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Thread: AIR - Air NZ.

  1. #511
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    Thanks guys You have encouraged me to expand on my analysis of Air and VBA.

    While it may be useful in some industries to see if the Timaru or New Plymouth store or in this case flight is full you really are wasting your time in Air NZ's case. They publish a 1 pager of key operating stats about 3 weeks after month end. This covers their entire network, something which 1 person could never hope to do and even if they could they would only have a 3 week advantage.

    Personal investigation of airlines is much better spent on the why of travel. e.g. Would you prefer to fly Air NZ or Jetstar? If so how much more would you pay to do so and for what reasons? For me its about $30 a flight and the reasons are faster checkin, quicker disembarkation and baggage collection, later checkin times, reliability, flexibility, airpoints and my ticket is on my iPhone (I don't own a printer). For others it will be the Koru lounge access or the customer service.

    Obviously the above exercise is easy to do but what about LA - London? I have heard rumours that Air NZ does very well with celebrities on this route as the airline is considered less of a target but if I was being honest I really have no clue.

    So to the operating stats, here is Air NZ's Dec stats:
    http://file.nzx.com/000/030/4566030.pdf

    The key figure to look at is the load factor. A rule of thumb is that an airline makes money when more than 75% of its seats are filled. This varies a bit between airlines but is a good guide.

    Air NZ has increased their overall load factor by 1.3pts on a capacity increase of 6.2% giving an increase in revenue per kms of 7.7%!! This is an outstanding result and shows the trend in place for the last 6 months is continuing.

    A fair question to ask is did they have to cut prices to fill their planes? No, Air NZ state their group wide yields are up 3% on the same period last year. I would be surprised if that wasn't the case as the cheapest tickets on a plane are usually sold first with any tickets sold once the plane reaches 75% capacity escalating in cost. This is a simplification but generally holds true in aggregate.

    Margin analysis is also an area where you can gain an insight into future trends by playing around with an airline's booking engine or comparing airlines with something like House of Travel and WebJet.

    What about LA-London? The load factor for North America/UK is at 89.1% on a 5.5% increase in capacity from last year. While influenced by the Christmas holidays this is still a ridiculous load factor to have and can be a sign of capacity constaints which could affect future profit potential.

    So is Air NZ capactiy constrained going forward? No! In the last month they have recieved delivery of the first of a number of 777-300s and domestic A320s. This is perfectly timed and can be put down to good management.

    Airlines have both very high marginal (fuel, landing fees, flight crew to some extent etc) and fixed (planes in the short term, engineering, computer systems, head office etc) costs. Thus profits can be very volatile and scale matters. Therefore any increase in capacity that doesn't affect margins or load factor is very profitable and any increase in load factor is extremely profitable.

    Air NZ has achieved both over the last 6 months and thus should deliver a good result in February. Just as importantly if the current trends continue over the next year as they integrate the new planes then the following year's result should be even better.
    Last edited by Jaa; 25-01-2011 at 03:38 PM.

  2. #512
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    Default NZ Newspapers are a Contrarian Indicator on Overseas Investments

    I have long held the opinion that the Herald and Dom Post give great contrian signals when an international investment trend is about to reverse (I learnt this painfully after a year long rebound in Japanese stocks a bullish Herald article encouraged me to buy into a Japanese ETF). My theory being that by the time some NZ reporter finds out everyone who matters in the world already knows! Today brings us this headline:

    Pressured Qantas may bite back at Air NZ-Virgin Blue alliance
    http://www.stuff.co.nz/dominion-post...-Blue-alliance

    Which paints a picture of Qantas at odds with the one in todays SMH:

    Qantas aircraft punt comes unstuck
    http://www.smh.com.au/business/qanta...124-1a2v6.html

    Unlike Air NZ's excellently timed and selected aircraft purchases over the last 10 years, the article explains well what Ben at Plane Talking has been hammering away at for over a year. Qantas have had a shocker in this area of core airline competency.

    With no hub constraints Air NZ not only have 777-200s but larger more effecient 777-300s entering service this year as of course do VBA. Sure Air NZ are the launch customer for the 787-9 that Qantas have also ordered but they are not dependent on it for growth or effeciency gains, taking the decision 2 years ago to add fuel saving winglets to their 767s in what at the time had to be a marginal decision but which now seems inspired. Qantas made no such risk mitgating investment and are paying heavily for it.

    IMO, Qantas mainline domestically and internationally has greatly reduced ability to pressure the VBA/AIR alliance as the declining effeciency of its aircraft and thus profitability leave it a sitting duck for the next few years.

    In my next post I will dig into the operating stats of both Qantas and VBA to see who is actually winning in Australia and see how they stack up to Air NZ.

  3. #513
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    Quote Originally Posted by Jaa View Post
    In my next post I will dig into the operating stats of both Qantas and VBA to see who is actually winning in Australia and see how they stack up to Air NZ.
    That would be interesting. I would also enjoy your musings on potential VBA/AIR codeshare agreements on longhaul flights and the prospects of both VBA and Etihad joining star alliance.

    Also what do you reckon AIR is worth? It is great talking about airlines but I would also be interested to hear your views on the company as an invesment. They are currently are large % of my nz portfolio

  4. #514
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    VBA seem pretty gloomy about life at the moment

    http://www.businessspectator.com.au/...cument&src=hp8

  5. #515
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    VBA at 41 cents .... as someone suggested they should have taken some TA advice from Sharetraders and not bought into downtrending stocks

    Suppose a bit difficult to average down now

  6. #516
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    The article in www.theaustralian.com.au on VBA was interesting.What caught my eye was VBA "reinventing itself to capture more corporate and business travel".
    This is where AIR has made it's money and retained customer loyality rather than a budget low profit airline.I would think this has attracted AIR's attention.The short term does hold headwinds for VBA.Floods and lower customer spending,however the benefits to AIR will outway these.

  7. #517
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    Quote Originally Posted by winner69 View Post
    VBA at 41 cents .... as someone suggested they should have taken some TA advice from Sharetraders and not bought into downtrending stocks

    Suppose a bit difficult to average down now
    The fact they didn't pay a premium to get a 15% stake may have been enough. I guess it depends how much lower it goes.

    Would they have got 15% at a cheaper price (and blocked another airline) if they had waited till it got lower.
    Free delivery worldwide with Book Depository http://www.bookdepository.co.uk

  8. #518
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    Quote Originally Posted by CJ View Post
    The fact they didn't pay a premium to get a 15% stake may have been enough. I guess it depends how much lower it goes.

    Would they have got 15% at a cheaper price (and blocked another airline) if they had waited till it got lower.
    On a technical basis Mr Market thinks so... CJ

    The VBA.ax chart shows a sudden drop in its OBV indicator on the 21st January, this indicates on that particular day Mr Market assumes smart money exited the stock. It seems Air NZ provided the dumb money
    Last edited by Hoop; 26-01-2011 at 09:22 AM.

  9. #519
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    Quote Originally Posted by Hoop View Post
    On a technical basis Mr Market thinks so... CJ

    The VBA.ax chart shows a sudden drop in its OBV indicator on the 21st January, this indicates on that particular day Mr Market assumes smart money exited the stock. It seems Air NZ provided the dumb money
    stirrer!!!

  10. #520
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    Hoop,
    Loved your post.correct,however I look forward to see whether the "dumb money"trade inside indrustry investor out smarts "the smart money" and Mr Market changes his mind.I have put my money with AIR.

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