Billionaire investor Warren Buffett says his company Berkshire Hathaway has sold all of its shares in the four largest US airlines.
In Fact he explained bleak prospects of airlines and answered many questions in detail related to it. Anyone invested in airlines stocks should go through the entire video and decide to stay on this counter. Even when they resume operations, doing it profitably would be a huge challenge.
//Even when they resume operations, doing it profitably would be a huge challenge//
This is already priced inâŚ
the question is, how long ?
a few more quarters of non-profitable buisness with social distancing etc is already quite priced in.
I donot think that airlines will be forced to follow social distancing for eternity and permanently hereafter.
If there is no vaccine in the near future, say 12 to 18 months, the above will become permanent as the airlines become the main source of carrier for the virus, as people move from one place to another through planes. No country will take risk, as we have seen what everyone is going through right now, the first step all countries taken was ban flight services to stop the spread of the virus.
The hardest hit countries in this pandemic are the main tourist destination countries, off course with very weak leadership, who are negligent in taking quick and decisive action at the early stage of the outbreak.
In that case also I donât think airlines will be worse off than say banks and NBFCs. And if banks and NBFCs are in trouble or expecting trouble and not lending, many other sectors like Autos and Real estate and even consumer discretionary etc will be in equal or bigger trouble.
I was reading the interview of SpiceJet CEO where he said their costs are now almost zero as they are neither flying (zero fuel cost) nor paying staff (zero salary costs).
PVR has also refused to pay rents to mall owners. They are paying employees for now but not for long I suppose.
So assuming there is zero income for airlines and movie theaters for next one year, is the worst not already priced in?
In fact specific to airlines, people are now expecting consolidation as well. Indigo should probably raise money and buyout Spicejet.
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Hello Friends,
Before making any investment, one needs to think with a mindset of business owner also, not as an investor alone. Think how can your company come out of this crises, assuming that the largest shareholders/board thinks more innovatively than you.
Between PVR and Airlines, winner will be the company which will come out of this unexpected problem more convincingly with minimum added cost pressures.
Better to avoid sector/company having high degree of cyclicality i.e subject to higher number of input variables, higher possibilities of human contact during the service, inability to square-off higher cost pressures through pricing power etc.
This crises unlike recession has more realistic bearing on human lifestyle, therefore for an investor, ground reality is a bigger guide than any excel sheet.
PVR: Conventionally, biggest risk is eating of market share by digital platforms. But second- level thinking could be that PVR enters OTT platform category (just guessing and trying to think as a business owner if my business sees severe hit)
Valuation: Current price is a consensus of market participants about current fundamentals and future earnings. Try to think what others couldnât to identify value (difference of opinion creates value). If your thesis is right, investment philosophy and risk appetite allows, and valuations are in comfort zone, then take a call on investing with pre-decided risk weights.
Like bifurcation of virus-affected zones as red, orange and green, imposing such classification on oneâs portfolio companies will not be a bad idea.
Green - Structural plays with strong fundamentals
Orange - Cyclicals (could turn red or green anytime)
Red - Risky plays with moderate possibility of turnaround.
Caveat - During extreme bull cycle, red might look orange, orange as green, and green as red as exhuberance takes over rationality.
Once categorisation is done, assign risk weights and try to achieve them in due course of time.
Good luck in your investment journey.
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Airlines have several other costs than fuel and staff salary.They are office rentals, aircraft leases if dry/ wet lease, interest on loans, aircraft routine/schedule checks, parking areas rentals and many others. Any statement needs to be accepted with caution as no one would reveal itâs weaker side especially when goings are tough.
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The fastest way to transport Cargo is through air freight. Almost all of Indigos aircraftâs are similar in configuration and well positioned to scale up and repurpose to fly cargo on demand. Indigo has already been flying passenger-less passenger aircraftâs over the last few weeks to Middle East, Singapore and Male. This may not move the needle much from revenues perspective but something to ponder upon in terms of future possibilities and changes to the business model, factoring lower fuel prices.
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Interglobe Hotels Pvt Ltd. has opted for moratorium. Please note that it is not owned by Interglobe Aviation, but is 60% owned by Interglobe group and 40% by Accor group. Basically, its a promoter company.
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CNBC interview (https://www.youtube.com/watch?v=qd-fGakAfKY)
- Cannot cover leasing cost with the current operations, looking to cover variable costs
- Paying the leasing costs and all other bills
- Replacing old airplanes which require higher maintenance with newer planes
- No debt on balance sheet, debt shown is lease obligations (in USD)
- International margins are higher
- COVID changes: There might be more focus on non-stop international flights which is beneficial for Indigo
- Owns some planes and engines which they are planning to sell to leasers (& lease back from them) and raise money
- Witnessed significant cargo and charter flight demand; Evacuation flights do not make money
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Delta CEO says that approximately 500 Delta employees contracted COVID, out of them 10 passed away. This is a useful data point to keep in mind, specially when we gets such a news piece for Indian airlines.
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Hi. Currently a lot of Indigo planes would be grounded. Any idea if Indigo has to pay any parking charges to the airports where the planes are grounded?
Yes,the charges for parking are payable, scheduled checks need to b carried out on planes, aircraft leases if leased need to be paid. Its another matter if govt relaxes on the amount of parking charges to b paid.
Thanks for this info Atul. Do you know what are the parking charges? I have read about lease payments and I have understood how much of a hit can they be. But I am not sure about parking charges.
For the quarter ending March 2020, Airport fees and charges is Rs 723.4 crore.
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I have a basic query. How should we look at Lease obligations from a valuations perspective? Are these akin to interest payments? For e.g from FY19 Annual Report notes, under lease obligations -
I assume these Lease interest costs are included in the Income statement like so.
Here the Interest accretion on provisions are mostly the provisions for future interest on lease payments I suppose? These seem to form the biggest component of the interest expenses. If my assumption is correct, can we look at Interest Accretion on provisions per ASK?
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Is there any data on how much of aviation traffic is business traffic and how much is tourism?
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