tag:blogger.com,1999:blog-4631423976894080706.post989059817731637381..comments2023-10-17T06:55:06.255-04:00Comments on the red corner: Hawaiian Holdings - Air Transportred.http://www.blogger.com/profile/04089263693762295793noreply@blogger.comBlogger32125tag:blogger.com,1999:blog-4631423976894080706.post-79193520423412724212017-02-25T18:27:45.922-05:002017-02-25T18:27:45.922-05:00There is a way to connect EBIT multiples to DCF th...There is a way to connect EBIT multiples to DCF that one can reason about systematically. If one assumes a typical tax rate and WACC, then it's possible to use the two-stage continuing value formula from Keller's Valuation to chart EBIT multiple vs ROIC and growth rate. I once reverse-engineered such a chart from that book: https://docs.google.com/spreadsheets/d/1JhIGndo1NUoehP9_YMcsi5t3fYpDMTkwGyORcTGFEoc/edit#gid=2004453836. That helped me understand multiples.Igorhttps://www.blogger.com/profile/00624036855109610892noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-26323210238649647972016-04-17T09:04:08.369-04:002016-04-17T09:04:08.369-04:00I found your story convincing back in 2012 and inv...I found your story convincing back in 2012 and invested at around 6 dollars back then. I sold them last weekend at around 48 dollar each, the current rise makes me worrisome about an expected big drop or long lasting plateau fase. Usually I find airline investments too unstable and too unpredictable to invest into. Much appreciated anyway.Anonymoushttps://www.blogger.com/profile/05348788899680190365noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-10650912419721416202015-02-23T16:47:43.970-05:002015-02-23T16:47:43.970-05:00Sure thing
Cost data is here
http://web.mit.edu/a...Sure thing<br /><br />Cost data is here<br />http://web.mit.edu/airlinedata/www/Hawaiian.html<br /><br />Narrowbodies = interisland<br /><br />and<br /><br />Segment revenue figures are in the Annual Reports (reported as % of total revenue)<br /><br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-46736781446188760122015-02-23T16:41:36.613-05:002015-02-23T16:41:36.613-05:00Hi Red,
I'm trying to reconcile the operating...Hi Red,<br /><br />I'm trying to reconcile the operating margin information for interisland vs domestic and international, and can't seem to find the interisland info - would you mind explaining how you calculated that, or pointing me in the right direction?<br /><br />Thanks!Unknownhttps://www.blogger.com/profile/07474629591843483916noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-89406906422104281472015-02-23T16:41:34.564-05:002015-02-23T16:41:34.564-05:00Hi Red,
I'm trying to reconcile the operating...Hi Red,<br /><br />I'm trying to reconcile the operating margin information for interisland vs domestic and international, and can't seem to find the interisland info - would you mind explaining how you calculated that, or pointing me in the right direction?<br /><br />Thanks!Unknownhttps://www.blogger.com/profile/07474629591843483916noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-39650630043663259722015-02-17T15:43:56.041-05:002015-02-17T15:43:56.041-05:00ps
you wouldn't be excluding all of the opera...ps<br /><br />you wouldn't be excluding all of the operating lease from your NOPLAT calculation -- only the interest portion of the lease expense.<br /><br />So, in this case, you'd exclude the 48m because that is a financing expense and not an operating expense.<br /><br />Imagine you buy a house for 500K and finance it via a mortgage. The sum of mortgage payments will equal the value of the house and the cost of borrowing. Same with operating leases. <br /><br />Since your cost of borrowing shouldn't affect the value of the house, a similar argument says that HA's cost of borrowing doesn't affect the value of the aircraft used in operating its business.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-64713475856917568422015-02-17T15:24:51.625-05:002015-02-17T15:24:51.625-05:00Ah well that's the problem with excluding rent...Ah well that's the problem with excluding rent capitalization -- it makes a nonsense of ROIC and makes it impossible to compare one airline with another. Other wise, if I ran an airline and leased all my planes I'd show up as the highest quality airline in the world, spinning gold out of thin air.<br /><br />So you'd have to capitalize rent to get a sensible result and you'd have to use TEV/EBITDAR to assess the price you're being asked to pay for the business, and by implication, for the stock.<br /><br />Cost of capital: most of it is going to be debt and its equivalents, so I'd look up the actual interest charge on the debt components, and I'd calculate the implicit interest rate on the operating leases.<br /><br />You can find the second part in the 2nd table here:<br />http://www.sec.gov/Archives/edgar/data/1172222/000117222215000012/exhibit122014.htm<br /><br />so 48m or aircraft rent is interest and 60m is depreciation. Rent capitalized at 8x = 800 so the implied interest rate = 48/800 = 6%<br /><br />Cost of equity ought to be 4% greater than highest cost debt instrument (i.e. the leases in this case), so cost of equity = 10% or so.<br /><br />Then weight varieties of debt and equity according to their size in the EV calculation and you have your cost of capital.<br /><br />It'll probably come in at 7% to 8%.<br /><br />Then you'd apply your common sense to it and say, well, this is maybe an abnormal interest rate environment and, in the long term, the cost of every kind of capital is likely to be bumped up by 3% or 4% as the Fed unwinds QE.<br /><br />So you'd maybe settle on 11% as your LT cost of capital estimate. I think 11% is fair. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-84469647405100856812015-02-17T15:02:11.494-05:002015-02-17T15:02:11.494-05:00Hi Red,
