Okay I'll have a little nibble at that. People keep saying its a cyclical stock and history suggests it is BUT how is it that for about a year now its been well known that Dairy prices were going to come under severe pressure and they did getting to their lowest level in about 10 year's early in winter. This caused consumer and business confidence to hit multi year low's, just this week we had the NZIER saying business confidence was at a four year low and earlier in the month we had another survey saying consumer confidence was at a multi year low. This week we also has the IMF warning we are on the brink of a world-wide recession and consumer and business sentiment has been poor for the vast majority of 2015. Somehow the brokers consider all of the above to be the peak of the cycle and yet throughout all this time aircraft loadings have been very strong at circa 83% all year and most of last year. I have been saying for quite a while now that with low oil and 83% aircraft loads the cash register at AIR is ringing like crazy and now we have confirmation of this from the company this week.
Against this backdrop of low confidence both here and amongst almost all of our trading partners people are still spending money with AIR to such an extent that it is quite plausible that they will get close to doubling last year's profit, itself an all time record !
How does one explain this strong demand in such sustained soft economic conditions ? Have we seen a shift to a point where people think nothing of taking a flight to Queenstown or Australia seeing as often it costs little more than filling up the gas tank of a decent sized car ? In real inflation adjusted terms is Air travel now so relatively cheap demand becomes almost completely inelastic irrespective of economic conditions other than perhaps another GFC ?, (this assumes one thinks we're out of the first GFC).
Each day I get the daily deals on www.grabaseat.co.nz. Today's one that tempted me was $49 Auckland to Nelson...you can hardly buy a decent dinner and drinks for that. Maybe 99% of their customers don't care what the GDT auction price is or that the China economy is soft or that Greece can't pay its bills or that Putin is a ........ or insert whatever other N.Z. or global worry you care to mention. T.C and I had a little chat about the cash flow of the company after the meeting. Everyone knows they have $2.6b for new aircraft capex over the next 4 years, not everyone knows this will be an absolute doddle of a walk in the park for them and their will be cash to burn if oil stays at a moderate level... (read special dividend(s), share buy-backs or both).
$1.1 billion in cash flow last year. Nearly $1 a share. Wonder what this year's cash flow will be ?
Nice analysis Banter. Virgin is forecast to be profitable in FY16 and more so in FY17
thestg Welcome to the forum and welcome aboard as a shareholder. Dividends will easily cover your interest payments so I think you're well positioned.