Investing in airlines during the corona crisis?

[cardude01]

I saw that Berkshire recently added to their Delta Airlines stake at around $45-47 per share. I would have to guess that the airline business is really gonna get hit soon as folks quit flying as much. Saw Flybe (UK’s largest domestic) went under today. They were already struggling, but I wonder if some of the weaker US airlines (American?) could have big problems in the future?

Realize this is not boat related at all, but was hoping Baker could chime in about the industry outlook.

 

[Baker]

Realize this is not boat related at all, but was hoping Baker could chime in about the industry outlook.

The overall consensus is that this will be shortlived. It will ripple through the industry for awhile though. We just made an announcement yesterday that we are reducing international flying by 20% and domestic flying by 10%. This is really stupid because this thing is no worse than the flu and is arguably not as bad as the flu. People have lost their friggin minds!! The media has lost it. Otherwise rational people have lost it. You hear people say stuff like "You couldn't pay me to get on an airplane right now"....whatever.

PS....Warren Buffet ain't no dummy. But yes, AA has a debt issue. If this thing goes too long they will be hurt the most.

 

[FlyWright]

An airline CEO once stated that the way to make a million $$ in the airline business is to start with many millions. I took his advice and never invested in airlines.

 

[cardude01]

We will get through this, but I think the short term impact will be fairly severe. Fear and herd mentality has great power, and when people start seeing death rates and case numbers spike after we start widespread testing, panic will probably follow.

For “younger” people like me and Baker ([emoji41]), the fatality rates are around 1% or so overall, and many/most in that age bracket are not healthy so the fatality rate for healthy people in that age bracket will be lower obviously. However, for those older and not in decent shape, the fatality rates are pretty sobering. These figures are from the CDC.



Is Delta the strongest airline financially? Southwest? United?

 

[cardude01]

PS....Warren Buffet ain't no dummy. But yes, AA has a debt issue. If this thing goes too long they will be hurt the most.

Yeah only interest for me was because Buffett is interested. Thanks for the info.

 

[cardude01]

An airline CEO once stated that the way to make a million $$ in the airline business is to start with many millions. I took his advice and never invested in airlines.

Ha! Yes. However the airline industry has consolidated so much over the past few years I guess it’s a little less of a bad bet. Think that’s why Buffett started buying again after he swore he would never buy another airline stock.

 

[markpierce]

Have always considered the airline industry to be high-risk. Have never invested in it.

 

[Shrew]

Not all airline business is bad. Consider a world without air travel. Impossible. There will always be two things....airline manufacturing and air travel.

I hope everyone has been parking a few % every month through the last few years of the bull market in cash. Large market corrections are a great time to move that cash into the market and ride it back up.

 

[BandB]

Delta is the strongest of the US Airlines and also the least dependent on International travel.

American is the most exposed in terms of their own financial situation and in terms of their reliance on international travel. Unfortunately, they are so debt ridden that a 20% reduction in revenue may be crippling. To me, every business should always have a contingency plan based on a 20% reduction, but not sure they do.

 

[GFC]

If I weren't a long term investor I might be looking at shorting AA or some of the other airline stocks.

 

[Cigatoo]

Southwest is down around a 5 year low as of today. No overseas travel. Symbol is LUV

 

[Woodland Hills]

Hospitality stocks will be affected too like Starwood Marriot Hilton etc. losing business and vacation travelers is sure to lower income and profit. On the other hand hospital groups are sure to benefit from the influx of patients needing ICU care and other expensive care like special isolation wards as long as they can keep the uninsured out. Healthcare insurers are going to be hurting from a massive transfer of funds to the medical sector to pay for all the patients with insurance. Look for everyone’s premiums to go up once this all shakes out: somebody’s got to pay for it all in the end.

Or it could all fizzle out like Y2K........

 

[BandB]

Southwest is down around a 5 year low as of today. No overseas travel. Symbol is LUV

Southwest has many issues. 737 MAX hit them extremely hard and their entire relationship with Boeing has them in a jam. Plus they've gotten so far away from their base as a company.

 

[caltexflanc]

I've never directly invested in airlines. In the current situation, I think Big Oil is a much better play. Investing in them at times of macro-economic weakness is the one play that has always paid big returns for me. Also, they are some of the best managed companies extant. Disclaimer: I worked in Mobil's planning department back in the very early 80's, and still have friends at Exxon, from then, and from living in Dallas for several years.

