Trolling time anyone.
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169 Km's Westport to Hokitika. Having to drive that the odd time for Westport locals compared to Aucklanders spending 10 hours a week commuting doesn't seem all that unreasonable to me for people that enjoy the low cost of living in such a remote part of N.Z....but I digress. I am sorry I forgot that according to some people AIR should be a distributor of social welfare to the regions'. I guess you can't please everyone so you might as well please the people that actually own the airline, the shareholders. Of course you very conveniently overlook the new last minute fare initiatives and the fact that other regions may enjoy potentially lower fares with more efficient aircraft, what a surprise, (NOT).
You've still got your precious service out of Nelson and now enjoy lower last minute fares but still want to have a good dig, I guess some people are never happy...
Great move. And where there is a genuine market for a small route, someone will move in with a Cessna Caravan.
This smells of AIR looking for a government (subsidy) handout. Didn't work out too well last time.
I think that its gone past that point. The smaller regional routes can only support smaller aircraft - which AIR don't want to operate because they can't carry their fair share of the overheads of a big company without charging disproportionately high fares. Now that AIR isn't around on those routes to potentially undercut them, I'd expect to see a few small outfits such as SoundsAir, stepping into the market on some routes.
More positive signs from management. Its another $100m for the 4 options at list (which is not what they pay).
This adds to what are multiple, significant cost savings and revenue enhancements for the company over the next 3-4 years.
I have been watching the oil/fuel price collapse with glee, this is really significant stuff. I am back to my 30c+ eps forecast this year, and pushing 35c next. Whenever I see a reason to sell in the horizon it seems macro factors swing back into favor and create big upside scenarios.. hope this can continue.
So another $12m on the bottom line for 2016 with this sensible fleet rationalisation and it looks like fears of Ebola becoming rampant are rapidly subsiding, so we're looking better on a risk reward profile and of course the major reductions in fuel prices will definitely help, offset partially by the lower currency.
Looks like Sun Air will replace AIR on its Kaitaia and Wanganui route. See N.Z. Herald.
Certain people have been bleating about the cost of regional travel and its now become clear that the fares being asked are very reasonable, in fact AIR are losing $26 per pax per sector with their twin engine Beech 1900D which has a 280 knot cruise speed. Obviously people in certain regions haven't been supporting AIR with sufficient patronage to make a profit.
Sun Air are reported to be taking over the route using a single engine Cessna Caravan 12 seat which has a 171 knot cruise speed according to Wikipedia but will be charging a similar price to Air New Zealand.
Here we see a classic case of market forces at work. You either pay more or get an inferior, much slower single engine aircraft, (implied lower safety level than a twin engine aircraft), for the same price that a company can make money on.
Next we will see people in these regions complaining the service is so much slower and still too expensive...I guess some people have to bleat about something. Isn't it strange that you never hear from them about the financial advantages of really cheap housing or how much fuel and time they save each day with their 2 minute trip to work ?
What's your opinion based on?
Oil price keeps surprising on the downside, now at four year lows. Nice tailwind for the second half and into 2016.
Chart showing Oil prices (Green)...AIR share price (Blue)..... baseline January 2005....
http://i458.photobucket.com/albums/q...IL14112014.png
http://www.nzherald.co.nz/business/n...ectid=11358001
Qantas kicks off food fight with 50% bigger meals. I must admit that this seems like a good idea. If they're going to coup you up like some chicken in pen for hours on end the least they can do is feed you properly.
Air should follow suit.
Hm. I've never been under fed on an international flight. You can always ask for more too.
Really wondering if your user name says something here...eat like a sparrow Slim ?
http://airreview.com/AirNZ/Food.htm
Scroll down to trans pacific economy class meals and trans Tasman meals if you can call them that.
An Air N.Z. spokesman was reported to have said today that they'll be keeping an eye on how Qantas' enlarged meal offer is received in the market.
I'd suggest looking at those pretty poor excuses for a meal they offering in economy to long haul pax to say Vancouver, (a 14 hour flight), its long overdue that they lift their game as carrying some spare snickers bars looks like a prerequisite to anyone with a hearty appetite on a long haul Air economy flight at present.
