今日熱門

joined discussion · ·

[Industry Nuggets] Read “aviation stocks” in one article! Are current aviation stocks worth laying out?

On April 21, American Airlines released its financial report, stating that it is optimistic about the continued recovery trend. The aviation sector performed well on the same day, continuing its previous gains. Meanwhile, on April 13, US stock Delta Air Lines announced its Q1 earnings report. As performance exceeded market expectations and the optimistic outlook for the second quarter, the aviation sector continued to rebound since mid-March; at the same time, “epidemic recovery” sectors such as cruises, lodging, and hotels have also recently picked up to a certain extent.

According to statistics, the latest closing prices of American Airlines (AAL.US) and United Continental Airlines (UAL.US) have rebounded more than 50% from their lowest point in the year, Delta Air Lines (DAL.US) has rebounded more than 40%, and Southwest Airlines (LUV.US) has rebounded nearly 30%.

On the domestic side, the performance recovery of airlines is weaker than that of overseas aviation giants. They are facing a situation of “internal and external problems”. Internal worries are more disrupted by the epidemic, and external problems are restrictions on overseas travel. However, along with the weakening trend of COVID-19, there are certain expectations of recovery in the tourism industry; at the same time, after the decline in the previous two years, performance risks in the aviation sector have been released, and the sensitivity of negative losses to stock prices has tended to slow down.

However, investing in aviation stocks has never been an easy task; even stock god Buffett has followed suit in aviation stocks. This issue of “Industry Nuggets” will focus on aviation stocks. Follow popular girls to take a look at the investment logic of aviation stocks and discuss whether this wave of positive markets was a “flash in the blink of an eye” or whether it has actually ushered in an inflection point in the industry~

I. Introduction to aviation stocks

In terms of US stocks, there are many outstanding airline stocks, such as Delta Air Lines, which has been at the top of the US airline rankings for many years and has the reputation of “America's Best Flight”, has increased by more than 10% since the beginning of the year. Its published outlook for the second quarter also further sends a signal of optimism; there are also American Airlines, the airline with the largest global passenger capacity, total passenger mileage, and fleet size; as well as Alaska Airlines, Southwest Airlines, and United Airlines, which rank high in the world, and have a large scale and high quality service.

In terms of Hong Kong stocks, the three leading airlines in the industry — China Southern Airlines, Air China, and China Eastern Airlines — are also familiar and familiar, with a total market value of over HK$200 billion. At the same time, all three airlines announced expansion plans for the next three years. Among them, China Southern Airlines will have 1,025 aircraft by 2024, which will be close to Delta Air Lines, and is expected to gradually recover and grow through capital inflows; Spring Airlines, known as “leading the trend of low-cost aviation in China,” bucked the trend and expanded under the pandemic, and became the only profitable listed airline in 2021.

II.The investment logic of aviation stocks

As the saying goes, in times of crisis, hope is often nurtured. After a storm, there is a rainbow. As an industry that has been greatly affected and impacted by the pandemic, airlines have entered a deep correction since the COVID-19 outbreak in early 2020. Previously, in the context of sharp easing of US stock currencies, market capitalization still shrunk to a large extent compared to before the pandemic.

Investing in aviation stocks has never been an easy task. Even stock company Buffett has been involved in aviation stocks more than once, cutting meat to clear “all holdings” of the four major US airlines in May 2020, yet only 3 months have passed since February's firm optimism.

In the context of the lifting of travel restrictions by the US CDC, can the aviation industry, which has suffered a severe setback due to the pandemic, break out of the shadows, and can the recovery of aviation stocks be expected?

Next, let's discuss the investment logic of aviation stocks in the footsteps of popular girls

Characteristics of the air transport industry

1. High fixed costs and high economic leverage:High investment, high debt, high risk, low return.

2. Complete competitiveness:For airlines, products cannot be stored, and the value of vacancies falls straight to zero after flight take-off; for consumers, prices are transparent, and airlines cannot raise prices separately, so pricing is close to marginal costs.

3. Product homogeneity:Airline product development focuses only on the rapid and effective introduction of new seats, while ignoring personalized service. In flights operated by similar airlines (full service or low cost), the product itself is almost negligible for consumers, so ticket prices are a key determinant of consumption.

