Forum Archive Index - November 2000

["Graeme & Jill Christie" <bayvu@ihug.co.nz>]

Yes, thank you for your report. G.
-----Original Message-----
From: tennyson@caverock.net.nz <tennyson@caverock.net.nz>
To: sharechat@sharechat.co.nz <sharechat@sharechat.co.nz>
Date: Thursday, 2 November 2000 17:31
Subject: [sharechat] Air NZ AGM Report


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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