 

[BandB]

I've never directly invested in airlines. In the current situation, I think Big Oil is a much better play. Investing in them at times of macro-economic weakness is the one play that has always paid big returns for me. Also, they are some of the best managed companies extant. Disclaimer: I worked in Mobil's planning department back in the very early 80's, and still have friends at Exxon, from then, and from living in Dallas for several years.

Well, I do have a friend who made a short sale of AA. Huge gamble but in three days he's had a tremendous profit. Just like betting on a sporting event. Winner and loser on each transaction but house always wins. I've never dealt with options in any form.

 

[MurrayM]

We will get through this, but I think the short term impact will be fairly severe. Fear and herd mentality has great power, and when people start seeing death rates and case numbers spike after we start widespread testing, panic will probably follow.

For “younger” people like me and Baker ([emoji41]), the fatality rates are around 1% or so overall, and many/most in that age bracket are not healthy so the fatality rate for healthy people in that age bracket will be lower obviously. However, for those older and not in decent shape, the fatality rates are pretty sobering. These figures are from the CDC.

View attachment 100128

Is Delta the strongest airline financially? Southwest? United?

That graph puts things into context for sure.

The death rate to flu is usually pegged somewhere around 0.1% and Covid 19 has recently been raised to 3.4%

If the same number of people got Covid 19 as get the flu every year, the death toll would be 34 times greater than the flu. Grim...

We just have to wait and see how many people get this new virus, which should be quite a few, since it’s new and nobody has immunity from it.

 

[tiltrider1]

I was in the airline business 20 years ago. Very capital intensive, low margins and you live and die by your load factor. Buffet and I usually see eye to eye but not on airlines. Truthfully, Delta does not fit with Buffet’s normal investments. He likes high margins, brand loyalty and value. Delta is more of a commodity, possibly brand loyalty, he must have thought there was value. Buffet also bought in to Kraft recently and that has been a bit of a disaster. While he bet big on Apple, he really missed on Amazon, Google, Facebook and Microsoft. I do own Berkshire stock so I pay attention to Buffets letters to shareholders. He has made it very clear that Berkshire’s size has become its own worst enemy. I have no interest in selling my Berkshire shares but I won’t buy any more and following Buffets moves usually doesn’t work for individuals. I think stocks like ROKU, ZU, TWILO and MSFT have much more potential than Delta. It is hard to compare the risks between these industries.

Never take stock advice from some random dude on an Internet forum.

 

[Wxx3]

The reason Buffet is a trillionaire and I'm not is that I owned DL when it was in the teens and got impatient.
Oh Well.

I like the Delta product and would consider investing again. Delta has changed the business model significantly from what it was.

 

[Baker]

Southwest has many issues. 737 MAX hit them extremely hard and their entire relationship with Boeing has them in a jam. Plus they've gotten so far away from their base as a company.

This actually eases the Max issue. Losing flying...now they don't the capacity....so all of the sudden not a big deal...kinda like the pilot shortage....POOF....it's gone!

 

[Baker]

I think stocks like ROKU, ZU, TWILO and MSFT have much more potential than Delta. It is hard to compare the risks between these industries.

Potential or value have nothing to do with it. It is the fact that they have been hammered....and Buffet is betting they have been hammered below their worth....a worth that will rise back to the surface. It is a short term move....not a long term one of value or potential.

 

[Nomad Willy]

What happens if you invest in AA and they go bust. Loose all?
Is there a stock that represents a collection of airlines and support business's?
An investment in the whole industry seems a better bet to me.

 

[Benthic2]

However, for those older and not in decent shape, the fatality rates are pretty sobering. These figures are from the CDC.

I don't think anyone can realistically discuss fatality rates until we have the capability to test large numbers of people. In Wuhan the fatality rates were over 10% at the outset. In China outside of Wuhan, the fatality rates were around 0.4%. The fatality rate is also dropping rapidly.

The US is woefully unprepared for this and as a result does not have enough testing kits available. If only the most sickest and obvious cases are tested, that will artificially inflate the fatality rate since the the denominator in the #dead/#sick is not accurate.

There are many people that have the disease and exhibit no, or very minor symptoms. When we can fully test people, and these people are included in the #dead/#sick calculation, the mortality rate will go way down.

 

[Benthic2]

Here's a graph that shows the mortality rate based on when the initial diagnosis was. This was from NPR, and can be found here:

https://www.npr.org/sections/goatsa...th-rate-from-coronavirus-is-plunging-in-china

 

[Benthic2]

What happens if you invest in AA and they go bust. Loose all?
Is there a stock that represents a collection of airlines and support business's?
An investment in the whole industry seems a better bet to me.

