The power of marketing and self promotion eh troy
Perception isn't always reality, in practice
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Back in 2010 I had an issue with a significantly delayed NZ7 (SFO-AKL) flight. We boarded the plane at 8pm and sat at the gate for 2 hours at which point an announcement was made that there were some engineering issues and that we would be delayed.
At 11pm they announced that there were issues with the brakes and that the United ground staff were on strike and would not fix the issue, additionally due to the baseball world series being played that weekend there were also no hotel rooms available, and to compound things further the TSA had refused permission for the passengers to re-enter gate lounge.
A decision was therefore made that they would offload fuel and stop in Hawaii. The truck that was sent by United was too small and we had to wait for another truck to be dispatched, by which time it was 12am. At 1 am I watched as the baggage containers were offloaded and after another 30 min's at 1.30am we pushed back which was when the Captain announced that all baggage had also been offloaded and that we did not have permission to land in Hawaii, therefore we would have a 3 hour stop-over in Fiji.
To Air NZ's credit communication was on the whole good and the multitude of issues were handled well. This incident bears some resemblance to that which occurred on NZ80, given that the engineering issue was compounded by a typhoon, a Chinese public holiday, contracted staff (remember, HKG is not an Air NZ hub), and aircrew working up to their maximum hours before the flight even departed. From what I have heard so far from a colleague, communication could have been better, however from what I have been told the situation is being blown out of proportion somewhat.
Most people are understanding, and sometimes cluster-f**** just happen. Just the way it is handled and communicated.
Seems yesterday was beat-up on AIR day. Reality is some issues are beyond their control and they have to use contractors for some aspects of their operation.
Another reality as I found out to my detriment on Saturday night was that when accommodation is fully booked you really are completely snookered if something goes wrong with one's original plan / accommodation.
I am sure customers were well compensated for their inconvenience, IIRC passengers got $1,200 each for the Hawaii fiasco, a family of four would have had a significant portion of their holiday paid for by AIR.
I have listed below all the others blue chip companies on the NZX trading on a FY 16 prospective PE of under 6....oh wait...there isn't any.
I remain of the opinion that analysts have NFI what they'll make in EPS in FY17 and beyond and all that really matters at this stage is current year indications from the company and they're extremely confident of a significant increase in EPS and that in a year when the economy is relatively soft. No need to over-think this investment, the cash register is ringing like crazy in a soft economy and the current PE at $2.48 is 5.5 based on consensus forecast EPS of $0.45. Imagine how well they'd be going if the economy really was a rock star.
You think the enhanced freight capabilities of the 787-9's, (three times that of the replaced 767's) might come in handy with extra freight with the TPP :)
I have a strong bias towards increasing my investment after tomorrow's ASM.
Roger - it wasn't beat up day
General conclusion was -
1 - AIR doing great marketing and self promotion to ensure they are seen as a very good airline, when in fact they are if one is in a good mood on par with competitors. Perception does not always equal reality
2 - Shareholders should be pleased that they do just enough and no more to keep most punters happy
3- AIR extract as much as they can from their assets. Good for shareholders again.
Essentially they do a good job in flying punters around in the most efficient and profitable way. Flying is a 'commodity' these days, not an experience to look forward to.
No there's a buy recommendation
Fair enough mate. Shame you didn't get to try out one of their new Dreamliner's on your trip. According to AIR customers surveyed have expressed a very high level of satisfaction with the flight experience...proof that perception can be reality ?
The Virgin London / Hong Kong was a Dreamliner. As I said it did not live up to its hype, I was underwhelmed. Perception definitely not reality in this case. Doubt whether AIR ones are any better
Hated the lighting that was simulated night time even though it was afternoon outside. Probably a ploy to get punters to sleep longer and cutdown on service. But brekkie at 3pm local time is ridiculous
Long haul is a pain eh.
So:
brokers, Tigers and modandms efforts totally worthless;
future valuations a load of dingo's kidneys;
the 20% upside to broker consensus is completely imaginary;
AIR is an incredibly speculative share and you are better putting your money somewhere safer.
