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Forsyth Barr analysts see it as increasingly unlikely that the Government will be able to maintain the current closed border settings through our summer; vaccination level may only reach 73% of the population

Forsyth Barr analysts see it as increasingly unlikely that the Government will be able to maintain the current closed border settings through our summer; vaccination level may only reach 73% of the population
airnz4-oct21

The political backdrop will become "increasingly problematic" for the government as the rest of the world opens up and accepts Covid-19 as an endemic virus, analysts from financial services company Forsyth Barr say.

In a new research note looking at the prospects for Air New Zealand, Forsyth Barr's head of research Andy Bowley and analyst Matt Noland say they see it increasingly unlikely the Government can maintain its current border settings through the upcoming summer as most OECD countries will have relaxed border restrictions by then and New Zealand's vaccination level should be at comparable levels.

"We, therefore, would not be surprised if it pulled forward its reopening timeline as Australia has done."

On those vaccination levels, the analysts have crunched the numbers and reckon the best NZ will achieve is about 73% of its population vaccinated.

In terms of Air New Zealand, they see a loss for the current financial year of "no worse" than just over $700 million and are actually picking -$697 million. They say Air New Zealand shares are over-valued and they've lowered their 'target price' for the next 12 months by 10c a share to $1.15.

Bowley and Noland say without high levels of vaccination or fully linked and controlled case numbers, it appears unlikely that Auckland will re-enter Alert Level 2.

"We cannot see either Auckland venturing down the Alert Levels over the coming weeks or the Auckland border opening up if it did. As has already happened in Waikato, it is highly likely that other parts of New Zealand will join the outbreak and are subject to further restrictions. In effect New Zealand is now heading towards its Covid-19 end game."

They don't see the aviation restrictions around Auckland being eased until the end of November.

They say they expect the Government to loosen restrictions around that time in light of the timing of its vaccine passport release, and providing sufficient time for unvaccinated to get vaccinated, and also, ahead of Christmas.

They see no chance of the trans-Tasman bubble resuming this year, but travel to/from Australia will likely resumes at the beginning of January 2022 on a restricted basis "as NZ begins the process of reopening its borders".

"The move by Australia to reopen its borders in mid-November will pressure our government to bring forward its border reopening timeframe."

According to the analysts' crunching of the numbers a 80% vaccination level may not be possible in New Zealand.

"In fact the government's own [about] 90% target of the eligible population (4.3 million people) implies an [about] 76% vaccination rate in total (5.1 million people)."

As of the middle of last week when the research report was put together, Bowley and Noland said New Zealand was 41% fully vaccinated with a further 25% of the population awaiting a second dose.

They have worked out NZ's likely vaccination rates based on what has happened in other countries, in terms of timing.

"Our modelling of the vaccination timeline suggests New Zealand's vaccinations will hit [about] 73% of the total population by 31 December 2021 (or [about] 88% of the eligible population) by which time 'booster' jabs may be necessary for those that first received vaccinations in early 2021."

In terms of Air New Zealand, Bowley and Noland say its domestic network is operating "substantially lower" than pre Covid-19 capacity, given its usual reliance on Auckland.

They say the losses are deepening as the current Covid-19 outbreak "significantly impacts its ability to fly".

"Notwithstanding deeper losses and accelerated cash burn, we don't expect the latter to be an issue so long as the capital raise is not deferred again."

The estimate is that Air NZ will need to raise about $1 billion. This raising has been delayed twice and is now expected to happen in the first quarter of next year.

"Reduced capacity will remain a feature for the foreseeable future as we believe Auckland's domestic aviation restrictions will be in place until the end of November, and the risk of other regions re-entering Alert Level 3 has increased in recent days."

They say Air NZ's "cash burn and diminution in its equity" will continue through FY22 and into FY23.

"Even after assigning value to AIR's loyalty scheme (which we do in our target price), it is difficult to justify a valuation remotely close to its current share price. While we recognise that reopening sentiment may assist AIR's share price near term, we continue to base our views on fundamentals."

They say their revised FY22 pre-tax loss is -NZ$697m and compares to current market consensus of -NZ$549m.

"This drives our year end net asset value (NAV) per share down a further [about] -8cps to [about] NZ$0.54. Notwithstanding large percentage changes, our earnings forecasts for FY23 and beyond in dollar terms are largely unchanged. We continue to believe that [Air NZ's] profitability will not return to pre Covid-19 levels over our outlook period."

