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If one had to come up with a list of the greatest bar bands of all time, one would be hard pressed to leave off Southside Johnny and the Asbury Jukes:
And if one had to come up with a list of the greatest rock ballads of all time, one would be hard pressed to leave the Jukes classic, “Paris”, off of the list. If you get a chance, give it a listen. Here are the lyrics:
She left on the morning train
She never spoke of returning
So blasé she just walked away
Oh, but this fire is still burning
Paris you're a drug, you won't let go
There is no use in denial
You're in my brain, you're in my veins
You've got my mind running wild
Goodbye to Paris
Goodbye to the past
We live in shadows that our dreams have cast
Memory and desire can only bring pain
Until I'm with you again
Goodbye to Paris
Goodbye to the past
We live in shadows that our dreams have cast
Memory and desire can only bring pain
Until I'm with you again
Till I'm back in your arms one more time
Now $$$MR. MARKET$$$ has never been to Paris and $$$MR. MARKET$$$ has never even been to France. The closest I have ever been to France is this:
Having said that, if I were ever to go to France, I would travel on their very well run airline to get there.
Today I bought Air France (AKH) at $51.65/share. I will sell it in 4 – 6 weeks at 59.59. Here’s why I like Air France:
Air France stock is up about 120% in the last 12 months, yet its PE is only around 12 and it pays a dividend. Check out the chart:
Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.
Once the laughing stock of the investment community, there are some compelling reasons to be putting my money into an airline. While costs vary significantly among airlines, there are some common cost characteristics. Labor is typically the largest component of operating costs and generally amounts to about one-third of operating costs. Fuel is the next largest component, typically amounting to 10-20% of operating costs. Because there are significant ground costs, unit operating costs general fall as flight length increases. Airplane size and loading are also important cost drivers, while aircraft leasing arrangements are an important tool for managing capital requirements.
Airlines have had to recognize the need for radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability:
The main components of demand for airline services are business travelers, tourism, freight transport, and mail transport. Flight schedules tend to be the crucial competitive issues for business travelers, while tourists and personal travel is much more price sensitive.
AKH has been an industry leader in containing its costs, particularly its labor costs. Their fuel hedging programs have been successful in controlling jet fuel expenses. Ground costs are very low, relative to other airlines, because their overseas flight lengths have the planes up in the air longer, where they make more money. Combine all this with strength in the world economies, which is driving up seat mile demand, and you have a recipe for profits. For the first time in more than a decade, all four of the airlines' key economic drivers — supply of airline seats, travel demand, operating costs and fares are moving in the right direction. For consumers, it means higher fares and fuller planes. Oh well, sucks for them. Indeed, the industry is on the cusp of a recovery this year and it could turn into a major recovery if oil prices fall further than expected.
Remember, there was always a worldwide event that seemed to knock the airlines back. September 11, SARS, war in Iraq, the economy, hurricanes and high oil prices. Still the airlines have survived…so what if we have a year or two without these kind of body punches to the gut?
Even now, in the slowest time of the year for air travel, almost eight out of 10 seats are filled with paying passengers. In effect, that means most planes on popular routes, and most prime-time flights, are flying full.
It also helps the carriers that a lot of the demand is coming from business travelers. Business fliers these days typically don't pay the kind of premium prices they did in the go-go days of the late 1990s. But they still are time—sensitive and willing to pay significantly more than price-
Ironically, high fuel prices gave carriers an unexpected ability to push through a string of fare price increases last year. For once, a traveling public that for years revolted at attempts to boost fares — even by $5 — seemed willing to accept several rounds of fare increases.
Revenue for each airline seat flown one mile — a key financial indicator — rose about 6% in 2005. Expect it to rise another 7% this year.
Air France forecasts its international air travel to grow by over 6% a year from 2007 to 2011, with China growth in double digits. In terms of total passenger trips, however, the main air travel markets of the future will continue to be in and between Europe, North America and Asia. Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets. AKH is bigger than Lufthansa and nearly twice as big as British Air.
Air France-KLM provides air passenger and cargo transportation services worldwide. It also offers industrial maintenance and other air-transport-related services, including catering and charter services. As of March 31, 2006, it operated flights to 247 destination cities and carried approximately 70 million passengers. As of the above date, the company had a fleet of 575 aircrafts, including 561 planes. It provides various aircraft maintenance services, repair, and overhaul services. It has operations in the United States, Europe, and Asia. The company was founded in 1933 and is headquartered in Paris, France.