4. Strong periodicity:The aviation industry has always experienced strong cyclical expansion, prosperity, recession, and downturn. The major aviation cycle is essentially a supply and demand cycle. When there is a surplus between supply and demand, ticket prices rise, and the increment is basically converted into profit, and the civil aviation industry enters an upward cycle; when the supply-demand deficit widens, ticket prices may fall sharply, constrained by the high share of fixed costs, and airline profits will drop sharply. Thus, the relationship between supply and demand is a key influencing factor at the core of profitability.

5. Quasi-financial nature:Since aircraft are expensive, many aircraft of airline companies are obtained through financial leases or operating leases, so the aviation industry, as an industry with a high debt ratio, is very sensitive to changes in interest rates, exchange rates, and oil prices.

The basic situation of the airline

The airline business is mainly divided into passenger transport and freight, and its passenger transport business dominates. Since the pandemic, air cargo has received unprecedented development opportunities, which is a bright color for the aviation industry during the pandemic.

The supply of civil aviation is capacity, and the influencing factors can be specifically divided into the number of aircraft, the number of seats that can be sold on a single aircraft, the number of hours flown, and the speed of flight. Generally speaking, fleet size growth is the core driving force and hard constraint on aviation supply growth.

Characteristics of aviation stock investment

1. Unsuitable for long-term layout, but appropriate cyclical investment:The long-term return on investment in the aviation industry is low. In 2001-2020, the average ROE of the global aviation industry was 4.4%. The long-term average ROE of the aviation industry means that the long-term return on investment in stocks is low. In this way, aviation stocks do not have excess returns from long-term investments. However, the aviation industry is highly sensitive to macroeconomic fluctuations, and aviation demand is cyclical. Since the outbreak of the epidemic in 2022, huge losses in the global aviation industry have kept the volume of new orders and deliveries in the next few years at an all-time low; if the epidemic eases and demand recovers, the aviation industry experiences a mismatch between supply and demand, it is expected that profits will enter an upward period and drive a strong cycle of profit.

2. Look at oil prices and find the right time:In the short term, aviation demand and price elasticity are low. When fuel prices fall sharply, the decline in ticket prices is often small. Airlines enjoy the dividends of low oil prices, and profits increase dramatically, bringing about investment opportunities in aviation stocks; however, in the long run, changes in fuel costs achieve balance between supply and demand and return to average returns through capacity adjustments.

3. Standing at the present moment, how do you view the opportunities and risks of this industry?

Due to historical developments and other reasons between China and the US, there are some structural differences in transportation methods between the two countries. The automobile penetration rate in the US is very high, with characteristics such as low oil prices and no toll fees on expressways; the US aviation industry is well developed, and there are many low-cost airlines. However, domestically, the well-connected high-speed rail network, the current situation where the number of cars per capita is still low, and the higher ride cost compared to self-driving high-speed railways, etc., have brought about structural differences in travel methods.

Given the differences in domestic and US policy cycles, traffic backgrounds, and the recovery process of the epidemic, Hot Girls will discuss the current opportunities and risks of the aviation industry by market.

[Institutional Views] - Domestic Market

China Financial Corporation: In aviation growth, it is time to look at the cyclical layout and post-epidemic recovery

CICC pointed out that China's aviation industry is a typical growth cycle industry. Growth is reflected in the 2015-19 CAGR of visitors reaching 11.0%, which is 1.23 times the GDP growth rate; cyclical performance has brought about four rounds of profit growth due to a phased mismatch between supply and demand. China's aviation investment depends on residents' income in the long term, industry supply and demand in the medium term, and market expectations in the short term. The current cycle has a basis for profits to exceed expectations, so it is recommended to balance dips in the midst of short-term fluctuations.

Zheshang Securities: Aviation Big Cycle Research and Judgment Series

According to historical data, major integration in the civil aviation industry often occurs when the industry situation is sluggish, especially during periods of impact from major external crises and the promotion of national policies. China's civil aviation industry may usher in a new wave of integration. Concentration is expected to increase, and the pattern is expected to be optimized, which will help airlines seize pricing power during the boom in industry demand.

Three major airlines are recommended: The recovery of international flights may be dawning, and now, the industry has entered a structural inflection point between supply and demand. The three major airlines account for a relatively high volume of international flights. Currently, the slow recovery of international routes is dragging down performance, but the future will significantly benefit from the recovery of international routes; at the same time, the profit elasticity of the three major airlines is high due to the upward cycle of supply and demand.

