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Mark Yu
Mark Yu
Articles (412)  | Author's Website |

Being the Largest Airline in Your Homeland Does Not Guarantee Investment Returns

Airlines that have beaten market expectations and generated good balance sheet figures have not been cheered for

August 29, 2019 | About:

Taking a large number of passengers to and from their desired destinations does not automatically earn investors' approval. In addition, large airlines globally have failed to outperform the market despite the favorable fuel price this year. The nearly five-month-long Boeing (BA) 737 Max suspension has not helped either.

Starting with the world’s largest passenger carrier, American Airlines (NASDAQ:AAL) has fallen 36% in the past 12 months despite having flown nearly 200 million people flown last year. Despite beating earnings expectations in its recent quarter and its previous thoughts that it "will never lose money again," the highly indebted airline company has yet to climb out of its depressed stock price. American Airlines reported $34.7 billion in debt with $5.3 billion in cash in its recent quarter.

Second place Delta Air (NYSE:DAL), meanwhile, has returned a 2% loss to its shareholders in the past year. Like American Airlines, Delta has beaten market expectations in its recent quarter but also reported a better balance sheet situation than the former with a debt-equity ratio of 0.72. In addition, Delta expects strong 22% earnings-per-share growth for this fiscal year.

The world’s third-largest airline Ryanair (NASDAQ:RYAAY) has followed American’s performance having provided a 43% loss to its shareholders in the past year. Europe’s largest airline has also beaten market expectations recently and has a good balance sheet standing in its recent quarter. Despite these positives, Ryanair has faced strikes in the Brexit-plagued U.K. and also had to cut its summer outlook brought by delayed Boeing 737 Max deliveries and grounding. Ryanair generated 23% of its sales last year from the U.K.

China Southern Airlines (NYSE:ZNH), China’s largest airline, also has dropped 19% in the past 12 months while the country’s second placer China Eastern Airlines (NYSE:CEA) has fared worse, being down 27% in the same period. Both airlines are heavily indebted while their corresponding earnings are expected to drop 50-55% this fiscal year.

In other countries, Germany’s Lufthansa has lost nearly 40% just in the past six months, Hong Kong’s Cathay Pacific (NASDAQ:CATY) has dropped 23% in the past year with a nearly 12% decline just in the past month brought about by the never-ending protests. Unfortunately, Cathay seems to be at the bull's eye of some protestors after firing employees linked to the ongoing protests.

An outlier among the bunch is the Philippines Cebu Air (CEBUF). Shares of the Philippines' largest airline operator have climbed a little more than 40% in the past year despite a "fat finger" incident last month that made its stock drop 37% in one day. The highly leveraged airline also seeks to grow its fleet by 20% in the near future. The company had 122 billion pesos in debt with 23 billion pesos in cash in its recent quarter.

Publicly listed airlines across the world have yet to generate positive investment returns broadly despite being faced with tailwinds of lower jet fuel price, down 17% so far this year, and high-spending millennials that most value their Instagrammable travel destinations rather than spending for tangible materials.

Disclosure: I do not own any shares in any of the companies mentioned.

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About the author:

Mark Yu
I'm a doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

I attempt to dissect one company filing every day. I dislike goodwill and intangible assets.

One company (review) a day keeps the speculation (hopefully) away.

"The only source of knowledge is experience."

"I have no special talent. I am only passionately curious." - Albert Einstein

"To strive, to seek, to find, and not to yield." - Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." - Warren Buffett

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