Hmmm, why did I have to mention snickers bars when I don't have any at home at present...
After cheese and crackers, a main, desert, salad, bread roll/ butter and possibly a welcome snack of nuts I'm hardly able to drink my two or three glasses of wine ( well actually I could drinka bottle but that never works out at the other end.) Most airlines offer hot noodles too if your hungry in the middle. And then you sit there and burn nothing. Except maybe on the cuddle couch. This is followed by a brekkie before arrival. I've honestly never heard anybody complain of lack of food and I've travelled a lot for work and pleasure.
I do a lot of excercise and eat a lot of food. Got called skinny today in fact but only by a fattie doesnt count ;)
I used to get hungry on Qantas flights. Also other airlines but mostly Qantas. It has been a while since I've flown long-haul with them though.
Plus their food was pretty awful so any improvement is welcomed. Nowhere near as bad as US airline food but still pretty mediocre.
Anyone got thoughts on the dropping oil price?
It looks like it's down about 20% from a couple of months ago. This should mean more profitability but also gives other airlines scope to reduce prices.
Based on the latest fuel hedging report (https://www.nzx.com/companies/AIR/announcements/256764), fuel costs should be down about $74M for H1 FY2015 (very rough estimate 3.7M barrels @$20 saving), but hedging costs are up a lot, costing about $40M for the half year (but reducing in the future as hedging position changes).
So from this rough estimate, profit will be up by a few million, but that relies on revenue holding steady. I think that's pretty unlikely if other airlines get into price cutting. Reduced fuel costs provide a lot of scope for competitors to cut prices by maybe 5%. Fuel is a very significant cost for airlines and low-cost airlines will benefit more than full-service ones.
The airline business is fairly competitive so I would expect prices to be cut once oil prices stabilise at a new level, leaving minimal opportunity to extract higher profits in medium term.
Thoughts?
I heard both china southern airline and eastern airline will increase flights between auckland and shanghai,GungZhuo in coming months, been watching NZ Airline how to handing well such tough competition.
Firstly AIRNZ doesn't fly to Guangzhou...I think the competition wouldn't bother them to much, I think china southrn are only flying over summer to Shanghai.
I've booked in airfares with AIRNZ to shanghai over Feb/June next year - $650 - $700 each way....can't really complain about that.
disc: holding.
Is fuel price for air nz what they have it hedged at? Not necessarily what the fluctuations are.
Have a really good study of AIR's fuel hedge position as released to the NZX, see link in post 1969 above.
Collars are a derivative instrument designed to lock in the oil price to a certain range, hence the term collar.
As you'll see in FY 2015 Q3 for example they're miles out of the money with over one million barrels of Brent crude with a bottom collar of US 99 barrel, compares to closing price on Friday of about US 78 barrel. This means for that 1 million barrels they have to pay the minimum collar price of $99 US. This is partially offset by the purchase of over 500K of Brent put options they took out at $89 which means they will be gaining the benefit of those contracts in the forthcoming quarter. My net read of their fuel hedge position is AIR will gain something of a gain from lower oil prices this quarter and a meaningful boost from the lower oil prices in Q3 and especially in Q4. The full effect won't be felt until the next financial year when you can also add in the $12m a year they won't be losing on non economic remote regional routes. Fuel costs for AIR amount to circa 25% of revenue of about $1.2B per annum. Obviously if this recent fall is sustained there's significant efficiencies to come in 2016. To what extent other competitor pressure on pricing eats into those cost efficiencies is an open question.
On the oil price
Roger has explained the collars and puts well. Allow me to shed light on the finer details.
At $80 brent AIR loses on the hedging program roughly: 20m Q2, 22m Q3 and 16m Q4 (in USD)
I estimate cost per barrel of jet in USD at the following: Q1 124 Q2 112 Q3 110 Q4 110 (in USD) - spot is $96, delivery costs are c.$10 per bbl
Using this and a FX rate of: Q1 84c, Q2-Q4 81 - 79c, we get a total fuel bill of about 1136m NZD inc hedging costs. This is c.7m more than FY14. (ERROR FIXED)
Based on pax revenue growth assumption of 6% (based on 6.7% capacity growth) I get to FY15 EPS of 27.6c, (1% pax revenue growth = 2.5c to EPS ceteris paribus)
For FY16 using 79c, jet at 110, total fuel burn +3%, and 4% pax revenue growth (after 6% FY15), I get to 34c EPS.