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23 Comments

90% was never a target, we've said from the very beginning we wouldn't set targets

 - Jacinda Ardern, Q1 2022

Up
7

They have learned to never set targets, then you can't be held to account for poor outcomes. These are learnings from their earlier woeful misses.... Kiwibuild anybody?

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16

They must be counting their lucky stars that the million kiwis citizens abroad that they made stateless cannot vote if absent for three years.

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9

Begs the question of why we let people who have moved overseas vote in our elections at all. 

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6

Why do you hate kiwis who have moved overseas so much?

Up
9

Sounds like he just doesn’t not want the kiwis who go to Harvard or Cambridge Medical Schools (spending 6 years overseas) to come back. Possibly because he prefers that our local doctors not have been trained at the worlds best medical schools with the most advanced technology. 

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6

How on Earth do you conflate people who have permanently moved overseas retaining voting rights with wanting to bar people who have left from ever returning? 

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2

You lose the right to vote after being overseas for 3 years, so the only ones who can currently vote whilst overseas are the ones who have just moved (short term), they may or may not plan to stay overseas long term (plans change all the time. A tiny virus may be all it takes to convince some to change their plans). I would not say that someone has moved overseas long term until they have been away more than 3 years (1 election cycle).

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0

3 years is not permanent, I have several friends who have gone to Europe for uni degrees longer than that, then returned. 

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2

Talented people work overseas all the time and then come back. Many still own property and have famies here, most will be paying tax in one way or another.

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3

Ah yes, won't someone think of the absentee landlords. Truly they are the victims here.

Up
4

Also, I can go to another country and pay tax and quite often not get a say in how their country's government is formed. It happens every time I go to Australia and pay their GST. 

It's interesting though, how many Kiwis want to claim they have enduring ties to justify their ability to vote, but when it comes to tax residency, it's suddenly a very different story. 

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3

To give the health services a fighting chance we'd want to reopen very early in summer as people head outdoors, wouldn't we? In January people are travelling the country on holiday and in February many schools, universities and employees return to work.

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4

That is the Australian plan. Do not count on our government to factor in things like seasons into their decision making. Seasons don’t exist in their echo chamber.

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4

I'm concerned that, like many things, the Government will leave it too late and, by then, winter illnesses start kicking in that fill up hospital beds, vaccines start wearing off, and the weather makes it difficult for people to get over things quickly.

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3

It is the politically superior option. Jacinda will be able to pint to the overloaded health system as s say look what happened despite all the extra time in lockdown, if we had opened up at the start of summer fewer people would have been vaccinated and the situation would have been worse!

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1

Very short sighted to assume that vaccines for 5-12 won't be here relatively soon (and hence popn number should be much higher). Pfizer has already filed with the FDA for that age group. I would guess they'll be approved here before Christmas. 

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0

Just because Pfizer wants to medicate our children, doesn't mean we want to. Leave the kids alone.

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6

You're assuming two things: 5-12 will be approved here and parents will vaccinate their 5-12 year olds. I suspect there will be much higher levels of hesitancy for this age group. 

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4

I don't see why it won't be approved here and if it is made clear that COVID will be endemic by Feb then I think most parents will get their kids vaccinated before school starts in Feb, even if it's just to protect granny who looks after them after school. Not saying the rate will be as high as the over 80s but it will be at least 50% and my guess would be more like 85%, which adds a large pool of extra vaccinated people to the overall stats. 

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2

80% is looks like an elusive target.

Air NZ looks attractive to short right now.

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3

Death by a thousand cuts. Akl  another week. Next week another week.

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3

Either you trust vaccine or not.

If one trust vaccine ( Not that if vaccinated will be fully immune to virus but percentage of vaccinated people getting virus will be low as well as effect will not be as severe and most probably will be like any other flue) - if correct fully vaccinated people should be given freedom to move within the country as well as overseas just like Australia has started.

One has to learn to live with virus.

Unfortunately this government ( assume like all pokiticuans) are so conscious of vote bank politics that are not pro active and even when they do take some action after event is not forward thinking.

Think Jacinda has run out of luck and will now have to work instead of hoping and depending on luck.

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0