BioInvestor

Time to Buy Airline Stocks?

Independent E.G., Warren Buffet is a big investor, no question, and he does merge many companies into Berkshire Hathaway, but he also makes purchases, many purchases, without a majority position in companies.


There shouldn't be any dispute that Mr. Buffet is a "big" investor. If you are a serious investor, you wouldn't think those "mutual funds" are getting anywhere near "big" returns. Mr. Buffet really believes in monopoly. It's allover in his investing philosophy and practices. That's an indisputable fact. The airlines are shaking toward that direction. Lots of volatility. The time-frame we are talking here is right now and "meanwhile". Not the 90's. That's a very different scenario.

Time to Buy Airline Stocks?

Independent E. G. large investors, institutional investors, invest in much more than monopolies. You can read the prospectus of many of the largest mutual funds--or look at the filings of any large company--and see they invest in a range of companies.

Airlines have been in merger and acquistion mode for many years--long before the latest round of mergers in the energy sector.

I wouldn't put too much emphasis on the fact that the airline industry has different regulations and that people in the industry require unique training. The same situation prevails in other industries. It's not a differentiator.

Actually, Warren Buffett used to invest in the airline industry. In the 90s, he had a large holding in what is now US Airways.

Time to Buy Airline Stocks?

I'd agree with the notion that oil prices are approaching some kind of a top, when and where that peak will be reached is anyone's guess. If and when oil prices drop, it's not necessarily going to be a rapid decent. High oil prices are a major threat to the survival of US legacy carriers. As long as prices are high, there's substantial risk of loss when it comes to investing in airlines.

I am somewhat surprised that people don't know about the anemic market capitalization of legacy carriers. Many people are probably not concerned about market cap' for any company; however, those that are, particularly those following the airline industry, must surely know that the market cap' of airlines has been and continues to be small compared to many other industries.

Before buying shares in any company, I think it makes sense to study the balance sheet carefully, then analyze and compare the financial strength of all the legacy carriers. If oil continues at its current level --in excess of $90 and certainly $100--for two to three quarters, I'd expect to see companies enter into reorganization under C11. The weaker ones will go first; determining which airlines are closest to insolvency is key to avoiding personal loss when investing in this industry.

Why Airline Mergers Don't Work

To johnk:

LUV's fuel hedging is slowly dissipating. LUV is also planning to add service to international destinations as soon as next year. Frankly, LUV does an excellent job in the domestic market--the legacy carriers do not. LUV's success is due to the fact that it is disciplined and focused with a simple business model.