Sunrise, Sunshine
GDS/Airline issue. Coming to a head?
The first sign of life started 5/6 years ago when airlines like British Airways started charging TMCs fees for booking their lower promotional or short haul flights via the GDS. Their logic seemed to be that, as their profit margins were lower then so should their cost of sale. The point having been made most of those airlines then went to their top TMCs and found a way of giving most of the charges back. Meanwhile the GDS also went to the same all important TMCs and compensated them for the cost through their incentive agreements.
Are there GDS/TMC incentive agreements? Yes there are. Or certainly were and I am practically sure this has not changed in the last couple of years. You see, despite what you may read in the AA Distribution Blog the GDS are locked in a battle with not just the airlines but each other as they make sorties into others markets and buy themselves in. Alongside this all GDS want to be sure that they preserve their near monopoly over unbiased content within the business travel sector, and they are prepared to pay to do so.
These GDS incentives must drive the airlines mad. A key reason for taking commissions and some incentives away from TMCs was because those TMCs used the money to pay their own incentives to clients as well as subsidise necessary unprofitable transactions (rail, car etc.) elsewhere. Now they are dealing with the same thing with the GDS to whom they pay a very large fee only to see big chunks of it passed down the supply chain in incentives to win/keep business.
The problem is how they solve the problem. Like commissions and everything else whatever they do is going to have implications down the line. If you take something away from any intermediary the balance will be rectified somewhere else. Rather like pressing a balloon full of water and finding it bulges elsewhere to compensate for the displacement. The only way cost can be truly saved is if what is taken away does not need to be replaced and we are not quite there yet in travel however much the airlines wish it so.
There has been one major tremor which happened shortly before I retired. The not so shy and retiring Lufthansa decided to break the mould but only in their home market where they enjoyed an unusually dominant position. Much to the howls of GDS, TMCs, corporations et al they started making bookings more expensive if they were not transacted direct or through the certain GDS who had reduced their fees. They ‘enjoyed’ mixed fortunes and their success, or otherwise, depends on who you talk to. From what I saw they lost significant business in certain sectors, antagonised people who were once partners and ended up paying much back in different ways. Talk to them and I am sure they will say it was all wonderful!
As soon as I saw that American Airlines had introduced their own distribution blog I knew that something was going to happen. It is certainly a tremor and could possibly become a significant eruption. To do something like they are planning they had to have an outlet to put out their justifications and propaganda. It started relatively brightly but now anybody can see it for what it is.
From my observations the first rumble has come with AA removing the ability for Orbitz to issue their tickets. In a strange way it made me smile. After all it was not that long ago that airlines around the world seemed to see these OTAs as the answer to combat TMCs. They persuaded themselves that it was just what corporations wanted and expected vast volumes of business to transfer over to these new players. It simply did not, and will not happen for all sorts of good reasons. Now, having lovingly introduced and supported these OTAs they are trying to damage them. Rather like a female praying mantis with it’s mate Make love then eat it.
So. Back to our volcano. Is it going to erupt or not? I think it will but not immediately. Something has to happen as these airlines cannot go on paying this level of fees to the GDS indefinitely and there are now growing alternatives, however basic (and costly to others) they may be. Every other part of the supply chain has reinvented themselves so as to respond to enabling technology, new players and changing clients but not (that I can see) the GDS. They have to adjust prices and action new ways of making money just like the TMCs did. Staying as they are is not an option. Meanwhile they should brace themselves for some variations of the Lufthansa model.
To end with my volcano analogy I would say that there will be no big explosion but more a growing flow of lava that will cover and impact the rest of the chain. GDS cost will be taken away, or at least significantly reduced but will pop up again elsewhere until it finally rests with the customer and their employers. They won’t like it and will probably use their power to demand compensation from the ‘offending’ airline. The end result? Rather like the removal of TMC commission the airlines will make a saving in one area only to find a corresponding cost in another. You see what they need to realise is you can only make a lasting saving by improving on the status quo not just changing it.
Rumer Has It
Rumer, her real name being Sarah Joyce, a UK singer songwriter, and needlessly pretty as well. She is divine.
So You Think Sold For A$60m
So You Think has almost certainly run his final race in this country after confirmation yesterday that global racing and breeding giant Coolmore Stud had purchased a majority share in the four-year-old that has valued him at an estimated $60 million. It makes So You Think comfortably Australia's most expensive racehorse.
