We believe the airlines will survive over the long-term, but it may take a year or two before revenues return to what they were in 2019. We believe the intrinsic values of airline stocks have been worsened by roughly 30%, but the stock prices have dived by more than 50%. Our holding, Spirit Airlines (SAVE, Financial), is among one of the best in the industry. If the airline industry does recover, we believe there would be a relatively quick recovery for Spirit Airlines, with their low-cost structure and strong balance sheet.
Nevertheless, there are still lots of uncertainties in evaluating the airline stocks right now. One big unknown is the amount of government bailout for airlines and the terms that come with it. Thus, we do not know the cost and the amount of equity dilution that shareholders may have to take on the chin. We live in a country with free enterprise, and the intrinsic value of companies should be dictated by economic fundamentals of the business in principal. However, here we are looking at Washington with our bowl in hand to determine what the business could be worth. It is just an asinine way to evaluate a business. Another way of looking at it is to push back what we thought the intrinsic value was going to be in 2023 by two or three years and then discount the value from there.
From Francis Chou (Trades, Portfolio)'s Chou Associates Fund 2019 annual letter.