In other words I am feeling pretty bullish right now (about 2 year prospects)
(edited to fix a mistake) sorry for confusion - mod
Nice work on quantifying the fuel gain for this year. I'm not nearly as bullish on revenue growth, (latest consumer confidence survey out this week showing confidence at a 14 month low), but absolutely agree there's plenty of room for analyst upgrades to 2015 forecasts based on the dramatic reduction in oil prices and really massive room for 2016 forecast upgrades for the same reason. In addition they get another few dreamliners next year, (3 if I remember correctly), which will add even further imputes to fuel savings. With two obvious caveats, (oil staying low and AIR filling their extra 5% capacity for 2015 and 2016), I think Mod's EPS numbers are very easily achievable but whether those two matters play out favourably or not...it might be a bit early to make the call on that but its certainly starting to look good. :)
Third dreamliner not far away
http://australianaviation.com.au/201...t-paine-field/
Chinese President Xi's NZ visit:
Air China has announced plans for direct flights to Beijing from Auckland as part of a strategic alliance with Air New Zealand.
http://www.nzherald.co.nz/business/n...ectid=11362484
Bank of China unveils memoranda of understanding with NZX, Air NZ, China Construction Bank open in NZ too
http://www.interest.co.nz/business/7...n-bank-open-nz
just discovered a big mistake in my analysis (had a negative where it should have been a positive - oops). FY15 eps is lower than I thought, but FY16 is still very good.
I have updated my previous post. Summary FY15 EPS 27.6c, FY16 34c. (exclude VAH losses)
As a side note I hit a significant financial milestone today (largely as a result of success with AIR).
I'm celebrating with a nice scotch. To all holders that have shared the ride, and those on board, my best. -mod
Oil bounced up a bit since close on Friday. October operating stat's should be out this week. We need to see evidence that AIR can fill its extra capacity coming on over summer for meaningful SP appreciation from here in my opinion. Stock looks about fair value to me at present pending confirmation of some reasonable growth in passenger demand. Sitting on autopilot with a modest holding and see what happens makes sense to me and that's what I'm doing :)
Better safe than sorry--We are all happy ,Im sure, this thing has not gotten out of hand,and lets hope it never does--but IMO it would have been reckless to discount it-IMO it was a big gamble that was won this time around--Maybe a bit of lost profits,but the other side of the coin would have been far worse if we had all been unfortunate enough to have been bowled by it.
It was one of those "I hope your right but fear your wrong''situations that panned out all right (so far)this time.
Dead right Skid, I've never been so happy to appear to be too conservative and overestimate the seriousness of this threat, (at this stage). The effects on the global airline industry could have been cataclysmic if the spread of Ebola had got completely out of control and frankly that would have been the least of our problems. While its fair to say we're not out of the woods yet there might be some light starting to appear at the end of the tunnel.
Roger, you're one of the best posters on this forum. Your analysis is always sound. Give up on the ebola thing.
http://www.nzherald.co.nz/business/n...ectid=11364352
Oil Slide saves airlines $8.9 Billion.
Opec meeting on November 27 to shape the future of oil prices in the short term in my opinion.
The Company has previously announced that it expected to improve on the 2014 result in the coming year. At the Annual Shareholders’ Meeting in late September it was stated that there had been an encouraging start to the year with solid forward bookings into the high season.
That sales momentum continues as the Company heads into a period of sustained growth. Further, should the current level of jet fuel price persist, there will be significant additional improvement in earnings in the second half of the financial year.
What a lovely way to open :)
https://www.nzx.com/companies/AIR/announcements/258153
Well said. Some very good encouragement in there for AIR shareholders including confirmation of good demand growth / forward bookings growth and prospects for a significant uptick in 2H profits due to lower oil prices. I can see some analyst upgrades coming :)Quote:
What a lovely way to open :)
Wish I bought back in at $1.80 ><!
