The WORST Business to Invest in? Is it airlines..
What's your opinion of investing in an airline? Margins are pretty damn low, and it seems like everyone who starts one is getting crushed.
Let's take a look at what happened to WOW air last week.
Newsletter from The Water Coolest - Not Up in Here
Budget airlines have had a rough go at it lately. Even if the low fare operators can afford Boeing safety upgrades, they face headwinds in the form of fuel prices and stiff competition.The latest victim of an ongoing European fare-war is WOW Air, an Iceland-based budget airline. WOW isn’t alone, with eight European airlines failing since the summer, but it does seem to have a flair for the dramatic that its competition lacks.....
Not unlike the AAF, WOW’s leadership was scrambling to secure funding ahead of today’s news from Icelandair and PE shop Indigo Partners. The airline had already delayed the inevitable by convincing bondholders to convert debt into equity but alas it was leasing companies which pulled the plug on WOW’s big old jet airliners that appears to have been the final nail in the coffin.
What is your take on this, and if you had to invest in one, what would the ideal situation be?
I personally wouldn't touch a single airline stock except for Southwest (LUV). All the other legacy carriers are way too levered and still rely too much on the hub-and-spoke model. LUV's business model is genius - use only one type of plane (737) so that they are easy to repair at any location across the country and easy substitute when one needs to be set aside for whatever reason. Open seating and free bags encourage people to 1) get there early as possible, minimizing ground time for planes and 2) check bags more often, saving space for carry-ons and preventing further boarding/unloading delays.
LUV has also taken over smaller airports at major metropolitan areas (Midway vs. O'Hare, Love-Field vs. DFW, etc.), allowing them greater control over the operations at said airports and, again, minimizing time on the ground and maximizing air time.
There's a CNBC interview with Buffett a few weeks ago in which he said he no longer thinks the airline industry is a death trap (it used to be), but that the market tends to price airline stocks as such. With the rumored $75/share takeover of LUV by BRK that fell through back in February, Southwest looks pretty cheap right now, especially for a company that has never been unprofitable in 45 years in part because of the reasons I listed above.
I won’t ever invest in a company where I don’t believe in the product. Screw their cattle car boarding procedures...I’ve worked at an actual slaughter house for cattle. Their boarding process is not dissimilar.
LOL at getting shit on for this...I guess we have some amateur travelers on this site.
Wow, did you just create a post to complain because your post got one Monkey Shit? Has anyone ever accused you of having thin skin?
Immensely entertaining industry, not appropriate for long term investment. Take it from the horses mouthes:
“This industry attracts more capital than it deserves.” — Stelios Haji-Ioannou, founder of EasyJet
“People who invest in aviation are the biggest suckers in the world.”
— David G. Neeleman, after raising a record $128 million to start New Air (the then working name for what became JetBlue Airways)
“The airline industry is full of bullshitters, liars and drunks. We excel at all three in Ireland.”
— Michael O'Leary, Ryanair CEO
“I’m here to tell you that I am proud of a couple of things. First, I am very good at projectile vomiting. Second, I’ve never had a really serious venereal disease.”
— Herb Kelleher, addressing the Wings Club in New York regards his time at Southwest, 2001
“I think historically, the airline business has not been run as a real business. That is, a business designed to achieve a return on capital that is then passed on to shareholders. It has historically been run as an extremely elaborate version of a model railroad, that is, one in which you try to make enough money to buy more equipment.”
— Michael Levine, Executive VP Northwest Airlines, 1996
“These days no one can make money on the goddamn airline business. The economics represent sheer hell.”
— C. R. Smith, President of American Airlines.
“A recession is when you have to tighten your belt; depression is when you have no belt to tighten. When you’ve lost your trousers - you’re in the airline business.”
— Sir Adam Thomson
“You cannot get one nickel for commercial flying.”
— Inglis M. Uppercu, founder of the first American airline to last more than a couple of months, Aeromarine West Indies Airways, 1923.
“If the Wright brothers were alive today Wilbur would have to fire Orville to reduce costs.”
— Herb Kelleher, Southwest Airlines, USA Today, 8 June 1994.
"I've never invested in any airline. I'm an airline manager. I don't invest in airlines. And I always said to the employees of American, 'This is not an appropriate investment. It's a great place to work and it's a great company that does important work. But airlines are not an investment.'" - Bob Crandall, American CEO