Quick question on arriving at ROIC by NOP...Hi Red,<br /><br />Quick question on arriving at ROIC by NOPLAT/Invested Capital as noted in the Anderson pdf. If you exclude the operating and capital leases from the NOPLAT, then how is the real cost of renting equipment or space accounted for? I realize that if you capitalize operating and capital leases into invested capital it will lower the overall ROIC number. Also is ROIC just to compare against cost of capital to see if investments are value enhancing or can it be used to compare firms? Thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-10393241524487208722014-09-11T15:33:53.960-04:002014-09-11T15:33:53.960-04:00Thanks Red,
Don´t worry, the link is very clear, ...Thanks Red,<br /><br />Don´t worry, the link is very clear, I get it.<br /><br />By the way I read the Jason Rivera´s book. It´s a good book but for calculating the EV he uses always 4times EBIT,7 times EBIT, 11 times EBIT, and then like for art of magic he decides to take one of this multiples, and the reasonof the election is not very clear.<br /><br />The multiples used for calculating EV is a little confuse for me. But I´ll learn it.<br /><br />Thanks for your blog, its fantastic!!Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-89137211340233194912014-09-11T14:07:25.679-04:002014-09-11T14:07:25.679-04:00Actually, now that I think about it some more, I&#...Actually, now that I think about it some more, I'm not sure what you're asking exactly. <br /><br />I sold the 15s(not the 12s).<br /><br />Is this a general question about options? And are you asking about the $12 calls or the $15 calls?<br /><br />If it's a general question about how/why option values go up/down there are lots of introductory books on the subject.<br /><br />i should say that options are not at all appropriate if you're starting to learn about investing, though, and it would bother me if I didn't stress that in the strongest terms.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-12432468972359513822014-09-11T12:12:50.382-04:002014-09-11T12:12:50.382-04:00"short" means "sell", David. I..."short" means "sell", David. I sold the 12sred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-53991352972397593062014-09-11T12:09:37.121-04:002014-09-11T12:09:37.121-04:00But in july when you buy the options the stock was...But in july when you buy the options the stock was at 15 dolars. Now is 15,6 and the value of the option is worth more. Why?Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-4059094676223395142014-09-11T07:48:07.905-04:002014-09-11T07:48:07.905-04:00It is an abbreviation for options to buy Hawaiian ...It is an abbreviation for options to buy Hawaiian stock at $12 at or before the expiration date in October<br />http://www.theoptionsguide.com/strike-price.aspxred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-46592716625269137262014-09-11T07:42:58.244-04:002014-09-11T07:42:58.244-04:00Hi Red,
I´d like you to ask for your calls in Haw...Hi Red,<br /><br />I´d like you to ask for your calls in Hawaiian Holdings:<br /><br />For example in your buy in 23th July of Hawaiian Holdings (Oct $12 calls) the price was 2.30. What I don´t understand is what does mean Oct $12 calls. I suposse October is the expiration date, but what is $12? <br /><br />Sorry for my ignorance.<br /><br />Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-34665515298204491932014-08-05T02:57:42.840-04:002014-08-05T02:57:42.840-04:00Hi Red,
How do you get the EV? 7xEBITDAR? And if ...Hi Red,<br /><br />How do you get the EV? 7xEBITDAR? And if so, where do you calculate EBITDAR in the spreadsheet?<br /><br />Thanks.Davidnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-12930876789335664392014-04-07T15:09:01.400-04:002014-04-07T15:09:01.400-04:00Just protecting some of my gains in the $9 calls. ...Just protecting some of my gains in the $9 calls. Decided to sell short-dated calls instead of buying long- dated puts.<br /><br />And Q1 is slow for Hawaiian -- most of their business is done in Q3 and Q4 and the company is not yet so well known that the market will take a near-certain Q1 GAAP loss in its stride.<br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-31498699046634808802014-04-07T14:59:36.250-04:002014-04-07T14:59:36.250-04:00Can you explain your short on HA May$14 calls? And...Can you explain your short on HA May$14 calls? And it was such a good one!<br />Prasannahttps://www.blogger.com/profile/14861888772269021096noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-66689744984099002092013-09-22T14:59:22.476-04:002013-09-22T14:59:22.476-04:00Ok, similar process. Take out/add back the excepti...Ok, similar process. Take out/add back the exceptional items (making sure that they are indeed exceptional) from each airline's operating results and use the formula to arrive at the stage length adjusted CASM.<br /><br />One important adjustment is to capitalize aircraft rent and add back the imputed interest embedded in that rent. That way you get an apples-to-apples comparison of the airlines' underlying economics.<br /><br />I also take out the interest charge on net pension liabilities. red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-40297566129013436162013-09-22T14:40:33.711-04:002013-09-22T14:40:33.711-04:00Sorry for the confusion, I was referencing the fir...Sorry for the confusion, I was referencing the first graph with all the major airlines' CASMs.<br /><br />Thanks for the quick reply.Peternoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-64534455196603941562013-09-22T14:02:41.433-04:002013-09-22T14:02:41.433-04:00Peter,