I bought in at $1.90.. it's close to my target sell.. but.. but I feel the greed kicking in. It's looking quite positive for the coming year so it's tempting to wait and see.
Feel like sharing that friendly birdy info as to why you shouldn't sell? :-)
One of the most well respected brokers has upgraded, (as I suggested they would yesterday). 12 month price target $2.64. Gross dividend yield of 7.2%.
Recommendation BUY. I expect all the other analysts will be upgrading if they haven't already. EPS forecast for 2015 29.26 cps.
Chicago, one of the busiest airports in the world would make for a good destination.
Houston or Dallas would also be good options (though Qantas flies to Houston) but Air NZ would need to work on code sharing and alliances south of the border.
Star Alliance partners Copa Air and Avianca would be a good start. A tie up with Aeromexico even better.
Qantas flies to Dallas/Fort Worth, not Houston.
Interesting to compare fares to Dallas from Sydney.
Qantas: Sydney-Dallas return (mid-Dec - mid-April) is AU$3092, direct flight.
Air NZ: Sydney-Dallas return same dates is AU$2557 ($535 cheaper!) SYD-AKL-SFO-DFW. If AirNZ can undercut Qantas by that much even with three sectors (higher airport fees, less efficient planes than Qantas's A380, etc) just imagine what they could do with SYD-AKL-DFW on the 787-9 (less landing fees, much better fuel economy). And AirNZ can still make lots of money and Qantas can't!
I've just come back from Melbourne and spoke to a couple of Aussies who were flying onto San Francisco - much cheaper with AirNZ than Qantas.
Certainly running along nicely. Big thanks to Modandm for alerting me to this, I only paid attention and got in at $1.28 - doubled up before special divi at $1.93.
So now got a big truckload, when to exit?
Awesome news for AirNZ!
http://mobile.reuters.com/article/id...41127?irpc=932
Great news for AIR, expect some positive movements in the price today on the back of the ~6% fall in oil
Plunging oil prices often leads the world into recession, not always good for airlines
The conspiracy theory that the American's and Saudi's are conspiring to maintain production level's to create a glut and stick it to the Russians appears to be gaining some credibility.
Either that or the Saudi's are playing the long game to maintain market share and are prepared to ride out what could be a considerable period of low prices to nobble the oil sands industry in North America.
Either way or whatever other theory you subscribe too this is very good for AIR.
Further good news. AIR and Tony Carter Chaiman win honours at N.Z.'s premier business awards. Simon Challis from Ryman receives top executive award.
http://www.nzherald.co.nz/business/n...ectid=11365647
Look at that SP fly:cool:
UMMM Yeah, no further comment about that seems like a good thing to say :D Market getting a bit more rational now at $2.40 or is it ? Maybe this mornings apparent irrational $2.50 isn't so irrational ?
We could be in for a really sustained period of low oil prices which could present AIR with an opportunity to lock in really good gains.
I sold all my holdings and 40% gain! money in my pocket is better than on the paper.cheers
If people feel its getting near the top, (I don't), selling enough to get your original investment back and having a free ride with the rest can be a smart move but honestly I look all around the market at other shares and their hugely stretched PE multiples, bonds at record low interest rates and property (at least in Auckland) at all time high's and call account interest rates at around 3-3.5% and ponder, if one was to sell, where's a smarter place to invest ??????????
HNZ maybe but I have heaps of them already.
Sure a profit is not a real profit until its realised but what's the point in realising a profit, generating a truck load of cash and then really struggling to find another more attractive investment ?
You're right on the money there Roger. There are very few other shares that I'd be prepared to plough more funds into from the proceeds of an AIR sale, so I'd probably look to top back up on any future weakness.
My primary target for divestment are the few PE 30 stocks (e.g. FPH) that I still own, having bought into those many years ago.
some people might like to buy a new trinket with said profits. Out of interest where would you see the top Roger?
DFW makes sense for Qantas give it's the hub for fellow one-world partner AA's operation, although AirNZ could partner with them outside of the Star Alliance, it'd make more sense for them to hub at the DEN (who has been here in recent months courting both AIA and AirNZ) or ORD/IAH. IMO the latter two provide better connections to the East coast of Canada and the USA with either UA or AA.
