Forum Archive Index - November 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Shareholders and members of the general public (registration and 
verification was dispensed with) were shown to their seats by the 
boys and gals in blue (yes they really were Air NZ cabin crew), as 
if they were boarding some sort of jumbo jet.

After standing for a moment's silence, in respect of the Singapore 
Airlines 747 crash, the meeting commenced.

Chairman, Sir Selwyn Cushing, emphasized that although the balance 
sheet presented accounted for the consolidated AirNZ/Ansett entity 
the earnings for the year did not (Ansett's revenues were presented 
as though it was a 49% subsidiary).   So using earnings and asset 
figures presented in the balance sheet would produce erroneous 
'return on investment' calculations.

It is too early to know if the Singapore Airlines crash will result 
in a downturn in passenger bookings for Singapore Airlines and less 
traffic being fed into the Air New Zealand end of the 'Star 
Alliance'.  But the known problem factor facing Air New Zealand is 
fuel costs.

Air NZ have a hedging policy that sees them largely covered up until 
the end of December 2000.   Beyond this an impact of $100-125million 
of unbudgeted for fuel costs will severely impact the last *half* of 
the financial year ending June 2001.  I only heard the $100m figure 
quoted in the written media reports, but Sir Selwyn definitely 
mentioned the latter figure too.   'Market sentiment' was for the NZ 
dollar to now increase in value and fuel prices to drop.  So if this 
doesn't happen by the end of December, we are looking at an ongoing 
blowout of $250million per year in the fuel budget.   The impression 
I got was that beyond December 31st 2000 Air NZ is completely 
unhedged on both currency and fuel prices.  This wipes out most of 
the $350million identified as synergystic savings from the 
combination of the Air New Zealand and Ansett businesses.

Airline commentator Peter Wakeman noted that last time a third 
domestic airline operated in Australia (Compass), Ansett's revenues 
were affected to the tune of $250million.   The question was asked 
what effect the new 'third players' are having on Ansett revenues 
today.   Whatever the effect an answer wasn't forthcoming, but I 
think it would be fair to say that combined with the fuel cost 
increases, the Air New Zealand/Ansett synergy savings have now 
evaporated. 

There does appear to be considerable disquiet in the travel agent 
ranks.   Apparently Air NZ have been trawling through IATA 
computer records in the United States and cherry picking customers.  
Then those businesses that ticket through travel agents, are being 
approached direct by Air NZ.   This together with the slashing of 
Agent's commission fees, sees a far from happy front bench.   
Amazingly, no attempt was made to deny this practice, the argument 
being that travel agents who book airline tickets *alone* (not as 
part of a hotel/rental car package) do not add value, and the 
internal booking quota system is designed to cut these people out of 
the loop. Effectively the message was 
'Yes we are behaving like rogues, but all the other airlines have 
access to the same information and so will be doing it too if they 
already aren't.'
Maybe it is just an adjustment that the travel agents have to go 
through.  In the meantime they aren't happy and one travel agent who 
is also a shareholder even admitted booking people on other airlines 
because of this practice.

Air New Zealand profits were well below budget for the first 
quarter, but since first quarter profits only represent 10% of those 
projected for the year this may not be as disastrous as other 
printed reports seem to make out.

Much was made of the fact that the new Air New Zealand was now the 
18th-20th largest airline in the world.   Indeed, it might be fair to 
say that 'Air New Zealand' is New Zealand's only listed globally 
significant business.   

All in all the meeting was a professionally presented and slickly run 
'good sell'.  Unfortunately the analysis of the figures presented 
suggests that 'Sell' is also the correct shareholder trading strategy 
at this time.   This afternoon's shooting means that Fiji looks out 
as a destination again and I predict than in a couple of months 
Air NZ will be cheaper than it is now.  For those longer term holders 
buckle up your seat belts, as you will be in for a rough ride this 
year.  The report card reads worse than expected.  Better take a 
packed lunch too as I can see a 'no to very low' dividend being paid 
in 2001. SNOOPY

(disc: Holds Air NZ, makes own lunch)

 
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