Airlines - Which Survive Without Going Through Bankruptcy

[augam]

No doubt they have beaten down at some point the demand for travel will increase.

That being said which of the airlines is likely to make it through without going through bankruptcy.

 

[jollystomper]

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:

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

 

[njhowie]

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.

 

[ivinsfan]

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.

They will use it to clean things up as they did after 9/11..my brother who works in Delta ground opps..had his pension frozen as a result of the last one.. They always forget to mention this when they brag about "employee profit sharing bonuses".

 

[targatom2019]

Southwest has the strongest balance sheet so I bought some last week and will load up more pending earning result tomorrow.

 

[Walt34]

Old quote: "If you want to make a small fortune in aviation, start with a large one." I'll stick to index funds.

 

[njhowie]

Southwest has the strongest balance sheet so I bought some last week and will load up more pending earning result tomorrow.

They're all dangerous at this time.

Southwest has the biggest exposure, expenses, and risks at this time related to the 737MAX - the company has staked it's future on the plane.

 

[njhowie]

Old quote: "If you want to make a small fortune in aviation, start with a large one." I'll stick to index funds.

For years and years Buffett steered clear of the airlines because he lost so badly with US Air decades ago. He said over and over how terrible the business was and he would stay clear of the sector. Fast forward a few years, and he's breaking his own rules. A few weeks ago, he was unloading Delta shares at a hefty loss. He has stakes in a number of airlines at this time, and is losing badly on all of them.

Here's a list of the airline holdings of Berkshire as of Dec 31:

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

 

[Bamaman]

In the best of times, airlines are marginally profitable for the extremely capital intensive business they're in.

And it'd be the last industry I'd want to invest in because so few really do a good job at what they do. Think about the customer ratings and opinions of most of the big legacy carriers.

Looks like Virgin Atlantic may be shutting down. Norwegian Air Shuttle's on life support right now. And a number of European carriers have gone out of business in the last year.

And that was before the airline business has essentially been shut down for health reasons.

I was looking at the U.S. map of airplanes in the air last night. Within 150 miles of me, there was a medivac helicopter in the air, and not a single airplane of any kind was up. That speaks badly of the industry. I checked on a famous industrialist's tail numbers of his Gulfstream 450, and that plane has not been flown in two weeks.

 

[Sunset]

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.

 

[Montecfo]

I've never viewed airlines as anything more than a trade, other than Southwest.

 

[tdv2]

I don't have much concrete information to add here but, having been on an airplane a few times each month for almost my entire 32 year career, I really don't like airlines a whole lot. It's a tough business....watched many come, go, merge, bankrupt, you name it. I'm staying away....I will concede that there is likely some big money to be made if you select the right ones. Doing serious analysis of the financial strength of one vs. the other will help, but the way I see it, luck will play just as important a role. As it is so often said, "It's better to be lucky than good".

 

[Midpack]

Depends on how long this episode goes on. I hope they fare well but some states reopening doesn’t mean we’ve seen the light at the end of the tunnel. If there’s a brutal second wave, this could go on much longer than many think - again I hope not. There’s so much we still not sure about regarding SARS-CoV-2.

 

[HF63]

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.

I am close to Midway air port, no more early morning noise from planes
lately.

 

[njhowie]

This morning Southwest filed to issue 55 million new common shares plus $1B in senior convertible notes.

It's guaranteed that they will also post a big loss in Q2...if your load factor is at/below 10%, there's no reason to be flying - every flight is a money loser.

11:41 AM EDT, 04/28/2020 (MT Newswires) -- Southwest Airlines(LUV) warned that operating revenue could plunge up to 95% in May after a drop of a similar magnitude in April amid sharp decreases in bookings that hit results for the first quarter as the COVID-19 pandemic took hold.

Demand dropped off and the carrier said it sees operating revenue down 90% to 95% this month and again in May. Available seat miles, the measure of capacity, are seen sliding 60% annually in April with a load factor of just 6%. Capacity is poised to drop 60% to 70% in May, with a load factor of 5% to 10%.

"The revenue environment remains uncertain, and the company is unable to reasonably estimate trends beyond May 2020," the Dallas-based airline said on Tuesday.

===

Moody's Assigns Baa1 Rating To Southwest Airlines' New Convertible Senior Notes Due 2025; All Ratings Are On Review For Downgrade
DOW JONES & COMPANY, INC. 11:49 AM ET 4/28/2020

 

[Brat]

If an airline goes bankrupt or merges there go affiliated credit cards.

 

[atmsmshr]

Airlines are pretty high on my stay away from list.

IMO a Bankruptcy pool in potential order of likelihood of sectors getting culled down in size - and which will be avoided in my tiny but personal investing largesse of individual stocks or bonds.

Energy, Oil Exploration, suppliers and rail freight.
Retail Department stores, malls and commercial real estate overall
AIRLINES (only the majors survive and are badly mauled for 3-4 years)
Cruise Lines
Hotel Chains
Car Rental agencies
Restaurant chains
Movie Theaters
Heavily indebted amusement parks
Municipal bonds lacking general revenue taxation
Ship building (Tankers, cruise and freight)
Civilian (small) Airplane manufacture and suppliers
Steel makers
Residential real estate
and hopefully we don't get here again - Financial Institutions

 

[njhowie]

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.

 

[bolt]

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.

FWIW. Adding to njhowies insights.
WB seeks value investment opportunities as I’m sure history reflects.

Ive heard of airlines referred to as busses in the sky.
I’d never invest in ‘greyhound’.
But that’s me.

Good luck & best wishes......

 

[fh2000]

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.

 

[LRDave]

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.

 

[njhowie]

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.

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.

 

[njhowie]

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.

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:

1. All of the airlines carry lots of debt.
   
2. With a bankruptcy filing they get to recapitalize those debts (reduce, eliminate, refinance).
   
3. With a bankruptcy filing they get to break contracts on outstanding plane orders and lease terms on aircraft in their fleet.
   
4. With a bankruptcy filing they get to renegotiate their union contracts.
   
5. When one airline does this, it immediately puts the others at a competitive disadvantage.
   
6. 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.

 

[Midpack]

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:

1. All of the airlines carry lots of debt.
   
2. With a bankruptcy filing they get to recapitalize those debts (reduce, eliminate, refinance).
   
3. With a bankruptcy filing they get to break contracts on outstanding plane orders and lease terms on aircraft in their fleet.
   
4. With a bankruptcy filing they get to renegotiate their union contracts.
   
5. When one airline does this, it immediately puts the others at a competitive disadvantage.
   
6. 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.

Which is why Southwest will have to follow the big 4? Much irony...

 

[fh2000]

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.

Yea. He is not a saint, just another human being. In early 2000, he said never invest in Nasdaq, but he got in Apple in a big way. It is interesting, at the age of 89, he still thinks long term, or claims to be...