Don’t ditch the fuel surcharge just yet; Wizz IPO round 2; and an Intrepid headache

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By admin February 4, 2015 20:47

Don’t ditch the fuel surcharge just yet; Wizz IPO round 2; and an Intrepid headache

Wizz is back in the market for its €150m IPO, which is now due to float during this half of the year. As soon as oil prices went through the floor it became clear that the airline had to go for its IPO again after the first attempt was put on ice. The Hungarian low-cost carrier had expected to list in the UK on the LSE last June but pulled the plug as the outlook was volatile at best at that time with a myriad of airline shares taking a pounding on markets.

We have been waiting for this announcement for a number of months now and it is ironic that it should come during the very same week that oil starts to climb again back towards the $60 mark. Even so the announcement is on the back of a 45% increase in profits and a 24% increase in revenue for the first half of the year to €727m (£549m). So is there any value left for investors? The increase in revenue is a key driver for the IPO roadshow message as it distances performance from oil prices somewhat and reiterates the message that this airline is going places no matter what oil does next. Of course the bottom line is that the Wizz IPO was correctly pulled last year – if that IPO had gone off under those market conditions then the airline would have lost a fortune compared to what it can now hope to achieve.

At this point it needs to be remembered once again that airlines should not be ditching their fuel surcharges. Renaming them or simply doing away with them and increasing the ticket price by the same amount are the orders of the day. Woe betide any airline arbitrarily cutting its fuel surcharge altogether in this market where oil prices are moving up and down in great leaps. Brent crude is climbing fast on the back of Shell’s announcement that it is to decommission platforms at speed by sending in its massive decommissioning ship Pieter Schelte (poorly named after a man that became a German SS officer in the war) to cut off the legs of the platforms, thus committing Shell to at the very least a partial pull-out from the North Sea. Brent now stands at $57 with WTI at $54 and airline shares are accordingly taking a pummelling. So is the Wizz IPO coming yet again at a time when airline shares are on the way down? It looks likely, but that will do nothing if not create value for investors. The airline and their banks should therefore be able to carry the day based on performance and this might well be a great investment.

This week we also have to wonder about how badly Skymark is going to dent Intrepid Aviation given that it now has five A330s on lease with an airline that has stated it no longer wishes to operate Airbus aircraft. The discussions between Intrepid and Skymark will likely be hard work for the guys at Intrepid, but can Intrepid come out of this with a lease agreement for Boeing aircraft with any post-bankruptcy Skymark operation? Would it wish to? Potential investors will be watching to see how Intrepid handle things and marking its card accordingly. (Note Valentine’s Day is the deadine for Intrepid to confirm its IPO launch…)

Even though Skymark Airlines has told ANA it does not want to be part of its airline group, Skymark has once again stated to Japanese media that “it is seeking another airline’s assistance” for matters such as joint procurement of fuel, according to a document filed with the Tokyo District Court. The application seeking court protection from creditors, which was filed on 28thJanuary 2015, shows that the airline has just ¥300m (US$2.55m) of cash reserves remaining.

Tokyo-based investment fund Integral Corp. is considering providing around ¥10bn ($85.113m) to allow the airline to continue operations. $85m will not go far. Airbus held the balance of power for Skymark being a viable operation 2014 – Now Intrepid holds all the keys.

admin
By admin February 4, 2015 20:47