IFT - Infratil

[Zaphod]

Zaphod - But will this translate to increased demand or profitability for providers? I'm not convinced that it will. First, there's lots of room for patrons to reduce personal transport costs without using public transport, say by pooling, remote working, proximate living or using transport alternatives (such as their feet or cycles). Second, any increase in price of public transport (due to fuel costs or whatever) should translate to a commensurate reduction in patron demand. And, third, costs increases will hit provider margins.

I think it will translate to increased demand and hence profit, but I am not sure by how much. There are a number of variables that can influence the outcome.

You're correct that there are alternative modes of transport available and that a percentage of people will choose to use those (walking, cycling, car pooling, etc.) over use of PT. However there will always be a percentage of the population that either cannot or will not use those other methods - just as there are those who have similar issues with PT itself.

There also does not appear to be a linear correlation between price and utilisation of PT, in that as price increases PT utilisation does not fall in a equal amount. Studies on patronage have revealed that convenience is one of the primary drivers, so services must be reliable, regular, direct and operate at convenient times.

Given that Auckland's PT patronage rates currently stand around where they were in the mid 1980's, despite a massive increase in population and increased commuting distances due to continued urban sprawl, I believe there is significant room for growth.

As far as Wellington is concerned I would not expect to see too much room for growth there as the PT patronage rates per capita are on average extremely high, and the geography of the city largely precludes urban sprawl.

Aside from economies of scale benefits flowing from integrated administration, cross selling of products and bulk purchasing (of, say, oil and vehicles), which I suspect are only somewhat beneficial and max-out quickly, what economies of scale do you see that will materially reduce costs? Maybe, instead, what you're trying to get at are the benefits of pricing in a monopoly situation (given the "consolidation of the industry), which the Com Com mostly won't permit. I struggle to see, too, how this will affect IFT.

Most of the cost of the PT sector is in the areas that you've mentioned: vehicles, fuel and admin - perhaps even in that order. What we're seeing is dominance of the sector by either private companies with investment companies backing them or the acquisition of smaller companies by the dominant players such.

Three examples of this phenomenon are

1. Tranzit purchasing companies and/or tendering for urban routes in various centres (the incumbent in New Plymouth has recently sold to Tranzit).
2. The formation of GoBus from the amalgamation of Hamilton City Buses, Simpsons, Blue Worth, etc. in conjunction with Morrison & Co (and subsequently a new Auckland-based investment firm).
3. NZ Bus actively perusing tenders and acquisitions in regions other than Auckland and Wellington.

I too remember ComCom striking out the acquisition Mana Coachlines by NZ Bus, but they have not stopped NZ Bus purchasing companies in other regions. Adams Travelines in Whangarei is the latest example. NZ Bus purchased this company as a vehicle to tender for the Whangarei urban roots. NZ Bus subsequently won the tender in the region, no doubt due to their experience, their ability to provide modern vehicles (via their large capital backing) and the economies of scale they are able to realise over the smaller incumbent.

Overall, the PT business has extremely low margins, requires enormous amounts of capital and is highly susceptible to market conditions. The only way to be successful in this industry is through ensuing that they build economies of scale. NZ Bus has the ability to achieve continue to acquire companies, drive up patronage levels in (particularly) Auckland and to drive economies of scale.

What I would like to reiterate though is that in my opinion I would not say that huge profits can be derived from this business for IFT. It does however create the a great opportunity for cash-flow.

You've made some really good points. Good to see that there are some people putting thought into this.

[Toddy]

Zaphod

Have a read of the IFT annual report released today. A copy can be found on their web site.

NZBus are positioning themselves for the long run. 150 new buses either received, or on order. Load numbers up 3% in Auckland and 6% in Wellington for the month of April compared to the previous year.

I like how IFT have formed a new property company and sold all of NZBus land and buildings into the new company. NZBus then leases the property back at market rates.

The bottom line for me is that Kiwi's don't like to spend money, so the future looks brighter than is has ever been as the market struggles with the oil price. Once the kiwi dollar drops away again then any future investment in high value public transport (new buses) will dry up, leaving the current suppliers in a monopoly situation.

[CJ]

150 new buses either received, or on order.

This is in part because Stagecoach ran the fleet to the ground as they were trying to exit. A lot of this is catch up rather than an "increase".

I like how IFT have formed a new property company and sold all of NZBus land and buildings into the new company. NZBus then leases the property back at market rates.

That is a good way for NZ Bus to make a loss but the property company to make a profit (what is the land in the viaduct worth (do they own it or is it leased - my understanding is it is owned??)

[Steve]

IFT are giving an Investor Update in Invercargill and Dunedin on Monday. I will go along to the Dunedin one...

[da puntzda]

Is any of this nasty weather hitting the right spot for TPW?

[Steve]

Is any of this nasty weather hitting the right spot for TPW?

Not according to the shareprice...

[Romer]

Steve: If IFT are going to hold their updates way down there, there's not much chance of me attending. Hope you'll give us an update on the latest.
Cheers
Romer

[Rif-Raf]

Steve: If IFT are going to hold their updates way down there, there's not much chance of me attending. Hope you'll give us an update on the latest.
Cheers
Romer

I think they are doing a number of cities as they are also holding one in Chch.

[Toddy]

Is any of this nasty weather hitting the right spot for TPW?

Small lift for hydro lake levels
New 3:18PM Monday June 30, 2008

Hydro lake levels have lifted slightly, bringing a small amount of relief for the electricity sector even as cold and stormy weather sweeping the country raised demand.

As consumers are urged to save power to ensure supplies remain secure this winter, above average inflows for much of the past week gave hydro storage a small boost.

In its weekly market summary, published today, M-co said lake levels were up to 58 per cent of average by yesterday, having been at 55 per cent a week earlier and down to 49 per cent 2-1/2 weeks before.

Inflow rates got as high as 123 per cent of average on Saturday, and dropped below 100 per cent only once during the past week.

Spot market prices remained high but below levels reached in the late May spike, when the price got up to 44.06c.

At the North Island reference point of Haywards, the price peak during the past week was 31.37c per kilowatt hour on Wednesday, well up on the 9.21c a year earlier.

[Toddy]

IFT are giving an Investor Update in Invercargill and Dunedin on Monday. I will go along to the Dunedin one...

Steve

How did the presentation go?