Airlines: Too Big to Fail

whlinder

https://americanaffairsjournal.org/2021/02/the-airline-industry-after-covid-19-value-extraction-or-recovery/

This is a super long read but realllllly good. It highlights basically that airlines used to go bankrupt all the time and used the bankruptcy processes to restructure their businesses, in the process creating efficiency gains.

And now in the midst of a crisis several orders of magnitude larger than any crisis before, they aren’t going bankrupt. Why? They convinced the government they were too big to fail and that their equity holders should be protected. Gains to the shareholders but socialize the losses. And the public continues to be the loser, paying for their losses while also losing benefits from competition.

How does one evaluate the value of a stock if there isn’t any actual risk of business failure because the govt will prevent it?

FireCohen

Risk free rate baby. Airlines used to fail all the time. But given how concentrated the industry is. They won’t let them fail for good or bad.

EwaDawg

whlinder said:

https://americanaffairsjournal.org/2021/02/the-airline-industry-after-covid-19-value-extraction-or-recovery/

This is a super long read but realllllly good. It highlights basically that airlines used to go bankrupt all the time and used the bankruptcy processes to restructure their businesses, in the process creating efficiency gains.

And now in the midst of a crisis several orders of magnitude larger than any crisis before, they aren’t going bankrupt. Why? They convinced the government they were too big to fail and that their equity holders should be protected. Gains to the shareholders but socialize the losses. And the public continues to be the loser, paying for their losses while also losing benefits from competition.

How does one evaluate the value of a stock if there isn’t any actual risk of business failure because the govt will prevent it?

Interesting read. Some of which some can already be known by osmosis. But "holey" fuck that was, indeed, tequilla ass long.

If anyone wants to provide a cliffs notes version - thank you in advance.

If not my take away will be to let the general investing public believe that a recovery is likely soon and to continue to buy portions of the industry, for 6-8 weeks at a time, until that slice of the sector looks attractive to everyone or until they realize their folly.

I bought HA about four months ago and LUV about 6-8 weeks ago. I sold HA months ago and LUV now (as of this am) has a trailing stop firmly attached.

The first indication that I was right to dump HA was when they came out and said that Biden's socialist give away would allow them to avoid previously necessary large scale lay offs.

After already buying these two, perhaps I need to look at airlines internationally. Or not.

I am bookmarking this read. Thanks for posting. It certainly is easier to understand in smaller pieces.

Come on fuckos, your input is appreciated.

And to partially answer your question, if our (some would say my) money is being used to prevent the bankruptcy of US airlines, then I'll do what I can to take advantage of the interference with free markets.

greenblood

I think with the shutdowns and the increase use of mobile meetings like Zoom, airlines are going to see a continuous decline in air travel even after things are back to normal.

FireCohen

greenblood said:

I think with the shutdowns and the increase use of mobile meetings like Zoom, airlines are going to see a continuous decline in air travel even after things are back to normal.

Business travel for sure will decline. But the masses will continue to travel because of it pent up demand. In general this younger generation does not want to stay in the same place

greenblood

FireCohen said:

greenblood said:

I think with the shutdowns and the increase use of mobile meetings like Zoom, airlines are going to see a continuous decline in air travel even after things are back to normal.

Business travel for sure will decline. But the masses will continue to travel because of it pent up demand. In general this younger generation does not want to stay in the same place

But I think most travel is business based

HoustonHusky

whlinder said:

https://americanaffairsjournal.org/2021/02/the-airline-industry-after-covid-19-value-extraction-or-recovery/

This is a super long read but realllllly good. It highlights basically that airlines used to go bankrupt all the time and used the bankruptcy processes to restructure their businesses, in the process creating efficiency gains.

And now in the midst of a crisis several orders of magnitude larger than any crisis before, they aren’t going bankrupt. Why? They convinced the government they were too big to fail and that their equity holders should be protected. Gains to the shareholders but socialize the losses. And the public continues to be the loser, paying for their losses while also losing benefits from competition.

How does one evaluate the value of a stock if there isn’t any actual risk of business failure because the govt will prevent it?

I’m on vacation so too drunk didn’t read, but agree 110% with the concept but the last line. The stock market has evaluated the risks...that’s why it was up 20% in a pandemic when the economy was forcibly halted and shrank. Make no sense until you realize the govt won’t let anyone go bankrupt and the Fed will print until the presses break so there will be $$$ to fund any company that wants money..,

godawgst

EwaDawg said:

whlinder said:

https://americanaffairsjournal.org/2021/02/the-airline-industry-after-covid-19-value-extraction-or-recovery/

This is a super long read but realllllly good. It highlights basically that airlines used to go bankrupt all the time and used the bankruptcy processes to restructure their businesses, in the process creating efficiency gains.

And now in the midst of a crisis several orders of magnitude larger than any crisis before, they aren’t going bankrupt. Why? They convinced the government they were too big to fail and that their equity holders should be protected. Gains to the shareholders but socialize the losses. And the public continues to be the loser, paying for their losses while also losing benefits from competition.

How does one evaluate the value of a stock if there isn’t any actual risk of business failure because the govt will prevent it?

Interesting read. Some of which some can already be known by osmosis. But "holey" fuck that was, indeed, tequilla ass long.

If anyone wants to provide a cliffs notes version - thank you in advance.

If not my take away will be to let the general investing public believe that a recovery is likely soon and to continue to buy portions of the industry, for 6-8 weeks at a time, until that slice of the sector looks attractive to everyone or until they realize their folly.

I bought HA about four months ago and LUV about 6-8 weeks ago. I sold HA months ago and LUV now (as of this am) has a trailing stop firmly attached.

The first indication that I was right to dump HA was when they came out and said that Biden's socialist give away would allow them to avoid previously necessary large scale lay offs.

After already buying these two, perhaps I need to look at airlines internationally. Or not.

I am bookmarking this read. Thanks for posting. It certainly is easier to understand in smaller pieces.

Come on fuckos, your input is appreciated.

And to partially answer your question, if our (some would say my) money is being used to prevent the bankruptcy of US airlines, then I'll do what I can to take advantage of the interference with free markets.


25 years investing never bought a airline until last February (no bueno idea in hindsite). American Airlines at 25 fallen from 51. Issues were with AA specific and thought I could average down and wait for turnaround.

Covid hits and it gets as low as 8. Subsequentially look at Delta at 24 (pushing 50) and bigger kick in nuts Southwest got down to 20 in fall, told co-worker about it, he bought (I didn't) and it's sitting at 60 why I still have American who's at 22 ish.

There's the old adage about airlines that says if you want to become a millionaire, start with a billion and invest in the airlines.

For the legacy carriers I would 1000% agree. However, you can buy Southwest (and Alaska as well to a lesser extent) when they get thrown out with the big three (AA, Delta, United).

Vacation travel will get back normal levels at some point, but as others have said, Business travel has changed forever with a years worth of data/zoom meetings/working from home/other money saving expenses that have been exposed and are not coming back.

These discussions are why the finance board is the boss

Bob_C

UAL in the mid 30s back in August was the easiest buy I’ve ever made. Let it get back up to like 90% of peak, sell, wait for the next govt backed catastrophe to crater it temporarily and repeat the process.