Last Tuesday's Melbourne Cup favourite and third placegetter is expected to be sent to Ireland in the coming weeks to be prepared for a northern hemisphere campaign by Aidan O'Brien.
Tom Magnier, the racing and business manager of Coolmore Australia, said yesterday that there remained some details to sort through with the horse's owners but that it was likely So You Think would be raced in partnership with owners Dato Tan Chin Nam and Tunku Ahmad Yahaya.
''That is still to be finalised but he's [Chin Nam] a very lucky owner and we'd be happy to race the horse with him,'' Magnier said.
It is understood that Coolmore have identified So You Think as one of the world's best horses up to 2400 metres and are hoping to run him in the Prix de l'Arc de Triomphe at Longchamp in Paris in September.
It is possible that he could have a rematch in the Arc with Melbourne Cup winner Americain.
Magnier confirmed that So You Think was certain to return to Coolmore's Hunter Valley property in Australia each year as a shuttle stallion once his racing days are over.
So You Think is certain to be named the Australian Horse Of The Year despite the fact there are almost nine months of the season remaining following five incredible wins in succession in Melbourne this spring before his gallant third in last Tuesday's Cup.
Dato Tan Chin Nam's racing manager Duncan Ramage confirmed the sale last night: ''Coolmore would like to the race in the Europe and we would have to take that into consideration when working the detail,'' he said. ''Dato has always campaigned his horses in Australia and Bart is probably not in a position to campaign a horse overseas for a lengthy period of time.''
Ramage said that before So You Think flies to Ireland, he will return to Dato Tan Chin Nam's Think Big stud at Bowral in NSW.
Coolmore has a history of purchasing Australian horses as dual hemisphere stallions.
The stud paid $20 million to secure sprinter Choisir to stand in Ireland and the Hunter Valley following his group 1 wins in the King's Stand and Golden Jubilee Stakes at Royal Ascot in 2003.
Encosta De Lago also stood a season in Ireland after Coolmore purchased him but Haradasun, who was valued at $45 million when Coolmore bought into him, has only stood in the Hunter Valley.
More recently, Newmarket Handicap winner Fastnet Rock has stood in both hemispheres while Starspangledbanner, who cost Coolmore about $20 million, is due to stand in Ireland and in the Hunter Valley when his racing days are over.
Commentary On Hot Stocks
Mind you, this is not a commentary on stock you should be buying or selling on fundamentals on a 6-12 month view. This is just a passing commentary on certain hot stocks for trading purposes. We all know we would not be the earliest to discover a breakout stock, but price movements analysis coupled with some basic fundamentals research would yield much trading information.
The key is coming to the conclusion whether there is sufficient further upside, or limited upside for trading purposes.
Kuchai Developments - No need to bore you with details, the key is whether there will be a G.O. or not. Without a G.O., you will not be able to realise much of the NTA. Assuming the NTA is RM2.36 - if you assume there is no syndicate play here, then the controlling shareholders are collecting. The way the share price is holding above RM1.50 may indicate much of the shares collected have not come back to the market. I would have triggered a good trade below RM1.30 as the upside was substantial. At RM1.60, the upside is still there but we don't really know what is actually going to happen. If you must trade from here, trade small.
Maju Perak - This is a classic strong trading buy. A sleepy stock forever but with enormous NTA at RM1.36, mostly land kept for development all over Perak. They have restructured the company over the past few months and have started a joint venture to go into residential development. The sharp jump in volume and price indicates either a syndicate play just starting or something more substantial. Do you dare to initiate a syndicate play with a vehicle owned by Syarikat Perbadanan Perak??? They own over 65% of the company and there's about only 130m shares. I would tend to favour the opinion that something substantial is in the works, which would make this a pretty strong trade as things seem to have just started.
K One - There was a good jump in volume in the day leading to the announcement of their spectacular quarterly results. Surprisingly, the anticipated sell on news did not happen. I like the way the stock price still held up. There are sources that say that there will be more significant corporate developments in the coming days. Good trade rating.
YTLe - This one is hard to value. Looks like they will get a chunk of the 'pie'. The higher it goes, the riskier the trade. Compared to the cash they hold, this company is getting seriously in the over exuberant category above RM1.60.
SP Setia - When I put this as my best pick for a 6 month hold, I am sure most would have gone into the warrants. That would have chalked up a return of more than 100% in less than 2 months. If you wish to hold or buy more, indications are still good for further upside. Sometimes good memory will get you to keep 100% gain but lose out on 200% gain. Despite the recent surge, indicators still good for a trade or hold.