Seems 787's don't like lightning strikes. Ours is grounded in Perth right now :(
Fair comment and a difficult question. I think the market was very pleasantly surprised by the trading update both in terms of customer demand and fuel. Another positive surprise is the Opec decision not to trim output. I'd rather not put it out there where I see full value because the gains to be had from the fuel price are in such a state of flux at present both in terms of the severity of the oil price fall and duration.
The question in my mind is if the Opec members are in apparent disagreement and cannot seem to come to any production accord with non opec members, (its extremely unusual for Russian representatives to have a pre-Opec meeting with key Opec members), what does this suggest about the medium term prognosis for oil prices ? What about the long term effects on the North American shale producers if oil goes below their average production cost or even cash cost ? Perhaps this augers badly for the long term supply situation ?
Given that fuel cost AIR just over $1.1b last year frankly its almost anyone's guess what their fuel bill will be in 2016 but it looks quite possible that it'll be a lot lower than 2014.
Even though AIR has had a good rally from its intra-day low of $1.75 at the peak of Ebola crisis, (up 36% since then), its perhaps worth noting that many of the American carriers are up well over 50%. The PE is very cheap, the dividend yield looks decent and they have ample imputation credits to fully impute dividends almost indefinitely.
In addition I have a very high level of confidence in management and am very impressed with the job the CEO is doing. In a market where many have started to question growth stocks on a PE of circa 30+ AIr continues to stand out with excellent performance and to my mind is good value even at today's price.
http://www.cnbc.com/id/102219498
$35 dollar oil a possibility ?
Qantas up 7.5% at $1.93 at last look on 16 m shares traded which looks pretty strong for a company that's trading on a positive outlook only. Must be the extra savings for those old tech planes.
I'm really starting to think today's rise of only 3% to $2.41 is slightly under-done for AIR.
P.S. Here's a look at how various airlines around Asia have reacted to the Opec news today. Most up circa 6-7% and Air only up just over 3%.
http://www.cnbc.com/id/102222780
Good news with positive messages at the VAH AGM recently. Looking at profitable trading for Q2 and how could it not be profitable for the rest of the year with oil prices falling out of bed !!
http://www.asx.com.au/asxpdf/2014111...jyknwcf5yl.pdf
Yup, definitely a strong buy imho as long as oil stays down (it will). Expect some great margin growth next year.
Nope. Actually got hit. Delamination out of limits on spoiler and wing. Engineers scratching their heads. Very common for aircraft to get hit but not cause that ammount of damage. It leaves a spot on aluminium airframes. Asia pacific is particularly prone to strikes. It'll just end up being a repair but at this stage they are still just learning how.
Incoming Huge Projectile can shed some light on this...
Cullen Airlines fuel hedging disclosure here;
http://www.airnewzealand.co.nz/asset...ctober2014.pdf
My understanding is that derivative contracts are now required to be marked to market. The largest hedging type currently are Brent Collars. I assume the floor and ceiling prices in the disclosure are the maximum and minimum prices for Cullen Airlines to exercise the collar based on the Brent Crude price. The floor of USD$99 is well out of the money meaning that Cullen Airlines is obliged to settle the collar at a price greater than the current physical price.
I take this to mean the price savings Cullen Airlines makes at current prices buying the fuel on the airfield is clawed back by losses on their hedging contracts.
In note (1) of the disclosure the losses described as "Compensation from Fuel Hedges" include losses from mark to market adjustments. The compensation for the March 2015 quarter show a loss of $13 million using October 2014 prices. If current prices hold or decrease further the amount of red ink will increase.
Of course all this is a bit of a mystery to a blonde movie star who thinks diamonds are girls best friend as a store of value, so I stand to be corrected.
Boop boop de do
Marilyn
Traders do what you will - your definitely nuts. But to those medium-term investors that are selling simply because the stock has gone up I would say you are making a mistake.
A short term price move is no justification for sale, especially give the HUGE move in the oil price. If anything the stock price has SIGNIFICANTLY under-reacted to this development. You are displaying the recency bias.
