Forum Archive Index - May 2001

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

Hi Peter, 

I enjoyed your wee rant on Airline shares.  But here are some of the 
counter view points, with particular regard to Air New Zealand.


>
>Airline in the news a lot  - what future for them? Will Air New
>Zealand ever make money again?
> 
>The orange Virgin 767 looks pretty impressive, and at home, sitting
>on the tarmac at Wellington this afternoon.
>


And that may be the last we see of it.  It would seem Virgin are 
mainly interested in the trans- tasman route, with an Auckland 
Wellington Christchurch sweep stitched into the middle while they are 
here.  There is the tiny matter of international air rights to be 
negotiated.  And if Virgin are successful, it would seem that  Air 
New Zealand would get some compensation through better access to the 
British market.


> 
>As said earlier AIRVA share price been trending down since 1993.
>


Air New Zealand is not really the same company any more.   It has 
gone from being a a niche fringe airline to a global sized player as 
it doubled in size.  I don't think you can take the past trend of 
AIRVA as a useful future predictor of the direction of AIR from here 
on.

  
> 
>I have re-read the Unlimited story 'On a wing and a prayer' 
> 
>One part of the article that struck me was -
> Andy Serwer wrote about
> investment in airline stocks. "Never, I repeat, never buy
> airlines," he said. His rationale was that airlines have the
> cost structure from hell. To whit: 
> 
> 
> a.. They have to borrow huge sums of money to buy planes,
> leaving them at the whim of interest rates (a factor totally
> out of their control). 
>
>

Globally the world's equivalents of our Don Brash seem  to be doing 
what they can to keep interest rates low.  I don't see the return of 
20% interest rates which sank some airlines in the mid 1980s.

>
>
> b.. They use huge amounts of fuel, leaving them at the whim of 
> oil prices (a factor totally out of their control).
>
>

As far as I can tell the bad news of rising fuel prices over the last 
year or so have already been built in to current airline share 
prices.   I feel it unlikely that the world's oil producing nations 
will drastically spike prices again in the foreseeable future.

>
> 
> c.. They are at the whim of strong unions
>     (you guessed it, a factor almost totally out of their
>      control). 
>
>

Air New Zealand would probably have a better employment record than 
say Qantas New Zealand or Kiwi Air.   If anything AIR are able to 
dictate the wages paid to their employees, not the other way around.
There aren't too many other airline operators out there for 
disgruntled employees to move to.

>
>
>d.. 
> If, Serwer argues, some of the world's most serious investors -
>including Warren Buffett with US Air - can lose big-time buying
> into airlines, what hope is there for the rest of us?
> 
>

Buying into a US Airline in the USA is more akin to buying into a 
small shuttle bus company in New Zealand, rather than buying into Air 
New Zealand.

US Air is a domestically focussed business.   There are few 
regulatory barriers to operating within the United States for a new 
airline start up.   On the other hand, an operator wishing to compete 
with Air New Zealand on international routes must negotiate 
international landing rights with the New Zealand Government (if a 
foreign airline) or with a foreign government (if New Zealand based).  
  
It could be argued that, Origin Pacific excepted, Air New Zealand is 
the only operator with a credible record of running a sustainable 
Airline business in our country's history.


>
> 
>Airline shares for me - no way
> 
>


I wouldn't buy 'Airline shares'(generic) either.   But that 
doesn't mean you can't have a successful investment if you 
selectively buy only the best 'Airline share'. SNOOPY



disclosure:  Holds AIR





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"You can tell me I'm wrong twice, 
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