AIRLINES: They are usually considered some of the riskiest stocks. With a miserable long term performance record. Virgin Atlantic founder Richard Branson is quoted saying the quickest way to become a millionaire in the airline business is to start out as a billionaire. But this has been changing. The industry has consolidated and become more disciplined. This even attracted Warren Buffett for a while. Airline stocks are now outperforming out of the pandemic. The big demand recovery much further to go. Consumers are prioritising travel. Airlines are charging higher fares. This helps the whole industry. From the airlines (like JETS), to airports (FRA.DE), plane (BA, AIR.PA) and engine makers (GE, RR.L), to duty free (DUFN.ZU). See @TravelKit.
PROFITS: Global airlines are expected to post their first profits since the 2020 pandemic this year. But the $4.7 billion forecast, equal to a tiny 0.6% margin, is -80% from the pre pandemic $26.4 billion, a 3.1% margin. This comes after $187 billion of industry losses, and a net 18 bankruptcies, the past 3 years. Pent-up passenger demand, still 25% below pre-pandemic, and 8% average price rises, is now offsetting slower GDP growth and higher jet fuel and wage costs.
ASIA: US airlines recovered the fastest. Demand is seen near pre-covid levels by end this year after a quick lockdown easing. Whilst prices are 10% higher given the consolidated industry. European demand is seen 10% lower vs pre-pandemic by end 2023. Whilst Asia lags given the only recent end of China’s covid lockdown. Demand is seen 30% lower as it only slowly again becomes world’s biggest air market. Jet fuel demand is a proxy for global travel and forecast to rise 25% this year (see chart). The big four US airlines are trading at an average 7.7x P/E ratio.
All data, figures & charts are valid as of 02/03/2023