Forum Archive Index - April 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

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

http://www.sharechat.co.nz/articles/20001218-unlimited4.shtml

 

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.

The full story -  http://www.nytimes.com/2001/04/29/business/29INSI.html

 
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