However, we’ve never seen anything quite like the drop in passenger demand that the coronavirus (COVID-19) has brought to the industry. In recent years, we’ve seen many airlines come and go, along with several airline mergers following the recession in 2008. If history tells us anything, it’s highly likely that we will see more consolidation and mergers following this economic downturn
In the U.S., the bigger they are, the more likely they will survive - United, American, Southwest, American, Delta.
The ones least likely will be the smaller, more regional airlines.
Here is one perspective on survival: https://www.airfarewatchdog.com/blo...-least-likely-to-survive-the-covid-19-crisis/
The article at the link breaks down its opinion on survivors, on-the-fence, ones that may dissolve, and the potential for consolidation and mergers:
All the ones you listed will survive, but some will be going through the bankruptcy process along the way - most likely American will be first. Delta may come after that.
Southwest has the strongest balance sheet so I bought some last week and will load up more pending earning result tomorrow.
Old quote: "If you want to make a small fortune in aviation, start with a large one." I'll stick to index funds.
Airline | Shares | Value (12/31) | Value (4/27) |
American | 42,500,000 | $1,218,900,000 | $425,850,000 |
Delta | 70,910,456 | $4,146,844,000 | $1,571,375,704 |
Southwest | 53,649,213 | $2,895,985,000 | $1,561,728,590 |
United | 21,938,642 | $1,932,575,000 | $548,466,050 |
Yesterday I saw a plane flying towards Ohare airport, it was the only one I saw or heard that day...
Normally I can look up and see 1 -> 4 planes heading there.
Live from the Berkshire Hathaway shareholders meeting, Buffett just said they have sold their entire holdings of all of those airlines mentioned in my post above.
Yes, they took a huge loss, which he admitted and took responsibility for.
Live from the Berkshire Hathaway shareholders meeting, Buffett just said they have sold their entire holdings of all of those airlines mentioned in my post above.
Yes, they took a huge loss, which he admitted and took responsibility for.
He lost 5 billion on those trades. Berkshire total worth is something like 500 billion (from shareholders meeting yesterday), so that is a 1% loss.
My NW was down a lot more than that in the month of March and April.
I expect all of the big 4 to declare bankruptcy by the end of 2020. That's the only path out for them to survive - plus they can just pull out their old play books from last time.
Which is why Southwest will have to follow the big 4? Much irony...Agreed. It is simply a matter of which one goes first - industry watchers are fairly confident that American will be the first (US Air, which bought American regularly made use of the bankruptcy process). After that, they will all follow (possibly with the exception of Southwest) - they have to. The reasoning is very simple:
- All of the airlines carry lots of debt.
- With a bankruptcy filing they get to recapitalize those debts (reduce, eliminate, refinance).
- With a bankruptcy filing they get to break contracts on outstanding plane orders and lease terms on aircraft in their fleet.
- With a bankruptcy filing they get to renegotiate their union contracts.
- When one airline does this, it immediately puts the others at a competitive disadvantage.
- As margins are thin, carrying a significantly higher debt load than the competition means that it is much more difficult to be able to match pricing ... because your financing cost structure is much higher.
American is the perfect example of what happens when you don't follow the others when they do take the bankruptcy route. American did not go the bankruptcy route after 9/11 when the other majors did. As hard as American tried, they could not compete against the others, specifically because they were still carrying all of the debt on the original terms. Ultimately, American had to file as well.
1. That was one trade/idea. I have no idea how their entire portfolio performed, but I'd guess that it did not fair much better than the S&P, or how your own portfolio performed.
2. This thread was regarding airlines. He previously decried investing in airlines from his own experience with US Air (pre-multiple bankruptcies). He said not to invest in them, but he did, breaking his own rule. He lost. The excuse that "Nobody saw this coming", etc. holds little merit as what is happening now and going forward with the airlines was a potential that was always there. It's the same justification he used for buying all those airlines - he believed there was an inherent change in the business.
3. He sold the entire position in all of the airlines. His stated preferred holding period is "forever". That didn't happen. At the meeting he answered a question saying that individual investors need to be able to handle a 50% (or more) fall or they shouldn't be investing. Hypocrisy after stating 5 minutes earlier selling of the airlines.
This is not the first time he's pitched "Do what I say, not what I do". There are other examples over the past several years. As successful as he's been over the decades, I believe he should have stepped down a while ago.
Anyhow, sorry for taking this somewhat off course. Back to the airlines...they are not a good place to invest - Warren just confirmed that.