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Re: Re: [sharechat] Cullen airlines

From: "hugh webber" <>
Date: Thu, 29 Nov 2001 09:25:21 +1300

hi Phil,
I guess its more obvious in a large market that they are a commodity 
proposition but if we look at Australia and NZ I think they have become
commodity oriented. In NZ the Government previously let in Kiwi Air,
the nuts and cola operation which really sank because of its founder's
inability to do accounts, manage cashflow - I see he's now been appointed
by a university - was it Waikato - to a post lecturing on airline management
- the Mad Hatters party lives on. The effect of just the one chartered jet
was enough to crash prices (and profits) and move Air NZ to set up 
Freedom Air. Same effect in Australia from Impulse and Virgin Blue - the
price of a Melbourne-Sydney return ticket came down to $75 or something
that obviously was a losing proposition.
Now we have Virgin Blue pressuring the NZ government to let into NZ and 
crash the market here. Its my reading that if the government was going to let 
it in
it would have done so by now - especially now its Air NZ's major 'long term' 
shareholder. This could lead to a short term profitable duopoly of NZ skies
but I think its only a matter of time before a government change and/or
international pressure forces more competition.
With the ability to lease cheap jets there's not really a capital constraint 
on entry. When the maximum flight in NZ is only about an hour and a half
there's not really time to get uncomfortable enough to want 1st or
business class and even the businessmen choose the cheap option as
they have been doing overseas. The demand is determined by the price alone.
If people are particularly worried about safety - and we seem to be having 
about one crash a day overseas - Brisbane the other day preceded by Crossair
the Swiss carrier, preceded by & & - then people will choose car/bus/rail/boat
over air which won't help Air NZ's profitability.
I don't think Air NZ are going to be profitable in the current year (a moderate
statement) - who knows when they will become profitable enough to pay
a decent dividend and how long for?

> From: Phil Boeyen <>
> To:
> Subject: Re: Re: [sharechat] Cullen airlines
> Date: Wednesday, 28 November 2001 21:07
> Hugh
> Good precis. Cullen does seem to have done an about turn on this.  One
> moment "let's stay in till we get it up and going and make a buck", then the
> next "we're long term shareholders".
> One thing though.  I know you have talked before about airlines being a
> commodity biz re Buffet, but really, are they low/no entry? Given the safety
> regulations and landing right issues that have to be met, I wonder.  Also, I
> have my doubts that competition is determined by price alone.  Certainly
> discount carriers yes, but as so many airlines make their main cash from
> business travellers, I would have thought things like take-off slots,
> branding, in-flight services and so on count for quite a lot.
> Regards, Phil
> ----- Original Message -----
> From: "hugh webber" <>
> To: <>
> Sent: Wednesday, November 28, 2001 6:17 PM
> Subject: Re: Re: [sharechat] Cullen airlines
> > yeah, I'm rather sceptical of the Cullen logic on we the
> taxpayers
> > will have the privilege of paying for future losses without any profit
> motive
> > to stimulate cost efficiencies.
> > But then there are lots of contradictions involved.
> > It was said that the Govt could not afford to let Air NZ disappear becos
> of
> > the effect on tourism and exports which is probably a reasonable
> statement.
> > So now they close down airfreight exports from the South Island and
> cripple
> > the world beating Air NZ Engineering Workshops in Chch.
> >
> > And as we all know the history is fraught with contradictions. Air NZ
> wanted
> > Ansett and said it had identified $350 million of synergy savings incl
> > doing Ansett engineering work in Chch. Nothing happened. No savings
> > took place. Instead costs blew out as they took on Toomey and his
> > gold plated mates from Qantas - was it $25 million on management that
> wasn't needed.
> > Then the Aust government says you can have Ansett and now we'll let in
> > Impulse and Virgin Blue so no one can make a profit.
> > So Ansett goes down the tube and the Oz govt says its all Air NZ's fault.
> > Nothing as blind as those who will not see.
> >
> > And as I've pointed out from time to time airlines are a commodity in the
> Buffett
> > analysis i.e. you can't make a reasonable continuing profit - they are
> typified
> > by low/no barriers to entry and competition determined by price alone -
> > so sensible people (which should include governments) don't invest in
> them.
> >
> > cheers,
> > Hugh
> >
> > ----------
> > From: G Stolwyk <>
> > To: <>
> > Subject: Re: Re: [sharechat] Cullen airlines
> > Date: Wednesday, 28 November 2001 12:48
> >
> > Big ' Iron bird ' with wings clipped, can't fly so high anymore!
> >
> > One would normally smell kerosine,  whenever this plane takes off from the
> tarmac; from now on, the
> > odour of the gases from the exhausts will be more  like that of  burnt
> bank notes!
> >
> > Keep flying Big Iron Bird!
> >
> > Gerry
> >
> >
> > --------------------------------------------------------------------------
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