New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Transport Sector</h2>
<p><strong>Long Haul for Aviation Recovery&nbsp;</strong></p>
<p><span>The aviation sector's recovery remains highly uncertain; the slope is primarily dependant on the timing of Government restrictions being lifted, while the magnitude and growth thereafter is a function of the unknown new norm of consumer demand. In the meantime, airlines and airports continue to burn cash, the former more than the latter. Domestic aviation in New Zealand has begun the tentative steps to recovery with easing restrictions at Alert Level 2. The real recovery only begins at Alert Level 1, with scope existing for the opening of some borders. We prefer Auckland Airport (AIA; NEUTRAL) to Air New Zealand (AIR; UNDERPERFORM) as (1) its balance sheet is no longer an issue and has minimal cash burn, (2) it will likely benefit more from a trans-Tasman/Pacific Islands bubble, and (3) it should return to profitability quicker.&nbsp;</span></p>
<p><strong>Tentative recovery steps</strong></p>
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<p>The shift&nbsp;from Alert Level 3 to 2 provided the first step to aviation recovery. It was a small step, with domestic capacity only at ~20% and international capacity reliant on&nbsp;repatriation flights and freight services. A shift to Alert Level 1 will be more meaningful. This will remove most domestic restrictions on consumers and allow scope for borders to reopen. Domestic aviation demand will increase materially. However, we believe it will remain below pre COVID-19 levels given (1) the lack of international connectivity, (2) a lower level of business travel, (3) consumer apathy to air travel, and (4) the economic consequences of COVID-19 on consumer confidence.&nbsp;</p>
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<p><strong>Trans-Tasman and Pacific Islands bubble potential&nbsp;</strong></p>
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<p>At Alert Level 1 we expect some borders may be able to reopen. However, the New Zealand Government will be cautious. Its elimination strategy has come at a huge economic cost. Any risk of re-emergence of COVID-19 would be mitigated by borders remaining closed. Therefore, borders are only likely to reopen with countries at the equivalent Alert Level (i.e. domestic elimination). The obvious contenders are the Pacific Islands and Australia. The trans-Tasman bubble has received lots of attention by politicians and the travel/tourism industry. A bubble could lead to more Australians visiting New Zealand, and vice versa, than pre COVID-19.&nbsp;</p>
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<div><strong>Andy Bowley</strong></div>
<div><a href="mailto:andy.bowley@forsythbarr.co.nz" target="_blank" rel="noopener">andy.bowley@forsythbarr.co.nz</a></div>
<div>+64 4 495 8246</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
</div>
</div>

Transport Sector
Long Haul for Aviation Recovery&nbsp;
The aviation sector's recovery remains highly uncertain; the slope is primarily dependant on the timing of Government restrictions being lifted, while the magnitude and growth thereafter is a function of the unknown new norm of consumer demand. In the meantime, airlines and airports continue to burn cash, the former more than the latter. Domestic aviation in New Zealand has begun the tentative steps to recovery with easing restrictions at Alert Level 2. The real recovery only begins at Alert Level 1, with scope existing for the opening of some borders. We prefer Auckland Airport (AIA; NEUTRAL) to Air New Zealand (AIR; UNDERPERFORM) as (1) its balance sheet is no longer an issue and has minimal cash burn, (2) it will likely benefit more from a trans-Tasman/Pacific Islands bubble, and (3) it should return to profitability quicker.&nbsp;
Tentative recovery steps

The shift&nbsp;from Alert Level 3 to 2 provided the first step to aviation recovery. It was a small step, with domestic capacity only at ~20% and international capacity reliant on&nbsp;repatriation flights and freight services. A shift to Alert Level 1 will be more meaningful. This will remove most domestic restrictions on consumers and allow scope for borders to reopen. Domestic aviation demand will increase materially. However, we believe it will remain below pre COVID-19 levels given (1) the lack of international connectivity, (2) a lower level of business travel, (3) consumer apathy to air travel, and (4) the economic consequences of COVID-19 on consumer confidence.&nbsp;

Trans-Tasman and Pacific Islands bubble potential&nbsp;

At Alert Level 1 we expect some borders may be able to reopen. However, the New Zealand Government will be cautious. Its elimination strategy has come at a huge economic cost. Any risk of re-emergence of COVID-19 would be mitigated by borders remaining closed. Therefore, borders are only likely to reopen with countries at the equivalent Alert Level (i.e. domestic elimination). The obvious contenders are the Pacific Islands and Australia. The trans-Tasman bubble has received lots of attention by politicians and the travel/tourism industry. A bubble could lead to more Australians visiting New Zealand, and vice versa, than pre COVID-19.&nbsp;



Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Transport Sector: Long Haul for Aviation Recovery 

Auckland Intl Airport

Transport Sector: Long Haul for Aviation Recovery