Air France is actually two airlines whose three core businesses are:
• passenger transport,
• cargo transport,
• aircraft maintenance services.
The Group is the world leader in terms of international passenger traffic; it ranks second worldwide for its cargo activities (not including integrators) and is one of the world's major maintenance service providers.
The Group counts more than 100,000 employees throughout the world.
Passenger transport is the Group's main business, accounting for 79% of turnover (2005-06 financial year), with 70 million passengers carried (2005-06 financial year), a fleet in operation of 565 aircraft on 31 March 2006 (including 185 dedicated to regional routes), and 247 destinations worldwide.
The Group structure is simple: a holding company with two airline subsidiaries. This "one group, two airlines" structure is designed to free up the full range of synergies generated by the complementarities between the two carriers.
The strategy of the Air France-KLM Group is one of profitable growth, based on leveraging its fundamental assets:
• Powerful hubs (Paris-Charles de Gaulle and Amsterdam-Schiphol) linking the medium-haul network to long-haul routes
• A well-balanced network that offers natural protection against economic and geopolitical risks
• Leading positions on the main markets and a balanced network, allowing for targeted growth.
• Services that fulfil customer expectations and efficient customer loyalty tools.
• A strict cost-control policy
Is it working? Hello yeah! Dynamic passenger traffic helped Air France-KLM triple its net profit in its third quarter despite a rising fuel bill, It also reaffirmed its outlook for the fiscal year ending March 31.
Air France-KLM reported net profit of 229 million euros ($298 million) for the October-December period, up from 77 million euros a year earlier and well above the 140 million euros ($182 million) expected by analysts.
Operating profit rose 32.6 percent to 252 million euros ($328 million) in the third quarter, in line with the average analyst forecast of 253 million euros on a 5.9 percent rise in revenue to 5.75 billion euros ($7.49 billion).
In a statement, Air France-KLM said it expected to break even in the fourth quarter, assuming a fuel bill for the January-March period of 1.02 billion euros ($1.33 billion).
That would leave the airline's net profit for the year at the 847 million euros ($1.1 billion) reported for the first nine months of the year, and operating profit above the 1.23 billion euros ($1.6 billion) posted for the same period.
Why will Air France maintain their profitability? Based on the facts established above, one should expect that Capacity growth should increase by 5% per year, coupled with Revenue per available seat growing at the same clip.
AKH’s multi-hub strategy optimizes destinations where they are in competition with other carriers. They can provide a wider offering in terms of schedules from the mammoth sources of business travelers (New York, LA, Montreal, Sao Paolo, Tokyo, etc) who generate higher revenues per seat mile. Corporate contracts make up 49% of all of their business class revenues. These profits are LOCKED IN. Air France is the #1 European carrier in capacity share to Latin America, Africa, the Middle East, and Asia. Frequent flyer members have grown from 2.4 million to projected 12 million in 2007.
Air France has been profitable for over 10 consecutive quarters. Debt to Equity ration stands at 1.17 while the rest of the industry is at 3.8. ROE is 11.8% compared to industry 8.5%. ROA is 3.4% compared to industry 1.1%. Return on Invested Capital is 5.9% compared to industry 2.2%. AKH’s debt and pension obligations are much lower than their Euro competitors, meaning they are least likely to belly up first.
What kind of stock price can I expect? If we assume initial earnings of $1.12 billion grow at a rate of 6.00% (which is their growth projection), and we discount those future earnings at a T bill rate of 5.00%, we arrive at a net present value for the company's next 10 years of earnings of $11.8 billion. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%, and we arrive at a continuing value of $21.8 billion. To complete the calculation we add these two figures together, subtract the long-term debt for AKH ($10.5 billion), and divide by the outstanding shares (269 million) to get a per share intrinsic value of $85.94, which is well in excess of my sales target.
