Merged: Virgin Blue Share Price - how low can it go and for how long?
A well presented fella walks into a village in the jungle and announces that he will gladly purchase any monkey for $10. The villagers were thrilled and rounded up the nearest monkeys and sold them to him.
The next day the same fella offers $20 a monkey, and after much searching the villagers managed to find more monkeys.
The next day he offered $30 but only a six turned up. The next day $40 with only one or two, and the day after $50 until he had all the monkeys in the region in his cage.
Then he announced that he had to leave on business for two days but his assistant would purchase any new monkeys that were presented for $100.
After he left the assistant told the villagers that if they bought the monkeys in the cage from him for $35, they could sell them back again to the fella for his asking price of $100.
The villagers couldn't have bought the monkeys off him any quicker than they did. And they bought all the monkeys back.
That night the assistant too had to leave on business for two days.
And neither he nor the well presented fella were ever seen again.
You now have a thorough understanding on how the stock market works.
halas
The next day the same fella offers $20 a monkey, and after much searching the villagers managed to find more monkeys.
The next day he offered $30 but only a six turned up. The next day $40 with only one or two, and the day after $50 until he had all the monkeys in the region in his cage.
Then he announced that he had to leave on business for two days but his assistant would purchase any new monkeys that were presented for $100.
After he left the assistant told the villagers that if they bought the monkeys in the cage from him for $35, they could sell them back again to the fella for his asking price of $100.
The villagers couldn't have bought the monkeys off him any quicker than they did. And they bought all the monkeys back.
That night the assistant too had to leave on business for two days.
And neither he nor the well presented fella were ever seen again.
You now have a thorough understanding on how the stock market works.
halas
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Brilliant. In a nutshell. Pretty much sums up most of the "reports" that come out of the market too. If you take the time to actually read the so called reports, you see that they are full of "maybes" "ifs" and "might" and "based on this scenario" They are simply predictions, and generally no more accurate than your average Tarot card reader!
Same thing with oil as well. Get in early and buy huge quantities cheap. Talk the price up with reports of supply shortages, "peak oil", instability in producing countries etc. Lead the market along by placing a few contracts to buy at high prices. Sit back and watch the price rocket ahead as everyone else tries to get in. Sell out just before the bubble bursts and count your profits. 
The other thing to remember is that if these "analysts" are so freaking clever why do they work for wages for someone else? Why aren't they all retired at 35 and rolling in money?
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Most airlines based their basic model (equipment,routes,frequency,staffing levels etc) on oil prices about $90 per barrel one year ago. Fuel then was around 25% of operating cost for a large operation with jets.
Oil is now approaching $150 dollars a barrel, if you have not hedged prices fuel has jumped 10-12% as a percentage of operating cost to 35-37%.
Depending on the airline this will erase profit and in some cases put you into the red.
A model that worked one year ago will not work now without major adjustments. Oil prices may come down, but if they do not all airlines (including Virgin Blue) will have to make large adjustments to their basic model to survive.
If you work for an airline that is not changing at the moment it is either being subsidised by the share holders in some way or it is going to go broke.
Oil is now approaching $150 dollars a barrel, if you have not hedged prices fuel has jumped 10-12% as a percentage of operating cost to 35-37%.
Depending on the airline this will erase profit and in some cases put you into the red.
A model that worked one year ago will not work now without major adjustments. Oil prices may come down, but if they do not all airlines (including Virgin Blue) will have to make large adjustments to their basic model to survive.
If you work for an airline that is not changing at the moment it is either being subsidised by the share holders in some way or it is going to go broke.
A year ago AUS$1 would buy US$0.70, now US$0.95.
So 1 year ago US$90 barrel of oil = 90/.70 = AUS$128
Today oil $145 barrel = 145/.95 = AUS$152
The sky is not falling for australian airlines.
So 1 year ago US$90 barrel of oil = 90/.70 = AUS$128
Today oil $145 barrel = 145/.95 = AUS$152
The sky is not falling for australian airlines.
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If you work for an airline that is not changing at the moment it is either being subsidised by the share holders in some way or it is going to go broke.
VB has a very low cost model, don't forget last year they made over 200M profit so they certainly have the costs they can control sorted out.
QF has palmed off the no so profitable routes to its LCC to do the same.
The situation on Australia is certainly no different from the rest of the world with regards to the price of oil but the US economy is in much worse shape than ours at the moment and you can't compare the two.
Australia still continues to be in demand by countries such as China and India and that may be the difference in the coming months or years.
I read yesterday that the price of oil is also being affected by the weak US dollar. I wonder if anyone can chart the two to see if there is any correlation in that.
