Originally Posted by
Roger
Modandum - Totally respect your long term and sizeable position in the company and depth of research BUT a couple of things. Firstly my credentials. I have 33 years experience as an accountant and many, many years experience advising privately owned aviation operators who were making good money when we were at 39 cents American. I totally understand price elasticity and inelasticity arguments. Its about providing a quality attractive service at a price the customer can bear when the exchange rate goes badly south.
Looking at your contentions. Firstly a 6% drop in the N.Z. dollar against the TWI, ($N.Z. has been falling out of bed against virtually all currencies) = circa $2.3b in overseas sales x 1.06 = $N.Z.138m dollar revenue gain which more than covers your expected increased costs of $120m.
Secondly, besides that, we have oil at 18 month lows which if unhedged would by my calculations extinguish the exchange rate effect. To be honest I'm really not worried about a modest correction in the Kiwi dollar at all.
On the other hand the spread of Ebola and its possible effect long term on people's propensity to curtail unnecessary travel is definitely a long term concern I hold as is my short / medium term concern regarding the dramatic reduction in Fonterra's forecast pay-out and its effect on the N.Z. economy. People need to have confidence about their financial situation before splashing out on that dream five figure overseas trip. You think dairy farmers and all service providers to that industry aren't going to be pulling their horns in a LOT ?
I'm not trying to be argumentative but I was never on board with the AIR is worth $3.00 (now) calculations. My contention has been that if they can fill there planes to the same load level's as last year with the additional capacity expansion of 5% this year and all other factors being equal then we could see close to 30 EPS next year and if and when they proved their ability to grow the top line by 5% they'd be worth close to $3.00 sometime next year.
My current thinking is that with dramatic Dairy reductions and its effect on the N.Z. economy and with the potential for Ebola to be a medium / long term concern AIR faces a considerable challenge to fill their extra capacity over the next few years.
Interestingly according to Reuters the consensus average of 7 analysts has 2015 eps at 23.07 cps for 2015, (highest is 25 cps), and for 2016 consensus of 6 analysts is 25.78cps and the highest is 28.
If they achieve the average analysts forecasts and we use a reasonable PE of 10, (which is the average its been trading on over the last 10 years), that suggests fair value will be circa $2.30 in 2015 and circa $2.60 in 2016. Given the challenges the airline faces I think we should be pleased if those SP markers are achieved in tandem with receiving high fully imputed divvy's.
Considering the not inconsiderable risks and challenges AIR faces, arguments around having no more than a sensible percentage of one's investment in AIR, (i.e. maintaining a well diversified portfolio) appear to me to have considerable merit.
Tricha - Its become clear you have no idea about the operational costs AIR faces on small short regional routes on a per passenger basis. What part of amortising high fixed (per plane) landing and airways charges over 10 pax as compared to a flight load of 300 is so difficult for you to understand ?
I have no concerns at all the AIR aren't well capable of fending off anyone's bleating agenda about regional airfares using international research. Frankly, unlike the other matters referred too above, I don't see your or anyone's else's emotionally charged rants regarding regional airfares as a risk to AIR at all. Jetstar have been quick to implement full regional services haven't they, (sarcasm intended), could it just be because there's bugger all money in it and its bloody hard to get an acceptable return on capital !!
Can I make a suggestion, use your car some more, it won't kill you.