peterbirks (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
peterbirks) wrote2009-05-27 12:44 pm
peterbirks) wrote2009-05-27 12:44 pm
Penny arbitrage
An increasing proportion of 1p pieces that I am given in my change are turning out to be either one cent or two cent eurocoins. This raises an interesting arbitrage opportunity.
Clearly, if I am given a one cent as a 1p substitute, I am being short-changed, whereas if I am being given a two-cent piece, I am a winner. The strategy of the standard 2+2 pokertard would appear to be to pass on the one-cent pieces and to keep the two-cent pieces for your next trip to the Eurozone.
But I'm an honest kind of chap, and I don't like this option. It requires effort and it shows you to be a cheap, underhand, amoral piece of shit. Like most 2+2 pokertards, really.
A second option is to never check. Just take 'em and spend 'em. In that way the coins become de facto 1p pieces and we enter the land of European Monetary Union by stealth.
A third option, which I shall tag the UKIP option, is to always check, and to hand them back to the shopkeeper, be they one cent or two cent, and ask for "proper, English money".
The fourth is the one I seem to have chosen, which is to check your change every so often, take out the eurocoins, and save them for my next trip to Eurozone. If there are more two-cents than one cents, then I am ahead. If it's the other way round, tghen I'm behind. Either way, I do not knowingly pass on false coins (I've been reading Neal Stephenson's The System Of The World ) but I neither lose nor win that much in the long run.
++++++++++++++++++
I was looking forward to kicking into Mr Pickle and the Virgin Airline results, but the Financial Times got in ahead of me. Virgin Airlines, in which Singapore Airlines has a 49% stake, reported a doubling of profits for the year to mid-February, to £68m. An impressive performance, you might think, glancing superficially at the press release.
However, this includes a foreign exchange gain of, you guessed it, £68m. Under International Financial Reporting Standards (IFRS), this would feed through, but under UK Generally Accepted Accounting Practice (GAAP), which private companies in the UK can use if they so desire, it doesn't feed through (although the position does have to be disclosed).
Virgin's press release (now noticeably unfindable by me on its web page) didn't mention this FX gain, although a released published several hours later reported a year-on-year fall in profits from £47m to £45m.
Now, IFRS has its weaknesses -- for example the "mark to market" requirements aren't much good when there is no realistic market to mark things to. However, it's a darn sight better than GAAP because it doesn't allow you to virtually ignore losses on derivatives, which include hedges. UK airlines have a lot of hedges because they deal significantly in foreign currencies (mainly the dollar) while taking their income in sterling. They also hedge against oil-price volatility.
So, if you have a hedge in place that protects you against a rise in the oil price, and the oil price falls, then under GAAP you gain from the fall in the oil price but, if your derivative has not yet expired, you don't lose your loss on the derivative. Not yet, anyway.
Virgin seemed remarkably reticent on this matter in its first press release, saying that the "strong results" (which were in fact a £34m drop to break even) were a result of an increase in premium travellers and "prudent management decisions". As the PR part of the company well knows, journalists will take press releases at their word -- and they certainly won't wait three hours for the small print.
When the FT questioned Virgin Atlantic, the company said that "we are not comparing ourselves with other airlines. We are a private company".
Except, well, Branson IS comparing his company with another, because he launched into an attack on BA's venture with American Airlines. It's easier to do this if you are posting "good" numbers compared to the record-breaking losses ratcheted up by BA (which, as a listed company, had to push all its derivatives through to the bottom line).
As I have written before, Singapore Airlines, which took a 49% stake in Virgin Atlantic about seven years ago now, is continually annoyed at how abysmally Virgin Atlantic performs in terms of equity -- this past year it generated S$400,000 of the S$111m total profits that it got from associated companies. Hardly a "stellar" performance.
____________
Clearly, if I am given a one cent as a 1p substitute, I am being short-changed, whereas if I am being given a two-cent piece, I am a winner. The strategy of the standard 2+2 pokertard would appear to be to pass on the one-cent pieces and to keep the two-cent pieces for your next trip to the Eurozone.
But I'm an honest kind of chap, and I don't like this option. It requires effort and it shows you to be a cheap, underhand, amoral piece of shit. Like most 2+2 pokertards, really.
A second option is to never check. Just take 'em and spend 'em. In that way the coins become de facto 1p pieces and we enter the land of European Monetary Union by stealth.
A third option, which I shall tag the UKIP option, is to always check, and to hand them back to the shopkeeper, be they one cent or two cent, and ask for "proper, English money".
The fourth is the one I seem to have chosen, which is to check your change every so often, take out the eurocoins, and save them for my next trip to Eurozone. If there are more two-cents than one cents, then I am ahead. If it's the other way round, tghen I'm behind. Either way, I do not knowingly pass on false coins (I've been reading Neal Stephenson's The System Of The World ) but I neither lose nor win that much in the long run.
++++++++++++++++++
I was looking forward to kicking into Mr Pickle and the Virgin Airline results, but the Financial Times got in ahead of me. Virgin Airlines, in which Singapore Airlines has a 49% stake, reported a doubling of profits for the year to mid-February, to £68m. An impressive performance, you might think, glancing superficially at the press release.
However, this includes a foreign exchange gain of, you guessed it, £68m. Under International Financial Reporting Standards (IFRS), this would feed through, but under UK Generally Accepted Accounting Practice (GAAP), which private companies in the UK can use if they so desire, it doesn't feed through (although the position does have to be disclosed).
Virgin's press release (now noticeably unfindable by me on its web page) didn't mention this FX gain, although a released published several hours later reported a year-on-year fall in profits from £47m to £45m.
Now, IFRS has its weaknesses -- for example the "mark to market" requirements aren't much good when there is no realistic market to mark things to. However, it's a darn sight better than GAAP because it doesn't allow you to virtually ignore losses on derivatives, which include hedges. UK airlines have a lot of hedges because they deal significantly in foreign currencies (mainly the dollar) while taking their income in sterling. They also hedge against oil-price volatility.
So, if you have a hedge in place that protects you against a rise in the oil price, and the oil price falls, then under GAAP you gain from the fall in the oil price but, if your derivative has not yet expired, you don't lose your loss on the derivative. Not yet, anyway.
Virgin seemed remarkably reticent on this matter in its first press release, saying that the "strong results" (which were in fact a £34m drop to break even) were a result of an increase in premium travellers and "prudent management decisions". As the PR part of the company well knows, journalists will take press releases at their word -- and they certainly won't wait three hours for the small print.
When the FT questioned Virgin Atlantic, the company said that "we are not comparing ourselves with other airlines. We are a private company".
Except, well, Branson IS comparing his company with another, because he launched into an attack on BA's venture with American Airlines. It's easier to do this if you are posting "good" numbers compared to the record-breaking losses ratcheted up by BA (which, as a listed company, had to push all its derivatives through to the bottom line).
As I have written before, Singapore Airlines, which took a 49% stake in Virgin Atlantic about seven years ago now, is continually annoyed at how abysmally Virgin Atlantic performs in terms of equity -- this past year it generated S$400,000 of the S$111m total profits that it got from associated companies. Hardly a "stellar" performance.
____________
no subject
(Anonymous) 2009-05-27 06:56 pm (UTC)(link)SRB's constant whingeing about the evils of a BA/AA alliance are just not credible. The competition is over in Europe and working hard to offer attractive deals to the nightmare that is Heathrow and they have far more dominant positions at their airports than BA/AA will have, but not a dickie bird has been heard from Virgin about the Air France/KLM tie up or the huge Lufthansa/Swiss/Austrian/Brussels/BMI tie up.
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