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sorry Desmotronic , but anybody who gets paid in $USD will tell you that a year ago the xchange rate was around 80 - 83c and dropped to a low of 78 in August. It has not been as low as 70c since 2005. It's just a minor point, but if we're going to put up stats, let's get 'em right.
Fair enough if you want to be precise, 71c low in march 2006, at that time oil hit a low around US$60. Illustrates the point though. Currency movements have offset more than 50% of the rise in the local fuel cost assuming nil hedge. With partial hedging the cost change is even less.
How about 6 months from now... AUD$1 = US$1.05 - $1.10 ?
Even if oil holds at these levels with an appreciating AUD$/US$ , we could easily see falling local fuel costs. This scenario seems likley since the aussie is rising against almost all other currencies (on the back of the biggest mining export boom in history) while US$ is doing exactly the opposite. ie it's not just a unilateral case of a weak US$.
What to do in your position oldhasbeen...? Buy gold with your greenbacks...
How about 6 months from now... AUD$1 = US$1.05 - $1.10 ?
Even if oil holds at these levels with an appreciating AUD$/US$ , we could easily see falling local fuel costs. This scenario seems likley since the aussie is rising against almost all other currencies (on the back of the biggest mining export boom in history) while US$ is doing exactly the opposite. ie it's not just a unilateral case of a weak US$.
What to do in your position oldhasbeen...? Buy gold with your greenbacks...
Last edited by desmotronic; 9th Jul 2008 at 01:23.
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Fact: on 20 Feb, DJ announced first half-year profit of $113m (source: DJ website)
Fact: on 11 Apr, DJ issued a profit warning that 07/08 full-year profit would not exceed $100m (source: The Age, Virgin Blue shares head for a tailspin | theage.com.au)
Already we're talking about a second half loss, the question is how much. I guess we'll find out next month.
At 50c a share, DJ is worth A$525.6m. And for every 1c drop, the company loses $10.5m in value. If it comes to a point where the company's assets are worth more than its shares, wouldn't it make sense for the shareholders to just sell everything off and call it a day? DJ owns about 20 737's, and their list price is US$57-79m (source: Boeing website). Let's say they're sold off at half-price, or for argument's sake A$25m a frame, you'd get A$500m. And there's those brand-new E-jets.
If I was Toll Holdings I'd shut it down. Shareholders don't like bad investments. How much more money could you pour into it?
Those financial analysts may know f**k-all about the airline business, but I wonder how much the DJ management know it either. The Embraer was a big mistake, and they're pressing ahead with a new airline flying to a country whose economy is yet to hit rock bottom.
Fact: on 11 Apr, DJ issued a profit warning that 07/08 full-year profit would not exceed $100m (source: The Age, Virgin Blue shares head for a tailspin | theage.com.au)
Already we're talking about a second half loss, the question is how much. I guess we'll find out next month.
At 50c a share, DJ is worth A$525.6m. And for every 1c drop, the company loses $10.5m in value. If it comes to a point where the company's assets are worth more than its shares, wouldn't it make sense for the shareholders to just sell everything off and call it a day? DJ owns about 20 737's, and their list price is US$57-79m (source: Boeing website). Let's say they're sold off at half-price, or for argument's sake A$25m a frame, you'd get A$500m. And there's those brand-new E-jets.
If I was Toll Holdings I'd shut it down. Shareholders don't like bad investments. How much more money could you pour into it?
Those financial analysts may know f**k-all about the airline business, but I wonder how much the DJ management know it either. The Embraer was a big mistake, and they're pressing ahead with a new airline flying to a country whose economy is yet to hit rock bottom.
If I was Toll Holdings I'd shut it down. Shareholders don't like bad investments. How much more money could you pour into it?
The Embraer was a big mistake, and they're pressing ahead with a new airline flying to a country whose economy is yet to hit rock bottom.
Yes and when the US economy tanks and AUS$1 is buying US$1.10 then doesn't that make it attractive to AUSTRALIAN travellers?
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The Embraer was a big mistake
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If you work for an airline that is not changing at the moment it is either being subsidised by the share holders in some way or it is going to go broke.
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How can you say the E Jet was a mistake, based on what?
Yes and when the US economy tanks and AUS$1 is buying US$1.10 then doesn't that make it attractive to AUSTRALIAN travellers?
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Virgin Blue Share Price - how low can it go and for how long?
Like any company, the lowest this company's shares can go is zero.
I'm not trying to be 'funny, but that is a risk inherent in stock market investment.
I'm not trying to be 'funny, but that is a risk inherent in stock market investment.