I may be afraid to fly, but I have no fear in investing in AKH. I am HUGE! Bring me your finest meats and cheeses.
$$$MR. MARKET$$$
PS - Please don't forget the Little Tigers - http://www.golittletigers.com
And if one had to come up with a list of the greatest rock ballads of all time, one would be hard pressed to leave the Jukes classic, “Paris”, off of the list. If you get a chance, give it a listen. Here are the lyrics:
She left on the morning train
She never spoke of returning
So blasé she just walked away
Oh, but this fire is still burning
Paris you're a drug, you won't let go
There is no use in denial
You're in my brain, you're in my veins
You've got my mind running wild
Goodbye to Paris
Goodbye to the past
We live in shadows that our dreams have cast
Memory and desire can only bring pain
Until I'm with you again
Goodbye to Paris
Goodbye to the past
We live in shadows that our dreams have cast
Memory and desire can only bring pain
Until I'm with you again
Till I'm back in your arms one more time
Now $$$MR. MARKET$$$ has never been to Paris and $$$MR. MARKET$$$ has never even been to France. The closest I have ever been to France is this:
Having said that, if I were ever to go to France, I would travel on their very well run airline to get there.
Today I bought Air France (AKH) at $51.65/share. I will sell it in 4 – 6 weeks at 59.59. Here’s why I like Air France:
Air France stock is up about 120% in the last 12 months, yet its PE is only around 12 and it pays a dividend. Check out the chart:
Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.
Once the laughing stock of the investment community, there are some compelling reasons to be putting my money into an airline. While costs vary significantly among airlines, there are some common cost characteristics. Labor is typically the largest component of operating costs and generally amounts to about one-third of operating costs. Fuel is the next largest component, typically amounting to 10-20% of operating costs. Because there are significant ground costs, unit operating costs general fall as flight length increases. Airplane size and loading are also important cost drivers, while aircraft leasing arrangements are an important tool for managing capital requirements.
Airlines have had to recognize the need for radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability:
The main components of demand for airline services are business travelers, tourism, freight transport, and mail transport. Flight schedules tend to be the crucial competitive issues for business travelers, while tourists and personal travel is much more price sensitive.
AKH has been an industry leader in containing its costs, particularly its labor costs. Their fuel hedging programs have been successful in controlling jet fuel expenses. Ground costs are very low, relative to other airlines, because their overseas flight lengths have the planes up in the air longer, where they make more money. Combine all this with strength in the world economies, which is driving up seat mile demand, and you have a recipe for profits. For the first time in more than a decade, all four of the airlines' key economic drivers — supply of airline seats, travel demand, operating costs and fares are moving in the right direction. For consumers, it means higher fares and fuller planes. Oh well, sucks for them. Indeed, the industry is on the cusp of a recovery this year and it could turn into a major recovery if oil prices fall further than expected.
Remember, there was always a worldwide event that seemed to knock the airlines back. September 11, SARS, war in Iraq, the economy, hurricanes and high oil prices. Still the airlines have survived…so what if we have a year or two without these kind of body punches to the gut?
Even now, in the slowest time of the year for air travel, almost eight out of 10 seats are filled with paying passengers. In effect, that means most planes on popular routes, and most prime-time flights, are flying full.
It also helps the carriers that a lot of the demand is coming from business travelers. Business fliers these days typically don't pay the kind of premium prices they did in the go-go days of the late 1990s. But they still are time—sensitive and willing to pay significantly more than price-
Ironically, high fuel prices gave carriers an unexpected ability to push through a string of fare price increases last year. For once, a traveling public that for years revolted at attempts to boost fares — even by $5 — seemed willing to accept several rounds of fare increases.
Revenue for each airline seat flown one mile — a key financial indicator — rose about 6% in 2005. Expect it to rise another 7% this year.
Air France forecasts its international air travel to grow by over 6% a year from 2007 to 2011, with China growth in double digits. In terms of total passenger trips, however, the main air travel markets of the future will continue to be in and between Europe, North America and Asia. Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets. AKH is bigger than Lufthansa and nearly twice as big as British Air.
Air France-KLM provides air passenger and cargo transportation services worldwide. It also offers industrial maintenance and other air-transport-related services, including catering and charter services. As of March 31, 2006, it operated flights to 247 destination cities and carried approximately 70 million passengers. As of the above date, the company had a fleet of 575 aircrafts, including 561 planes. It provides various aircraft maintenance services, repair, and overhaul services. It has operations in the United States, Europe, and Asia. The company was founded in 1933 and is headquartered in Paris, France.