[Institutional Views] - US Market

Goldman Sachs strategically bets on the travel-related recovery sector (Goldman Strategists Bet on Tourism-Linked Resilience in Recovery)

Kamakshya Trivedi, co-head of global foreign exchange, interest rate and emerging market strategy research at Goldman Sachs, analyzed: You will see a transition (of the economy) to a recovery driven by services and tourism, and once the latest Omicron wave subsides, leisure will be an important part of the recovery process.

He believes that as tourists return to tourist attractions such as beaches and mountains after nearly two years of epidemic blockade and quarantine, the economic recovery led by the manufacturing industry will shift to being driven by leisure and tourism, and he expects the tourism industry to recover in the second half of 2022.

Aviation Industry: Resuming Business (Airlines: Getting Back to Business)

Cowen aviation analyst Helane Becker also said that future demand in the aviation industry may still be strong. At the same time, she also said that fuel, labor costs, and interest costs will lead to an increase in ticket prices. 2022 will be another year with unstable results, and airlines will continue to work hard to increase the capacity of their networks.

IV. mooer's views on aviation stocks

In Niu Niuquan, as the closest observers to the market, mooer also have some very exciting investment views on the future market of aviation stocks. Let's take a quick look

@要买车买车：Coinciding with the earnings season, aviation stocks returned to gains

Although oil prices are currently rising again, aviation stocks have stopped falling or even rebounded, and are only 1% away from breaking through the March 30 high. Therefore, under normal circumstances, as the financial reports of airline stock companies are released one by one, there is an expectation that the market will pick up, so it will continue to rise. The market (aviation stocks) has weakened against the downside (rising oil prices), which is a very positive sign!

@熔断大师傅：Crude oil plummeted 12%, and this sector bucked the market and moved higher! Can aviation stocks be laid out?

Simply put, under the recovery of the epidemic, the continuous improvement in supply and demand in the industry+short-term increase in oil prices brings layout opportunities. Focusing on aviation stocks here is essentially choosing a strategy to reverse the difficult situation. Airline stocks have been sluggish for a long time since the pandemic. There is a gap in expectations here, so there is an opportunity for a game.

First, now the market is slowly starting to discuss more about the industry and the opportunities for recovering from the epidemic. In the short to medium term, the logic of recovering from the epidemic still makes sense. Second, we are optimistic about aviation. Not only is it benefiting from the recovery of the epidemic, but more importantly, we believe that within the next three to five years, domestic airlines will face very clear changes in the supply and demand pattern.

@巴伦周刊：Airline stocks soared across the board, and the NASDAQ index came out of three consecutive downturns | Barron watches US stocks

On April 13, companies such as J.P. Morgan Chase, Delta Air Lines, and BlackRock were the first to announce their results, kicking off the US stock earnings season for the first quarter of 2022. Airline stocks rose strongly after Delta Air Lines (Delta Air Lines) earnings were announced. Delta Air Lines reported quarterly losses, but said it resumed earnings in March and expects to announce second-quarter earnings. The stock closed up 6.21% to $41.02 on the same day after the earnings report was announced.

“Barron's” reports that after two years of sluggish profits, as travelers hope to make up for time lost during the COVID-19 pandemic, the time for airlines to rebound and benefit from surging travel demand in 2022 is finally coming soon.

Hot topics in aviation stocks:

US airline and cruise stocks rose collectively

US oil fell sharply again, and US aviation stocks rose higher

epilogue

After learning about the aviation industry and the investment logic of aviation stocks, what are the thoughts and gains of mooer? So here's the question:

1. Do you think the current US airline stock market is short-lived or is the real return of the king?

2. Which airline stocks are you most optimistic about, and why do you recommend them?

mooer are welcome to discuss in the comment area (no more than 300 words is recommended). Wonderful reviews will be given a chance to receive188 point reward, let's share your unique views on aviation stock investments~

Note: The above mooer, who adopted this wonderful opinion, will also be rewarded with 188 points.

Previous series of columns:

Read the “Industry Nuggets” article to understand cyclical stock investment! Can cyclical stocks still “lie back and win”?
[Industry Nuggets] How have the market's views on cyclical stocks changed this week?
Read the article “Industry Nuggets” to understand real estate stock investment! Can real estate stocks that have surged recently get on the market?
[Industry Nuggets] Energy Stock “Huashan Sword Theory” - What are the market's differences with energy stocks?

1.8M Views