Kinsteel - Looks good if you can get around RM1.00. It looks more like a 2-3 week hold trade rather than a contra type trade.
NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
Melbourne Cup and Malaysians
Its always run on the first Tuesday of November, and throughout Australia, everything literally stop for those two hours. Too much drinking, there will be the usual office sweeps (people will put in a dollar or ten and each will get to pick a horse from a hat, winner takes all).
The actual prize money of the Cup is also enticing. Its now worth A$6m, with the winner getting A$3.6m, even the second horse gets A$900,000, the third gets A$450,000 and so on. Even those who finish 6th-10th will get A$125,000 each.
The race is not regarded as a true Group 1 classic because its a handicap race. True Group races runs at set weights or weight for age. In a handicap, the better performed horses get bigger weights. The field is usually the max at 24. Oh, by the way, Tan Chin Nam has another horse in this year's race, Precedence, as well. He could have had four, but the other two probably could not handle the wet track, so Faint Perfume and Dariana did not pay up to enter the final field.
Malaysia has a unique history with the Melbourne Cup, thanks largely to Tan Chin Nam (IGB). In 1974 and 1975, his horse Think Big won it twice, unexpectedly. Tunku Abdul Rahman was there to lead in the horse, apparently he had a small share in the horse as well.
Tan Chin Nam has won it another 2 times and his name is well known among Australian racing circles. Besides that, people also know Tan Chin Nam as the man behind IGB, which renovated two of the prettiest buildings in Sydney, the QVB and Capitol Theatre. He has subsequently won the Cup with Saintly, and 3 years ago with Viewed. All his horses were trained by Bart Cummings.
For the past 30 or 40 years, there has not been a more hot raging favourite for the race than this year's So You Think, a horse Tan Chin Nam co-owns with Tunku Ahmad Yahya (ex-Sime Darby), the nephew of Tunku Abdul Rahman . The horse is still young but has won and incredible 8 out of just 11 races and among that 2 Cox Plates, one of the top Group 1 races in the world.
So You Think is at around A$3.40 for $1.00 bet to win. Usually the favourite in the Cup runs off at 6 to 1 or 7 to 1, owing to the very big field, with a high chance for interference.
Considering that So You Think only cost Tan Chin Nam A$83,500 he is already way ahead, especially when most well bred but unproven yearlings now are sold for between A$100,000-A$500,000.
I can only see one danger, its the French horse Americain, to be ridden by the famed HK French jockey Gerard Mosse. You can tune in for the festivities from 10 am - 1pm today (M'sian time) on the Australia News Network, Astro 521.
Sydney Morning Herald article 3 years ago: Cummings hitched his stable to Malaysian property developer Dato Tan Chin Nam in the early 1970s when he saw him playing two-up, and whichever way the coins have landed, the two have remained friends.
Dato Tan OBE ("Over Bloody Eighty," he joked) urged the other octogenarian to tell the yarn, and Cummings, who loves a short story, did: "He was having a drink in my bar in Adelaide years ago with Glynn Pretty, the jockey, and we were playing two-up. How many times did you win?"
"I won 10 times in a row," Dato Tan said.
"I thought I better stick with this bloke. He's lucky," Cummings said.
Dato Tan Chin Nam stuck, too, after Cummings provided back-to-back Melbourne Cups with Think Big (1974-75) and Dato Tan brought then Malaysian prime minister Tunku Abdul Rahman into the ownership for the second Cup.
In the late-1980s, Cummings spent heavily, buying horses as part of a tax-minimisation scheme, but when the recession hit, he went broke. His friend helped bail him out.
Data Tan wrote in his memoirs, Never Say I Assume: "With a true friend, one does not seek to ask for help when in need. Help is offered even before one asks. In life, there are very few friends of that calibre."
Cummings repaid him with Saintly in the 1996 Cup and with plenty of other wins with horses in Dato Tan's chessboard colours; and with a record fourth Cup for an owner, besting Tony Santic's three with Makybe Diva and Lloyd Williams' trio (Just A Dash, What A Nuisance and Efficient).
Dato Tan said of Cummings: "Bart, he's got long pockets and short arms."
Cummings said: "Where did I learn that?"
"Not from me," shot back a laughing owner.
If Cummings is the king of one-liners, Dato Tan is a riddler extraordinaire. He said of the relationship: "Here's to me, here's to you, may we never disagree. And in the event we do, here's to me and to hell with you."
