What do you guys think about the industry right now? Got in around June as oil became cheaper. Never intended to hold on to the stock for the long term as the outlook looked pretty decent short term instead. Thought some of these stocks were poised to go higher but looks like they may be headed down now. So what do you think hold on for a little longer or is this the best it will get?
Heavily commoditized & regulated. What’s not to love!
Let’s not forget unions, enormous capex, and razor thin margins.
^ and reliance on defense spending for scale and government R&D budgets for product improvement. i love sectors that rely on virtually every government handout possible for solvency.
Still cutting my teeth, but I follow the markets and do some trading mostly as practice. Airlines are one of my favorite sectors to play around with. I’ve noticed the checkered past of the industry as a whole has kept it from any momentum. Yes, cheap fuel! yeah!.. kind of… These guys are hedging in such a way that they are overshooting the mark and losing money on the contracts. I don’t think cheap fuel is a big of a factor as implied, but I haven’t done the math.
There has been conflicting catalists in the industry. 1st there was the AAL CEO coming out and in all his hubris, started rumors of price wars. The whole industry took a dive because there was worry they were going to lose dicapline and strart running each other all into bankruptcy as in the past. Ok, they finally recoverd from that shock… THEN the industry was in trouble for charging too much and there was rumors of collusion investigations. OMG is it price wars or collusion… make up your minds!
That brings us to now. I would say to most prevalent worry right now is the capacity gains and the ability to keep up with themselves. The airline metric PRASM is key. Most airlines have seen a decline. JBLU has done so well because they are alone in the industry with growth in capacity as well as growth of PRASM. The fact the JBLU has had such a momentus run has people nervous which is why it has take a dive since the traffic report (which was actually a solid report) I think people are nervous about the guidance because airline metrics in general have not been moving in the right direction.
WithJBLU in particular I can say they trade at a premium (PE) compared to the sector but not compared themselves give 5 years backdata. Quite impressive if you see the run they have made in price this year, yet managed to not have gotten inflated. Also, throughout this expansion they have at the same time been reducing debt.
My favorite part about airlines is their monthly traffic reports. It is like a mini earning report every month and not publish on a predetermined date. If you look for it, often you can react to the news before a good part of the market gets a chance to.
-------so anyway… watch PRASM and capacity in Q3 reports as well as traffic reports.
Shrinking industry…get out soon. Once price of oil goes back up capex is going to increase and in a possible high rate environment…whenever the fed does decide to raise rates.
what do you mean by airlines are shrinking industry
Margins are so ridiculously thin, much better places to play. I don’t buy businesses that make $1.25 per customer on a $500 purchase. Terrible biz.
Airlines are trading stocks, not buy and hold. It’s a fair assumption that almost any publicly traded US/Canadian airline will eventually go bankrupt, so make $$ and get out.
Is there a more hated industry?! I get the hate but damn this industry did really well in 2013-2014. Maybe its just a function of me being a poor stock picker, but Alaska Air is maybe the best investment I’ve ever made. The company is actually quite profitable, is well capitalized and is able to fund share repurchases and dividend growth w/ free cash flow. It’s a legitimately good story. That being said, do I expect it to continue? No, b/c the industry is really tough.
As another poster said, the populous is starting to get mad about being charged too much. Hell, are they not allowed to make money? Their margins and returns on capital invested have sucked forever…the moment they start to do OK people get pissed. Apple makes 35% EBITDA margins and a blockbuster movie is made about the old CEO, while these airlines finally get above 10% and people say its BS that they’re being overcharged. Pricing power is very elusive for this industry.
This about sums it up.
Though this is good too:
WestJet has been a reasonable long term stock in this space and the only one I’d remotely consider, but I still can’t get excited about investing in a business where if a customer takes a dump you probably have lost money. Think if that next time you’re on a plane… That second can of Pepsi probably made you unprofitable as a customer.
I seem to recall that if first class gets filled up, the flight makes money, justifying the thin margins of steerage class. Can any of you airline analysts confirm whether that is true or not?
Yeah I would not invest either
Alright… all the airlines have reported…
time to write iron condors on these guys!
look, performance wise, they are going to be stuck. They have maxed out capacity and revenue efficiency per seat mile is stalling out. Meanwhile they are cheap as hell… but you wouldn’t want to buy them being that there is no investment to make (sorry JBLU, you’re done too I’m afraid). They are going to be volatile yet range bound until something significant changes in the equation … like WTI breaking out above $50 or even more capacity wars. Over and over it is going to be >>>>> OMG look how cheap airlines are BUY>>>>>> then, OH, the airlines are a dead end trade SELL.
Might as well collect time decay while the pedictability is high AND the volatility within that range is also high (aka… good premiums)
Depends on the airline and how they’re filling F. Delta (and to a certain extent United) have been selling the crap out of first class for cheap. I haven’t paid for a first class ticket until this year when I bought a first class domestic ticket on Delta because the difference between first and steerage was only $40, or $10 less than what it would cost for my round trip checked bag fee. So I got my free bag, free drinks, and a nicer seat.
Also keep in mind that the front cabin can be full of frequent flyers with status that were upgraded for free the day of, or used their comfirmed upgrades to sit there.
I had a GF that worked for an airline and she said that if first class was filled with paying customers, coach class could fly empty and the plane would still make money. That was some years ago so pricing structures may have changed. Also it was an international airline so maybe domestic flights were different.
I did realize that a lot of first class seats might be upgrades when you actually do the walk of shame to your steerage compartment.
ever been to MHC?
Picked up SAVE at $34 across some of my accounts. They have no shame, shift routes on a dime, pack them like sardines, A320 seat pitch, 29!!!, and can handle increased fuel cost better than any one. Newest fleet in the industry. In fact, they probably have a competitive advantage in a high fuel environment. And while their pilots are not the best paid, they are happy for the time being. They get at least four days off between trips by contract. A dirty little secret about pilots is the only thing they like more than money is not having to work. Can you think of anything more mind numbing than sitting in the cockpit of an airliner for hours next to someone with whom you probably would not want to have a drink? And they like to fly new planes. Fewer issues. While Spirit planes may be late, they generally move, assuming they continue to staff. And the legacies claim they are going to try to compete on non-stop routes. Yeah, good luck with that.
No. You’re forgetting contribution margin.