You'll have to remove the annual intan...Peter,<br /><br />You'll have to remove the annual intangible amortization cost to arrive at my CASM figures. (Also, remove the extraordinary charges in 2012 & 2011 and the extraordinary credit in 2008.<br /><br />As for the stage-length adjustment, I used the formula in your link:<br /> ((observed length of haul/base length of haul [15 carrier average])^.5) times respective carrier unit cost<br /><br />Here's a full spreadsheet:<br />https://docs.google.com/spreadsheet/ccc?key=0AoCLhoPnjQDgdHZhQ3BzNzBGemdOalJvN1ZFV2Noa2c&usp=sharingred.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-82492476495024271952013-09-22T13:43:43.821-04:002013-09-22T13:43:43.821-04:00red, I'm looking into HA and I can't seem ...red, I'm looking into HA and I can't seem to reconcile the CASM data that you used with CASM data I found online. Sources below.<br /><br />http://web.mit.edu/airlinedata/www/2012%2012%20Month%20Documents/Expense%20Related/Total/System%20Total%20Expense%20per%20Equivalent%20Seat%20Mile%20(CESM).htm<br /><br />http://web.mit.edu/airlinedata/www/2012%2012%20Month%20Documents/Expense%20Related/Total/System%20Total%20Expense%20(Excluding%20Fuel)%20per%20Equivalent%20Seat%20Mile%20(CESM%20ex%20fuel).htm<br /><br />Where did you get your stage-length adjusted CASM data?<br /><br />Thanks.Peternoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-23973710485956280642013-01-30T15:42:04.798-05:002013-01-30T15:42:04.798-05:00Everything is as it should be, Kevin. Strip out th...Everything is as it should be, Kevin. Strip out the $7.9m in one-time, noncash accounting charge and HA's earned ~11% on net operating assets, and $1.26 in earnings.<br /><br />When the balance sheet is published in the 10-Q in the next day or so, I'll post make available my updated spreadsheet.<br /><br />For the moment, the thing to remember is that 23.5 million in annual amortization expense is not a reserve for any future expenditure; and that adjusting for lease interest expense and the non-operating portion of the net periodic expense associated with pension & postretirement benefits reveals what is very likely the most profitable and most consistently profitable airline in the United States. <br /><br />That it is trading at the lowest multiples of any US airline reveals the opportunity, and that it can probably defend its turf without getting seriously hurt adds conviction to my understanding of the opportunity.<br /><br />Between now and 2015, the amortization expense will disappear altogether and capex will slow down dramatically. At which point, underlying earnings will become free cash flow. That's my take on it in a nutshell.<br />red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-89494980842084445012013-01-30T15:28:12.389-05:002013-01-30T15:28:12.389-05:00What are your thoughts after the recent results an...What are your thoughts after the recent results announcement and the loss in the 4th quarter 2012? I've only just started looking into Hawaiian but can see its not disastrous as there's little change in the fundamentals, possibly a good entry point but would be interested to hear your take.<br /><br />Also, how did you calculate your 2011 figures? The ones I have seen in the result announcement referencing 2011 are different in some key areas, e.g. operating income is 20.3m - possibly I've misunderstood the accounting used, not entirely au fait yet :)<br /><br />Regards,<br />KevinAnonymoushttps://www.blogger.com/profile/10955587604201863254noreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-87773865993255970012012-07-31T01:29:42.265-04:002012-07-31T01:29:42.265-04:00Interesting. Thanks for the reply. You'll no d...Interesting. Thanks for the reply. You'll no doubt see me on your other posts at some point.Jasonnoreply@blogger.comtag:blogger.com,1999:blog-4631423976894080706.post-78447027587447136422012-07-30T17:30:32.490-04:002012-07-30T17:30:32.490-04:00No worries. They're all good questions.
I hav...No worries. They're all good questions.<br /><br />I have incremental ROIC at about 17% between 2006 and 2012. That's above ROIC, so I'm comfortable with it. <br /><br />Bear in mind that aicraft additions are a bit lumpy and sometimes get added at the end of the fiscal year, so best thing is to use (profit in year 2)/(average IC in years 1 & 2) for ROIC; and a similar kind of treatment for RONIC.<br /><br />They DO have hefty capex reqmts over the next 5 years at least: they're replacing their Boeings with bigger Airbuses and they're adding to their fleet in order to accommodate new routes. So, no FCF for a while. <br /><br />And no FCF is what I want to see until they've exhausted all the low hanging fruit in the Asian and Western European markets.red.https://www.blogger.com/profile/04089263693762295793noreply@blogger.com