Best Wishes
Paper Tiger
PS: I have told you about the two times I had tickets for and turned up for flights that did not exist?
I was referring to the fact that analysts have a consensus forecast for FY17 and FY18 that is materially lower than FY16. The company is not saying this. Effectively analysts are saying we're now at the peak of the cycle...funny thing is from everything going on in this economy and neighbouring ones it feels like a trough in the cycle to me.
The best guide to future performance is last year and current year performance as guided by the company themselves.
Attachment 7652
Heavens to Murgatroyd !
What does the company say about 2016? Their analyst presentation gives some information and analysts take what the company says into account when doing their valuations.
What does the company say about 2017? [This space intentionally left blank]
And what does the company say about 2018? [This space also intentionally left blank]
And what do the broker/analysts and others see that to them is blindingly obvious but you can not see?
FY2016 is a year when a lot of ducks line up for Air New Zealand and everybody expects them to have scattered to some degree or other after that.
Analysts are saying FY2016 is an abnormal year on the good side and normal service will be resumed thereafter.
Why not have a go at doing an valuation or three of AIR? Consider some alternative scenarios.
Best Wishes
Paper Tiger
I see American Airlines announcing LAX-AKL within the next several months...
For 2016, I took AIR's figures for 2015, and added 10% for inherent growth, added fuel savings ($363m), subtracted currency losses ($70m), took off 28% tax from the fuel and currency adjustments, and added $27m, for Virgin to break even.
For 2017 I assumed fuel cost and the exchange rates remained the same as those used in AIR's 2016 projections.
And added another 10% for inherent growth. VA to break even again.
Those assumptions give the following:
15a 16 17 npat ul 1) 357 623 459 eps ul 0.319 0.556 0.410 po % 50% 50% 50% gdps 0.222 0.388 0.286 gy% 8.9% 15.6% 11.5%
As to historic PE - since 2007 the median annual low PE is 8.4; median annual high is 12.7.
Mid point is 10.6
Morningstar figures used.
If those figures are right, it would seem reasonable for the market to 'look through' the abnormally high 2016 profit and use some estimate of 2017 profit to value AIR - with due allowance for a special div of say 15cps in 2016.
A PE of 10 on the 2017 eps would give $4.10 in 2017.
Or say $3.38 now (discount $4.10 at 10% for two years), plus 15c = $3.53.
However you crunch the numbers the current price is a bargain based on upside potential and forward divvy payments.
Thank you for posting the analyst presentation but I've already studied that in great detail.
What I am saying in a nutshell is blind freddy can tell you we have an oil price tailwind this year but we also have a currency headwind, a soft economy, trading partners have very soft economies and more specifically I am saying nobody can reliably predict what the profit will be in FY17, almost two years before the actual result. There are simply too many variables. What we do know now, with a reasonable degree of probability about AIR and VAH indicates to me that AIR is materially under-priced based on historical norms. My best guess, (which I reckon is as good as anyone else's) is current years earnings have circa 7-8 cents net oil price tailwind so I reckon we're at basically 37-38 cps x a PE of 11. I use 11 because while the historical average is just over 10, we have interest rates which are generally the inverse of PE ratio's at 50 year lows and the airline in growth mode. I see fair value at $4.12. I think this is conservative in as much as if we have oil lower for longer due to subdued worldwide economic growth, (something that's highly likely), Oil in the 50 - $70 barrel might become the new norm...but who can reliably say...
I think implied suggestions we're at something of a peak in the cycle, (consensus FY18 earnings are 33 cps) are absolutly nonsensical. Its quite obvious almost all our trading partners are struggling to generate any meaningful growth in their economies. If oil rebounds strongly based on economic demand such that all the oil price tailwind is removed in FY18, (which is what appears to be suggested by analysts FY18 forecasts) then demand growth along with quite significant route expansion and frequency will replace that oil price tailwind and we could easily see EPS of 45-50 cps in FY18.
I'm with Couta1 - any way you slice and dice this thing, the stock is very, very cheap trading at one third of the average NZX50 forward PE. You think a ratio of only one third of the average NZX50 more than compensates you for airline risk ? (The answer to this question is intentionally left blank) :)