Air France is actually two airlines whose three core businesses are:
• passenger transport,
• cargo transport,
• aircraft maintenance services.
The Group is the world leader in terms of international passenger traffic; it ranks second worldwide for its cargo activities (not including integrators) and is one of the world's major maintenance service providers.
The Group counts more than 100,000 employees throughout the world.
Passenger transport is the Group's main business, accounting for 79% of turnover (2005-06 financial year), with 70 million passengers carried (2005-06 financial year), a fleet in operation of 565 aircraft on 31 March 2006 (including 185 dedicated to regional routes), and 247 destinations worldwide.
The Group structure is simple: a holding company with two airline subsidiaries. This "one group, two airlines" structure is designed to free up the full range of synergies generated by the complementarities between the two carriers.
The strategy of the Air France-KLM Group is one of profitable growth, based on leveraging its fundamental assets:
• Powerful hubs (Paris-Charles de Gaulle and Amsterdam-Schiphol) linking the medium-haul network to long-haul routes
• A well-balanced network that offers natural protection against economic and geopolitical risks
• Leading positions on the main markets and a balanced network, allowing for targeted growth.
• Services that fulfil customer expectations and efficient customer loyalty tools.
• A strict cost-control policy
Is it working? Hello yeah! Dynamic passenger traffic helped Air France-KLM triple its net profit in its third quarter despite a rising fuel bill, It also reaffirmed its outlook for the fiscal year ending March 31.
Air France-KLM reported net profit of 229 million euros ($298 million) for the October-December period, up from 77 million euros a year earlier and well above the 140 million euros ($182 million) expected by analysts.
Operating profit rose 32.6 percent to 252 million euros ($328 million) in the third quarter, in line with the average analyst forecast of 253 million euros on a 5.9 percent rise in revenue to 5.75 billion euros ($7.49 billion).
In a statement, Air France-KLM said it expected to break even in the fourth quarter, assuming a fuel bill for the January-March period of 1.02 billion euros ($1.33 billion).
That would leave the airline's net profit for the year at the 847 million euros ($1.1 billion) reported for the first nine months of the year, and operating profit above the 1.23 billion euros ($1.6 billion) posted for the same period.
Why will Air France maintain their profitability? Based on the facts established above, one should expect that Capacity growth should increase by 5% per year, coupled with Revenue per available seat growing at the same clip.
AKH’s multi-hub strategy optimizes destinations where they are in competition with other carriers. They can provide a wider offering in terms of schedules from the mammoth sources of business travelers (New York, LA, Montreal, Sao Paolo, Tokyo, etc) who generate higher revenues per seat mile. Corporate contracts make up 49% of all of their business class revenues. These profits are LOCKED IN. Air France is the #1 European carrier in capacity share to Latin America, Africa, the Middle East, and Asia. Frequent flyer members have grown from 2.4 million to projected 12 million in 2007.
Air France has been profitable for over 10 consecutive quarters. Debt to Equity ration stands at 1.17 while the rest of the industry is at 3.8. ROE is 11.8% compared to industry 8.5%. ROA is 3.4% compared to industry 1.1%. Return on Invested Capital is 5.9% compared to industry 2.2%. AKH’s debt and pension obligations are much lower than their Euro competitors, meaning they are least likely to belly up first.
What kind of stock price can I expect? If we assume initial earnings of $1.12 billion grow at a rate of 6.00% (which is their growth projection), and we discount those future earnings at a T bill rate of 5.00%, we arrive at a net present value for the company's next 10 years of earnings of $11.8 billion. To account for potential earnings beyond the 10th year, we estimate a growth rate of 6.00%, a discount rate of 12.00%, and we arrive at a continuing value of $21.8 billion. To complete the calculation we add these two figures together, subtract the long-term debt for AKH ($10.5 billion), and divide by the outstanding shares (269 million) to get a per share intrinsic value of $85.94, which is well in excess of my sales target.
I may be afraid to fly, but I have no fear in investing in AKH. I am HUGE! Bring me your finest meats and cheeses.
$$$MR. MARKET$$$
PS - Please don't forget the Little Tigers - http://www.golittletigers.com
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