I see others are nervous to try to either 1 value the stock, 2 estimate the impact of the oil price move. Hell if I couldn't do either of these I wouldn't have much conviction in my investment either.. no wonder some people flit in and out with no real confidence, never building meaningful positions and making real $$.
I see a 29c EPS this year (ex VAH), and 40c EPS next year (VAH could even be + next year). This based on 110 fuel, which could be even lower given the move down in Brent to 70. At 100 fuel I get 50c eps (seriously). I have taken comments re bookings into account with my pax revenue assumptions (upgraded). I now see 6.8% this year, 4.8% + 2% yield (yes its heavily second half loaded there is 11.5% capacity growth in H2 (but thanks for pointing out recent stats - i'm well aware)) And 6.5% next year based on 5.5% + 1% yield. Both of these numbers assume 70% load factor on incremental capacity growth which is scheduled at 6.8% this year and 7.8% (yes truly) next year.
So what would I sell at? If my assumptions are fair and I think they are, I see the stock approaching $3.60 in August 2016, 18 months. That's AIR on 8x PE + VAH at 40cps.
There is likely to be about 40c in dividends between now at then so lets say $4.00. And discount back 18 months at my required return of 20% = $3.05. Above that price I would begin considering reducing/selling out of the position today. In other words I am in no rush.
And folks that's how its done. Not that hard.
-millimod
And what if some airlines start reducing fares due to fuel costs reducing? AIR will have to follow suit.
Some still have surcharges ......greedy bastards
http://www.smh.com.au/business/aviat...27-11vfdm.html
Love this bit
"I can guarantee you that it is designed by accountants who have no moral fortitude," Flight Centre managing director Graham Turner said.
So the bastards are the accountants!
Mod - I'm not too scared to value the stock if that was aimed at me. Fair value is well north of the current SP and that's all that's required to be known for now until the oil price situation becomes clear.
I believe its simply too early to try and get an accurate gauge on the extent and duration of the fuel price decline. Just the other day you were saying the fuel costs to AIR would increase this year and you made that call when Brent was under $80 and WTI around $75.
I agree that on face value AIR's SP performance has significantly under-reacted to the news, all of it including VAH's current profitable trading but quite obviously the demand and yield growth looks good and there is scope for dramatic fuel savings in 2H 2015, 2016 and possibly beyond that.
I believe we could be heading for a couple of years of super profits for AIR in 2016 and 2017.
If reductions in airfares by AirNZ are to scale with fuel costs, then yields should remain stable and the lower fares should actually stimulate demand, which would be especially good given the room they have for capacity growth.
An all out price war could be negative, but AirNZ is a premium carrier so I can't see that happening to such an extreme.
I definitely NOT hold airline shares for longer term even medium term, I fear someday flight suddenly crash and few hundred people killed, I will cry and very very sad, not just the money , it is the live.
http://www.cnbc.com/id/102222904
Oil in the U.S. closes down a whopping 10.2% in one day on Friday (Saturday morning N.Z. time).
https://www.nzx.com/companies/AIR/announcements/256764
I went through their last reported hedge position and netted off their Brent put options, (put option is a derivative contract where the Airline makes money when the spot price of oil is lower than the contract price, for those that don't know).
Interesting to note that Air's net hedge position is 62% for the current quarter, (i.e. they will be enjoying substantial fuel savings in this quarter with 38% unhedged.
Jan- March 2015 they are 40% hedged and likewise April - June 2015. Approx. 60% of fuel consumption in the second half of the year will be at rates that benefit from the recent substantial decline in fuel prices !! Only very minimal hedging in place for Q1 FY 2016.
"Put all your eggs in one basket and then watch that basket."
I'm still of this thought with near 50% of my holding with AIR. Though people do keep telling me its nuts to have that much exposure, I couldn't bring myself to do anything else at the moment.
I guess it all comes down to risk tolerance.
Agreed on each point!
We can't predict the future of the oil price, or how quickly Jet fuel prices will move down in concert. So far Jet remains at $96bbl (source bloomberg), which means the spread to brent has blown out hugely to $26. I am watching closely to see if this normalizes back towards $15, which would imply $85bbl Jet. In my analysis I assumed $96 Jet and have found that providing for $10-15bbl of delivery costs is appropriate and conservative taking it to $110.
