Transcript Airline Stocks: Making the Connection

Airline Stocks: Making the
Connection
Why airlines?
• XAL: NYSE Arca Airline ETF
Yahoo finance
Back to basics
• Airline bankruptcies in recent years
• Fundamental challenges
• Fuel prices volatile
• Fare wars break out frequently
• Capital-intensive
• Complicated business model
• Mother Nature interference
Confessions of an aeroholic:
Warren Buffett
• Warren Buffett is skeptical!
• “seriously, the airline business has been
extraordinary…
• …It has eaten up capital over the past century
like almost no other business because people
seem to keep coming back to it and putting
fresh money in.”
• I have an 800 number now that I call if I get
the urge to buy an airline stock. I call at 2 in
the morning and I say: 'My name is Warren,
and I'm an aeroholic.' And then they talk me
down.”
Terrible decade: Fuel analysis
?
Asian strength
Positive Point
• Worst is over: Passenger revenue up
1.4% in January 2010
• ↑ seasonal travel
• ↑ financial footing
• ↑ capacity constraint & cost controls
• Low cost carriers (LCCs) creating new
markets
• Government support for state-owned
airlines
China flying high
• Citi 2010 forecast 18% air-travel growth for Chinese airlines
• Evidence:14% passenger growth already in first two months
• Momentum to the The Shanghai World Expo:70 million visitors.
• Chinese airlines elevating competitiveness
•
•
•
•
Balance-sheet restoration
Network optimization
Operating efficiency improvement
Embracing global airline alliances
• State help: Domestic consolidation opportunities
• As such, the [mainland Chinese airlines] sector looks
interesting with many positive features," Citigroup analysts
Ally Ma and Brian Lam
China Southern Airlines Co Ltd
1055:HKG
• China’s biggest carrier
• Outperformed HIS
• Balance Sheet:
•
•
•
•
Latest price: 3.47 HKD
Market Cap: 6.11bn
P/E (ttm): 7.60
EPS (ttm): 0.457
http://finance.yahoo.com/q?s=1055.HK
Financial Times
Opinions on investment
• OK to long winners
• 2010: Global outlook –only way is UP
• ↑ seasonal travel
• ↑ global economy
• ↑ capacity constraint & cost controls
• Caution (or short) for industry as a
whole
• Fundamental issues remain