Airline Stocks: Making the Connection

Why airlines? XAL: NYSE Arca Airline ETF Yahoo finance

Back to basics Airline bankruptcies in recent years Fundamental challenges Fuel prices volatile Fare wars break out frequently Capital-intensive Complicated business model Mother Nature interference

Confessions of an aeroholic: Warren Buffett Warren Buffett is skeptical! “seriously, the airline business has been extraordinary… …It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.” I have an 800 number now that I call if I get the urge to buy an airline stock. I call at 2 in the morning and I say: 'My name is Warren, and I'm an aeroholic.' And then they talk me down.”

Terrible decade: Fuel analysis ?

Asian strength

Positive Point Worst is over: Passenger revenue up 1.4% in January 2010 ↑ seasonal travel ↑ financial footing ↑ capacity constraint & cost controls Low cost carriers (LCCs) creating new markets Government support for state-owned airlines

China flying high Citi 2010 forecast 18% air-travel growth for Chinese airlines Evidence:14% passenger growth already in first two months Momentum to the The Shanghai World Expo:70 million visitors. Chinese airlines elevating competitiveness Balance-sheet restoration Network optimization Operating efficiency improvement Embracing global airline alliances State help: Domestic consolidation opportunities As such, the [mainland Chinese airlines] sector looks interesting with many positive features," Citigroup analysts Ally Ma and Brian Lam

China Southern Airlines Co Ltd 1055:HKG China’s biggest carrier Outperformed HIS Balance Sheet: Latest price: 3.47 HKD Market Cap: 6.11bn P/E (ttm): 7.60 EPS (ttm): Financial Times

Opinions on investment OK to long winners 2010: Global outlook –only way is UP ↑ seasonal travel ↑ global economy ↑ capacity constraint & cost controls Caution (or short) for industry as a whole Fundamental issues remain