Leading tourism operators give investors good value for money

By Peter V O'Brien

Monday 16th September 2002

Investors in tourism companies did well if they bought into some of the leading groups over the past six months.

Share-price performance for six companies are in the table. Air New Zealand performed best with a 76.5% improvement since March 8, the last time The National Business Review considered the sector.

Only Submarines Australasia and Tourism Holdings failed to beat the NZSE40 capital index in the period.

Submarines is effectively non-operational after problems with its planned submarine diving plane in Milford Sound and inability to obtain financial partners.

Tourism Holdings has undergone a reconstruction, with its "cash is king" initiatives, designed to conserve cash and strengthen the balance sheet "in wake of September 11 and the Ansett collapse."

The company's preliminary report for the year ended June 30 said the initiatives were very successful.

Tourism Holdings summed up the current state of the industry in a passage which, while dealing specifically with its business, was a valid comment on the sector.

"While the one-off events of last year had a negative impact on THL with a consequent reduction in the share price, we believe the outlook for the company is positive as economic conditions improve.

"Australia's tourism recovery has been much slower than in New Zealand. However, as with New Zealand, there are positive signs in forward bookings for motor home rentals in Australia as the peak summer season approaches."

Air New Zealand's share- price performance emphasised the old adage of buying when everyone else is selling and selling when they are buying.

Group financial performance was also good after removal of unusual items.

Operating profit on that basis was $39 million.

Chairman John Palmer said the financial performance was better than expected in the business plan produced to support the company's recapitalisation.

Mr Palmer said Air New Zealand had "pulled out of a nose-dive" (a somewhat obvious remark to make about an airline) but still had a very long way to go before it could be said to be on a "stable flight path" and satisfactory returns were assured. "The battle to achieve acceptable commercial results is far from over."

The company's progress had been faster than expected and helped by the "tail wind" of favourable exchange rate movements and a period of fuel price stability.

There are also benefits from the "business re-engineering."

Anyone, including the government as controlling shareholder, who thinks Air New Zealand is set to rise above the cloud cover (to keep up the relentless flying analogies) should look at the facts of the worldwide airline industry.

Many companies, particularly small state-owned European national carriers, were in trouble before September 11.

Big US airlines hit financial turbulence after September. They have cut fares in attempts to boost load factors, the "bums on seats" goal that is crucial to a carrier's success.

September 11 affected Air New Zealand. The company's preliminary report for the year ended June 30 said the decreased demand for air travel as a result of the terrorist attacks and the generally lower level of economic activity were felt most in the higher-yielding business travel sector.

The "overall gross passenger yield (as measured by gross passenger revenue divided by operating revenue passenger kilometres" fell from 14c to 13.4c a revenue passenger kilometre, a fall of 4.3%.

Aggressive competition in the domestic market also affected profitability.

The drop in passenger numbers and tough competition will continue to affect all airlines in all markets, domestic and international, on a worldwide basis.

Tourist visitors to New Zealand dropped immediately after September 11 but numbers improved later and should continue their long-term upward trend, to the benefit of all organisations involved in tourism.

The extent of benefit depends on how each company and/or individuals dealing either with tourists can earn a decent profit in a fragmented and diverse industry.

Air New Zealand, Sky City and Tourism Holdings are big players, operating in sections that have only tourists as a common element.

The small players tag on to the business of the biggies in a crowded field.

Share-price gains in recent months could be worth taking, particularly as international sharemarkets are currently very volatile.

That volatility indirectly affects tourism, because individuals' financial losses and general uncertainty about international economic conditions can put a brake on travel plans.

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