I know Fidelity has such a fund, and I'd assume most other fund companies would as well. Fidelity's is called: "Fidelity Select Air Transportatioin Portfolio" and has the symbol FSAIX

information at: https://fundresearch.fidelity.com/mutual-funds/summary/316390798

I have no affiliation and am not recommending it, just passing on the info.

 

[oscar]

There are many people that have the disease and exhibit no, or very minor symptoms. When we can fully test people, and these people are included in the #dead/#sick calculation, the mortality rate will go way down.

When the death toll in Washington state was at 10 about a week ago (now 70) the scientists stated that they analyzed the virus in the victims and were able to tell that it had been around in the state since at least the beginning of January..... Based on that they estimated 1500 people were infected and had probably recovered or were currently sick with only a few exhibiting serious symptoms..(that's .006%)... At that point they had identified and counted 238 cases. (that's 4%)

In other words, we won't know how deadly this thing is until a few years from now when we have real data.

 

[BruceK]

What happens if you invest in AA and they go bust. Loose all?
Is there a stock that represents a collection of airlines and support business's?
An investment in the whole industry seems a better bet to me.

You could buy stock in an Airport. Sydney is a moneyspinner, they make more $ out of parking cars than aeroplanes.
I suspect Virgin Australia will struggle. Owned largely by a consortium of airlines, incl Chinese HAN which was in trouble even before CV, it continues to lose $. Air NZ(now there`s a smart innovative airline)sold out of it to one of the other airlines, they`d take a way bigger bath now.
I think Brian Grey, who started one of the 2 failed "Compass Airlines", suggested anyone starting an airline did so under the influence of sniffing aviation fuel.

 

[oscar]

(I am employed in the airline business)

If I were to do it all over again I would own the paint shops..... Every time the name changes the airplanes needs paint......

 

[klee wyck]

Potential or value have nothing to do with it. It is the fact that they have been hammered....and Buffet is betting they have been hammered below their worth....a worth that will rise back to the surface. It is a short term move....not a long term one of value or potential.

Berkshire is the antithesis of short term and is largely about value. They get it right as often as anybody but have good bruises from Kraft Heinz and Wells Fargo among others.
My guess is they will be right on Delta. Decent balance sheet, though poor liquidity like many of the airline peers and that will create significant stress under the poor load factors that will come with the current black swan.
Still, I doubt America has the stomach to lose its airline industry and Delta is as strong as most. If this becomes a threat to Delta there will be concessions almost certainly.
Most importantly, though no one can yet know when or how, this too shall pass and air travel will revert to prior patterns that supported good profits and good dividends at Delta. If you can buy that almost certain future at the currently discounted PE of around 6, it is likely a pretty good idea. I will be looking at the epidemic curve pretty closely and anything that looks remotely like a peak will have me owning significantly more Delta than I currently do.

In terms of the comparison to opportunities like MSFT, yeah I miss a lot of those since I am unwilling to own a utility with a PE over 30:lol:

 

[BandB]

Berkshire is the antithesis of short term and is largely about value. They get it right as often as anybody but have good bruises from Kraft Heinz and Wells Fargo among others.
My guess is they will be right on Delta. Decent balance sheet, though poor liquidity like many of the airline peers and that will create significant stress under the poor load factors that will come with the current black swan.
Still, I doubt America has the stomach to lose its airline industry and Delta is as strong as most. If this becomes a threat to Delta there will be concessions almost certainly.
Most importantly, though no one can yet know when or how, this too shall pass and air travel will revert to prior patterns that supported good profits and good dividends at Delta. If you can buy that almost certain future at the currently discounted PE of around 6, it is likely a pretty good idea. I will be looking at the epidemic curve pretty closely and anything that looks remotely like a peak will have me owning significantly more Delta than I currently do.

In terms of the comparison to opportunities like MSFT, yeah I miss a lot of those since I am unwilling to own a utility with a PE over 30:lol:

I come from the micro mini Buffett school of investing as in small time, but if I was going to invest in a US Airline, it would be Delta. I find them the most stable and business savvy without dangerous aggression. He makes mistakes though like all others as pointed out above. I'll never get in the Amazon's or Tesla's in the early stages. My best short term gain ever is Shopify and only because we were a customer.

I think American and Southwest and, to a lesser extent, United will use Covid 19 as an excuse for issues that go far beyond it.

 

[Giggitoni]

What happens if you invest in AA and they go bust. Loose all?
Is there a stock that represents a collection of airlines and support business's?
An investment in the whole industry seems a better bet to me.

Buy a put option. Make money as they go down.