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AIRLINE sector investing - idea exchange |
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AIRLINE sector investing - idea exchange |
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| AUTHOR:
crossy |
RANK:
Top Return  |
DATE:
May 03, 2003 |
PAST
RANK:      |
One sector that has been hit hard during the past 2 years was the airline carrier industry. Even before it has been hit by chronic overcapacity and meager profits interrupted by sproradic phases of surge in cash flow. This very cyclic nature was reinforced by the tragic events of September 11.
Consequently many marginal players had to file for Chapter 11. Some even had to be closed down, others were able to emerge leaner and meaner. A clash of business models (full service - with a hub & spoke system versus lean carriers like Nyse:LUV - Southwest Airlines) has been ongoing for years and is the subject of vast academic discussion in the fields of strategic management and corporate strategy (from Michael Porter COMPETITIVE STRATEGY to Clayton Christensen's DISRUPTIVE INNOVATION)
I'd like to open this thread and dedicate it to airline related investment ideas. This broad definition is purposefully selected to include not only common stock but also the many variants of preferred stock and even exchange traded debt that are floating around, many at attractive, distressed levels on many major exchange.
The reason to give a look at the latter was my observation that blue chip investors a la Warren Buffet made a killing on some distressed bond and preferred plays during the past 2 years - first on the troubled Reinsurance and P&C insurance sector, later on distressed energy debt (say EB or AES) and now - (?) who knows maybe on similar instruments in the AIRLINE INDUSTRY. From my observations yields of B- (or worse) bonds north of 20% are not uncommon.
Let's find sound ideas and exchange them.
all the best
CROSSY |
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| AUTHOR:
dtawil |
RANK:
Top Quartile  |
DATE:
May 03, 2003 |
| PAST
RANK: |
Hello Crossy,
I posted this along time ago in the "Are the airline compnaies at risk" thread I think it still holds today, maymbe even more so.The strategy that I suggested seems to work out great, so this might be the best way to play this industry.
Here it is:
"This is a tricky industry with a lot of moving parts and lots of things that can go wrong. Labor strife, highly variable fuel costs, ticket price wars, and military actions can wreak havoc with revenues,while heavy debt, a by product of this capital intensive business, looms as a long term threat for many carriers. But there's money to be made by investors who know how the industry works and what to look for. And this fall may be a good time to start looking. The sectors inherent volitality precludes a buy and hold stategy. Other then Southwest and a couple of other low cost carriers, you dont buy airline stocks,you rent them. Airline shares trade on extremes. The sector is so cyclical that one popular strategy for this sector is "play the season". Simply put, this means investing in autumn ahead of the results of the busy second and third quarters, and selling in early summer to avoid the effects of the slower moving fourth and first quarter.The results are tremendous. A report by Michael Linenberg, a Merril Lynch analyst found that from 1993 to 1999 investors who bought the AMEX Airline Index basket of stocks between late September and early October, than sold them during a few weeks in June or July, would have outperformed the S&P 500 by a annual average of about 20 percentage points. However, this pattern doesn't always pan out. The best approach is to combine seasonal buying with trades tied to the economy's health. And as the economy starts to recover this autumn I will be purchasing a couple of airline stocks. The ones that look the most interesting are Frontier Airline (FRNT) and Alaska Air Group (ALK)."
I still like my two picks, I think they are some of the best managed in this industry.As for the trading the seasons strategy, it's probably a little to late to purchase now, so I wouldn't be a buyer of the AMEX Airline Index now.
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| AUTHOR:
mbarbon |
RANK:
Top Quartile |
DATE:
May 06, 2003 |
| PAST
RANK: |
However with Risk comes reward.
Just made a killing on the airlines. Bought them all (ie the sum of all will be greater after one declares bankruptcy even though I would have to take a total loss on one of them), given the remainder would all benefit when one of them goes under because they will stop slashing each other's throats.
However, given they are all still here, and the prices have doubled, I have essentially unloaded.
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| AUTHOR:
jczerw |
RANK:
Top Quartile |
DATE:
May 06, 2003 |
| PAST
RANK: |
AVL, Aviall is my pick in this sector. Only 6% of their revenues come from commercial avaiation. The rest comes from military contracts and general aviation. While military business is a lower margin business, it is up. As general aviation (and commercial) comes back margins will improve. Also, in their recent conference call, AVL indicated they thought they had an opportunity to lower their borrowing costs by 1.5%. Again, higher margins.