My analysis at $110 is outlined in post 2027. I maintain that at that level fuel costs are slightly higher as calculated on page 132. The difference in my EPS numbers is due to a higher passenger revenue growth assumption - which I have applied after the trading update and comments that high season bookings are looking strong.
One risk is that Air does not hedge the spread between Oil and Jet. So if Jet stays at $96, with Brent at $70 AIR lose even more on the hedging program, and don't get cheaper Jet.
Also does anyone have the recent research report on AIR released by Forsyth Barr? It's one of the few I don't have access to. If so could you PM me?
I'm in this camp, except AIR is 90%. Look at anyone who has made serious money, its through very big bets on individual companies. I don't see the stock market as a game to play - and I have no interest in gambling on speculative growth stocks like Xero and PEB, instead I view it as a means to invest in companies and be rewarded by dividends and rising capital values through profit growth. What is great is that you can find opportunities where good companies with attractive prospects are stupidly cheap because the market is overly pessimistic and short-sighted. Two years ago, the market was pessimistic on AIR. Today people are still afraid of investing airlines (Warren said don't!) being short sighted and slow to price in change:
1. Change in the company - improving fleet, growth, cost management
2. Change in the industry - Airline management teams are becoming more rational and conservative = less over capacity = Airlines can make their cost of capital
3. Change in the fuel price - analysts still using $90-100 brent. Some are using their 'economists' projections of oil which are $110bbl... Seriously who would listen to these guys
Air is stupidly cheap now given the growth in profits expected, and relative to other companies and airlines globally.
In my view there's 60-70% upside in AIR over 18 months. If you can pass that up thats fine - I'll take some - lets get rich and retire at 40!
http://www.indexmundi.com/commoditie...rude-oil-brent
Mod, I take your point about the potential for margin disconnect between Jet and Brent, here's a look at the two on a FOB basis in the U.S.
Over time I'd suggest the margin normalises and thankfully U.S. shale oil is ideal for refining to heavy distillate fuels such as Jet and diesel.
The market does seem to be infatuated with keeping AIR in and around its long term PE average of 10 and yet many other carriers with arguably inferior management are trading on PE's vastly north of there, go figure ? There's also the fact that PE's generally have expanded a bit with ultra low interest rates but AIR's hasn't.
Roger - I think its the ghost of Ansett. For all the reasons many hate airlines that is what provides a great opportunity to own probably the best run airline on the planet at a very reasonable price. Take all the dividends and wait for 2016 when they could be north of $3 as long as global markets remain sanguine. Thats a pretty big "if" but AIR remains a very good investment risk-adjusted.
You could well be right Arbroath but perhaps it goes all the way back to the Eerebus disaster and Gordon gecko on Wall Street not liking airline stocks. Any way you slice and dice it some people's reluctance to invest in what is an extremely good airline stock trading on very compelling fundamentals seems somewhat irrational.
Interestingly that broker valued VAH at half their present market price to arrive at $2.64 which was also before the collapse in oil prices. I'm not sure that taking such an aggressive approach to discounting the strategic value of VAH is appropriate given, a) The aforementioned dramatic drop in oil prices, b) The fact that VAH recently announced at the ASM that they're currently trading profitably and again this was before the Opec discord, c) The strategic route expansion opportunities the VAH shareholding brings to AIR, d) VAH are already working their rationalisation of routes and fleet with their yet to be finalised takeover of the 40% of Tiger they didn't already own for $1.
I reckon it's worth the face value they're trading at on the (ASX 41 cents) so that takes the fair value to $2.85 BEFORE oil prices fell off the face of a cliff.
Maybe mate but not totally irrational
Many times in my life I have tempted fate and fate generally seems to win.
God, or somebody else, sends messages in funny ways and those messages usually turn out to be true.
I have that feeling that if I buy AIR shares one of their planes will crash and kill hundreds of people. Like Master I will be very sad and blame myself. Fate works in funny and strange ways and god has sent me that message.
Nothing to do with Warren or Gordon - I won't be buying AIR shares. You and others, modandm in particular, should be glad I'm not eh.