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Our Reports on Stocks in the Major Airlines Industry

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Image Source: Cory Hatchel Structure of the Major Airlines Industry The airline industry has undergone meaningful changes since the beginning of the last decade. The painful restructuring by most of the legacy carriers via Chapter 11, significant consolidation by the majors, the introduction of ancillary revenue streams, and the ongoing efforts to rightsize capacity to slow weakening real yields are but a few. Though unarguably these are steps in the right direction, airlines remain shackled to the very poor structural characteristics of their industry, which has sent more to bankruptcy than any other in our coverage. Airline stocks should be viewed as merely speculative bets. We have dropped coverage of the Major Airlines industry.

Why Some Investors Fail — Worms!

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Image Source: crabchick. 

When you read our research, we’re not just providing financial metrics — Valuentum is striving to provide an answer to the most important question in investing: what is a company worth? Though there are varying opinions about which underlying factor is the most important investment consideration, at the end of the day, the process of valuation collects every investment consideration to provide a conclusion. It is the answer after all other considerations, the final outcome of analysis. It is why we say that investors that don’t pay attention to valuation may be doomed to fail…eventually. Not seeking valuation is not seeking the answer.

The Dichotomy of Airlines and Aerospace

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On Monday, top insurance idea AIG (AIG) announced that it would sell International Lease Finance Corporation (ILFC) to aircraft leasing firm AerCap Holdings (AER) for $5.4 billion, consisting of $3 billion in cash and the balance in newly-issued AerCap common shares. Though we think ILFC was one of the crown jewels of AIG’s business particularly considering the prospects for global air travel demand in coming years, the price is fair and opportunistic, especially since AerCap is risking its investment-grade status to facilitate the deal. We don’t think better terms could have been had by either party, given financial constraints, and shares of both entities are moving higher on the news. The combined AerCap-ILFC will be #2 on the world stage … Read more

Why Airline Stocks Are Not Long-Term Investments

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The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down. — Warren Buffett, annual letter to Berkshire Hathaway shareholders, 2008. The airline industry has undergone meaningful changes since the beginning of the last decade. The painful restructuring of labor agreements and balance sheets by most of the legacy carriers via Chapter 11, the significant mega-mergers of Delta (DAL)/Northwest, UAL (UAL)/Continental, US Airways (LCC)/America West, … Read more

The One Thing You Never Knew About Warren Buffett And Others Don’t Want You To Know

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Warren Buffett is one of the most talked about investors of our time, but he is also the most misunderstood. We hope that what you read in this article will open your eyes to new investment horizons and strategies. We hope it will help you cut through the marketing materials of others that you read so much. And at the very least, we hope it will help you learn more about the Oracle. As you’re reading, it will be very important to keep in mind that it is not Warren Buffett’s admission of his mistake in this article, but the idea that he would pursue an investment of this quality in the first place. We ask: If he can make … Read more

Delta Buys 49% of Virgin Atlantic Airways

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As we touched on last week, Delta Airlines (click ticker for report: ) acquired a 49% stake in Virgin Atlantic Airways from Singapore Airlines for approximately $360 million. The deal seems to make sense for both parties, as it gives Virgin better access on US routes and Delta access to London’s Heathrow airport. The valuation, a haircut from what Singapore paid, doesn’t seem unreasonable, in our view. Given Delta’s semi-decent balance sheet, we doubt the deal will materially impact financial standing. One would think the market really likes the deal, given that shares of Delta are up more than 6%. However, we believe the airline market is rallying on reports that the rumored merger between AMR Corp (American Airlines) and US … Read more

United Continental and US Airways Troubled by Fuel Costs

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United Continental (UAL) reported a second-quarter net profit of roughly $1.49 per share Thursday (net income fell 12%), excluding special items, with passenger revenue advancing over 10% compared to the same period a year ago – unit passenger revenue improved 9% from the prior year period. The airline continues to face the burden of rising fuel costs, as second-quarter fuel expense increased a whopping 45% on a year-over-year basis. Unit costs, excluding special items advanced over 11%, driving lower profits from the prior-year period. We view United Continental’s liquidity position as adequate, with $8.6 billion in unrestricted cash, cash equivalents and short-term investments on hand as of the end of the second quarter. We’re also quite pleased with the carrier’s continued … Read more

Yield Outlook Deteriorates for Airline Stocks

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/280098-yield-outlook-deteriorates-for-airline-stocks As we had outlined in our industry primer for airlines, the yield (pricing) environment for the group is treacherous and remains under perpetual pressure. The International Air Transport Association [IATA] released its July 2011 Airline Business Confidence Survey. Importantly, the IATA commented on the outlook for yields, which we reproduce below: While both passenger and cargo transport businesses saw improving yield performance during the second quarter of 2011, the trend is flattening. With demand-supply conditions weakening and concerns that markets may not bear further fare/rate rises, prospects for yields over the year ahead look flat. With over 80% of respondents reporting increased input costs during Q2, clearly high fuel costs have … Read more

Merger Mania in the Brazilian Air Travel Market: A Net Positive

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This article appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/278846-merger-mania-in-the-brazilian-air-travel-market-a-net-positive As long-time followers of Valuentum know, we’re not too fond of airline stocks. Essentially, we view them as merely a speculative bet on the trajectory of economic growth and the direction of jet fuel prices. But while the price of black gold remains largely out of airline executives’ control, it’s hard not to like the economic growth prospects of the Brazilian air travel market, which has been on a tear during the past several years thanks in part to heavy discounts on fares offered by low-cost carriers such as Gol (GOL). Plus, the 2014 World Cup and the 2016 Olympics, both to be held in Brazil, will serve as temporary and … Read more