haul yields were down 0.5% while Long Haul yields

were up 2.0%. Removing the impact of foreign exchange, Group-wide yields were

down 4.6%.

Hi mate,

Happy to clarify.
First up I've had the chance to have a more detailed look at the YTD operating stat's and I'm very happy indeed. (I'll focus entirely on the YTD figures here as they're the most meaningful now that half the year's water has flowed under the bridge so too speak).

Very Strong Capacity Growth and Exceptional Demand Growth

AIR N.Z is scheduled to have capacity growth of 12% this year, (the fastest growth rate in its 75 year history).
Revenue passenger kilometres (RPK's) have in fact increased a stunning 17.1% YTD...I would have been very pleased indeed to have seen them grow at 12% and match the capacity growth which would have been a really pleasing result indeed but 17.1% growth is simply stunning !

Especially pleasing are the results for the Asia / Japan / Singapore sectors with RPK's up a whopping 49% and load factor up 4.9% to 87.1%. these are truly exceptional numbers.

Load Factors and Yield

Load factors are up to 84.4% from 83.9% (up 0.5%). Very pleasing result given the record capacity expansion.

Yield in $N.Z. terms is down 1.1%, (approx. $30m) for the half compared to last year but increased load factors, (bear in mind it takes about 70% loads to break even in this game so an extra 0.5% group wide load factor YTD really matters) being up 0.5% should more than compensate for the drop in yield. Somewhere around 40-45% of ticket sales are in foreign currency so as the N.Z. dollar drops the value of these sales increases. Yields would have dropped 4.6% if it were not for this.

AIR's yields in N.Z. dollar terms have held up extremely well in this ultra low oil price environment.

Summing Up

I think the key figure of all this is the growth in group RPK's by 17%. This is phenomenal growth and will engender really meaningful economies of scale in terms of lowering the cost structure of AIR N.Z.
I'm expecting AIR will very comfortably exceed the underlying $400m minimum profit forecast they issued at the annual meeting. Our airline is performing exceptionally well and robust tourism growth together with low oil prices, substantial capacity expansion and high load factors all point toward a very bright future for the company.

Disc: I topped up further this morning.

[stoploss]

Many thanks Roger .

[winner69]

Many thanks Roger .

Adding to Roger's post

Yield is Revenue per RPK (Revenue Passenger Kms)

In H115 Air short haul yield was 17.4 cents (17.4 cents for every KM a passenger flew) while long haul was 10.6 cents

Yields have been up and down a bit over the last 6 months but lets say both short and long haul are down 1% for simplicity sake. If so Air short haul yield is 17.2 cents and long haul is 10.5 cents.

Lower yields do imply on the average lower prices - but as Roger says they flying more and more passengers (that RPK number is the one to watch) so the money coming coming in is growing at a fast rate, like 15% for December is pretty good eh

[Beagle]

My calculations show first half sales have grown by approx. $400m. ($2.8b v $2.4b in the previous corresponding period).

[winner69]

My calculations show first half sales have grown by approx. $400m. ($2.8b v $2.4b in the previous corresponding period).

That $400m is a huge number Roger - and it's only the increase over last year

H2 increase will be more with all that extra capacity.

[Beagle]

That $400m is a huge number Roger - and it's only the increase over last year

H2 increase will be more with all that extra capacity.

Agreed and don't forget a lot of that new extra mileage is being flown with their new highly efficient Dreamliner's, (now 6 online after 3 new ones arrived in Q1 Fy16)

Virgin profitable this year too, expect about $40-50m Kiwi as AIR's share for the full year.

[Hoop]

As I said before and another reminder now...

Are you confused as to why Mr Market is so cautious on such a glowing monthly report and expected bonanza 1/2 year report...? and... the analysts seemingly so negative biased......?....Why doesn't Mr Market react positively to such a low PE Ratio...?

That's because successful investing in Cyclicals requires a higher level of fundamental analysis skills and different methods to more accurately value the stock .....E.g Buying a cyclical with a very low PE Ratio could in actual fact be buying into an overvalued expensive stock. (Normalisation + cyclic position)

So...here's some bed time reading for ya all..........be warned it is heavy going ....

Ups and Downs: Valuing Cyclical and Commodity Companies
Aswath Damodaran
Stern School of Business, New York University
September 2009

Disc: still holding

[Beagle]

I think Mr Luxon gets slightly frustrated with analysts insistence that AIR is a cyclical stock. Fact is if oil were higher, yields would be better and less need to discount fares. Demand grew at 17% despite very sluggish global economic activity. Its hardly like the economy is booming here either so it begs the question if AIR is a cyclical stock what part of the cycle are we at ? (I think its safer to never assume you know the answer to this question as an absolute certainty).

I expect further analyst upgrades to come. Fact is cheaper airfares ARE stimulating greater demand for travel. Good things take time