----- Original Message -----
Sent: Sunday, April 29, 2001 7:49
PM
Subject: [sharechat] Airline shares
Airline in
the news a lot - what future for them? Will Air New Zealand ever make
money again?
The orange Virgin 767 looks
pretty impressive, and at home, sitting on the tarmac at Wellington this
afternoon.
As said earlier AIRVA share
price been trending down since 1993.
I have re-read the Unlimited
story 'On a wing and a prayer' about Air New Zealand that Sharechat posted a
few months ago - in light of what has happened a good story. Have another read
if interested in Air New Zealand
One part of
the article that struck me was -
Airlines are
notoriously treacherous investments. In the last decade, Air New Zealand's
share price has been hugely volatile, up near $4 one minute, down below $2
the next. In June, Fortune's canny investment columnist Andy Serwer wrote
about investment in airline stocks. "Never, I repeat, never buy airlines,"
he said. His rationale was that airlines have the cost structure from hell.
To whit:
- They have to
borrow huge sums of money to buy planes, leaving them at the whim of
interest rates (a factor totally out of their control).
- They use huge amounts of fuel, leaving them at the whim of oil
prices (a factor totally out of their control).
- They are at the whim of strong unions (you guessed it, a factor
almost totally out of their control).
-
If, Serwer argues, some of the world's
most serious investors - including Warren Buffett with US Air - can lose
big-time buying into airlines, what hope is there for the rest of
us?
Then there
is an interesting bit in the NY Times today - an interview with
Sam Buttrick,
an airline analyst at UBS Warburg. When asked if he could offer any reason to
buy these stocks the response was
Answer - The current fundamentals are
unequivocally poor, and many of the stocks are also trading at or near
multiyear lows. Clearly, we need to balance poor fundamentals with low stock
prices. You need to look out to 2003 and beyond, a period about which we
know remarkably little, to see sufficient earnings to warrant broad
purchase. As a result, we are extremely price-sensitive to entry levels. We
would focus on purchase points 15 percent below current
levels.
Buffet lost money in airlines once and apparently has a special
hotline he rings when he gets the itch to get back into them. He rings the
number and gets told in no uncertain terms that airlines are a no
no.
I think that Buffett was also
credited with saying that it is a pity that the Wright's first flight didn't
crash - it there hadn't been an airline industry investors would have saved an
awful lot of money over the years.
Since commercial airlines
started what have been their accumulated losses? - assuming it is
losses.
Airline shares for me - no way
Cheers
Peter
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