AIR has performed strongly returning over 23% since added it to its NZ portfolio In September 2015. AIR benefits from a strong relationship with ’s core thematics (growth in NZ tourism). Its impressive performance has been aided by a falling oil price, but importantly it has also experienced major growth in its passenger capacity from continual improvements to the New Zealand tourism sector. AIR’s passenger growth for November was up 8.7% compared to last year and this continues a trend over much stronger numbers for the company.
We believe the growth is a result of a combination of factors. With oil falling, travel costs are declining and therefore driving higher volumes for passengers. In conjunction with this, the falling NZD is making NZ a more attractive as a tourist destination. The increased number of travellers to NZ bodes well for AIR as it is a major carrier of passengers to and from NZ.
Finally, AIR has under taken an ambitious growth strategy, both increasing its number of destinations and its number of aircraft. This was perfectly timed given the fall in oil prices. AIR’s share price performance is inversely related to the price of fuel. The recent slump in oil will have allowed AIR to contain costs in addition to expanding into key routes and gaining further market share. Its expansion projects are now extremely profitable and are adding to the growth in its passenger numbers.
However, given that AIR pays for its fuel in USD, some of the benefit of lower oil prices are eroded away by a lower NZD.