I think AVL is a $15 stock, at the least. |
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| AUTHOR:
crossy |
RANK:
Top Return |
DATE:
May 06, 2003 |
| PAST
RANK: |
re: AAR (NYSE traded sub. bonds of AMR maturing 2035)
Hi fellow posters,
thx for your picks, I will adress some of the thoughts you raised tomorrow. In the meantim let me forward an UNUSUAL PLAY myself. A bond that's being traded on the NYSE - I am talking about the subordinated debt of AMR corp. maturing 2035 with an implied yield in excess of 20% (as it appears to me) - the ticker is AAR - par value is in excess of around $25 but the beast is trading at $12.65..
The huge "credit spread" of AMR and the long maturity make this appear just like a zerobond in a favourable market (with declining interest rates). What the implied rate could mark down here is an improving credit spread.. You could have bought this beast at $5 recently...
best rgrds
CROSSY |
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| AUTHOR:
mbarbon |
RANK:
Top Quartile |
DATE:
Aug 05, 2003 |
| PAST
RANK: |
| Just bought some AAR. I guess I'm betting that AMR is going to be around. Dividend not bad, but still risky. I'm going to pick up more on the dips. |
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| AUTHOR:
myswissbroker.com |
RANK:
Top Quartile |
DATE:
Sep 29, 2004 |
| PAST
RANK: |
RE: AIRLINES
SHORT THEM (MOST OF) ALL
Dear colleagues,
If I could add something; the only major airlines I would dare buying a ticket if traveling in a few months ahead would be JBLU and ALK, the crappy ones like DALEQ, AMREQ and UALAQ or UAIRQ are just good for wallpaper in a few months and so your plane ticket if you are unlucky.
Nobody like to fly with those airlines and most of the time this is only because your company has an agreement with one of those that you may wind up using them.
In addition there is always a question I have in mind, why the heck people keep trading those airlines???
Eternal money loosing business, bad attitude from management in order to save shareholder value...and most of all this is all about the ego, carrying as much people as possible whithout caring about the cost structure..
Apart JBLU and ALK, I only like to a certain extand RYAAY and EZJ VX in Europe.
fly Swiss !
http://www.swiss.com |
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| AUTHOR:
gmeeks |
RANK:
m100 |
DATE:
Sep 29, 2004 |
| PAST
RANK: |
One airline I bought back on May 20 2004 which has added nice value to one of my funds is LAN Airlines . 32 % gain in the face of the general airline tumble and high fuel prices . Regional South American carrier , if you start looking at the news articles for this company you will see tons of "Best of" awards from a lot of highly respectable sources . Sources from the vacation industry to airline indusry organizations to business publications . They have a good working relationship with labor , above average security which is a surprise for a airline from the Third World , excellent customer service and above all a web of strategic alliances with some of the best carriers in the world that allows passengers to use frequent flier miles on numerous top quality airlines as well as making "one stop" flight arrangements that can utitlize the resources of the oneworld alliance . http://www.oneworldalliance.com/
By targetting higher dollar customers and international business frequent fliers while providing unheard of service for the region they are based in , this company has managed to put itself in the positiion of being able to add on fuel surcharges to many of their flights without impacting their passenger load . In other words , while many of the mismanaged American based airlines blame their problems on high fuel prices and file for bankruptcy , this company has been able to raise revenue , raise market share and pay out a 3 % dividend on top of it all . I will be holding this company for quite some time :) |
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| AUTHOR:
gmeeks |
RANK:
m100 |
DATE:
Sep 29, 2004 |
| PAST
RANK: |
| Sorry ... left out the ticker symbol and since I cant edit my post I will just have to stick it here :) LFL |
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| AUTHOR:
rbjr |
RANK:
Top Quartile |
DATE:
Dec 08, 2004 |
| PAST
RANK: |
As an airline pilot, my advice is to stay away...far away.
There are a handful (with missing fingers) of 'good' airlines...JBLU, LUV, Alaska and that's about it and their bright future is already figured in the price, in my opinion. True, AMR will be around for a while but eventually the 'low cost carriers' will invade their markets, like they did to Delta, USAirways and United. I don't see growth for AMR.
I think there is is too much supply in the airline industry right now. Demand will become higher, raising ticket prices and thus profit, when one or more of the 'legacy' carriers die off, namely United and/or USAirways.
Put your money elsewhere, in my humble opinion.
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