Author Topic: Thoughts on Southwest? (Airlines)  (Read 855 times)

BoostJunky

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Thoughts on Southwest? (Airlines)
« on: January 29, 2021, 04:52:32 PM »
These guy did well compared to other airlines in handling the pandemic with passengers. With the vaccine out and people thinking it will be safer to travel this year (coupled with most people have been home for almost a year now) this one seems like a good one to buy and hold at this point.

The government won't let the airlines fail and this one sitting at $43 might be a good entry point.

Speculation of course.

Duke03

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Re: Thoughts on Southwest? (Airlines)
« Reply #1 on: January 29, 2021, 05:26:16 PM »
I liked it a lot more when it was in the 30's, but I wouldn't be mad at you if you bought and wanted to hold long term.  I love the company and own it myself.  If it drops back into the 30s I'll buy more.

MustacheAndaHalf

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Re: Thoughts on Southwest? (Airlines)
« Reply #2 on: January 29, 2021, 10:55:47 PM »
The Beatles had conflicting advice for your question.  They said "all you need is LUV", suggesting you buy Southwest Airlines (LUV), but they also claimed "money can't buy me LUV"...

Southwest Airlines (LUV) is down -21.3% in the past 12 months, so a full recovery would gain +27% (.787 x 1.27 = 1.00) on the stock price.
EDIT: I'm making another post to correct these numbers.

If you'd rather SAVE for retirement, there's Spirit Airlines (SAVE) that is down -39% from a year ago, offering +64% gains if they make a complete recovery.

Or you could go AAL in.... I'll show myself out.
« Last Edit: January 30, 2021, 04:02:36 PM by MustacheAndaHalf »

celerystalks

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Re: Thoughts on Southwest? (Airlines)
« Reply #3 on: January 30, 2021, 02:51:16 AM »
I used to be a diehard Southwest passenger. Then they pulled out of EWR. Now they are dead to me. I would not be surprised if they lost a huge amount of customer loyalty due to this move. Also pulling out of EWR is not the sign of a healthy airline.

reeshau

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Re: Thoughts on Southwest? (Airlines)
« Reply #4 on: January 30, 2021, 06:11:46 AM »
The government won't let the airlines fail and this one sitting at $43 might be a good entry point.

Collectively, the government won't let "the airlines" fail, as in air travel.  But It's absurd not to look back and see how many airlines have failed in the US.  In fact, a majority of the airlines now flying have failed--that is, gone bankrupt, wiped out their shareholders, and started with a fresh group of debtholders + gov't as new equity.

Southwest is an exception to that, but it is not by divine right.  The airline business is inherently risky.  I do think their focus on leisure travel and domestic travel are plusses looking at the likely demand recovery, but all airlines just need volume to return to any level of profitability.  And that's still a big if.  Summer bookings look great right now, but they can all be cancelled if there isn't enough vaccine distributed, each person is required to add a $100 test each way, or a new variant evades the vaccines.

JetBlast

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Re: Thoughts on Southwest? (Airlines)
« Reply #5 on: January 30, 2021, 09:44:11 AM »
I used to be a diehard Southwest passenger. Then they pulled out of EWR. Now they are dead to me. I would not be surprised if they lost a huge amount of customer loyalty due to this move. Also pulling out of EWR is not the sign of a healthy airline.

With the airline short on aircraft due to the 737Max grounding Southwest had to choose markets a little more carefully and decided they had better opportunities for the available aircraft. EWR is a very expensive airport at which to operate.

BoostJunky

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Re: Thoughts on Southwest? (Airlines)
« Reply #6 on: January 30, 2021, 10:38:04 AM »
The Beatles had conflicting advice for your question.  They said "all you need is LUV", suggesting you buy Southwest Airlines (LUV), but they also claimed "money can't buy me LUV"...

Southwest Airlines (LUV) is down -21.3% in the past 12 months, so a full recovery would gain +27% (.787 x 1.27 = 1.00) on the stock price.

If you'd rather SAVE for retirement, there's Spirit Airlines (SAVE) that is down -39% from a year ago, offering +64% gains if they make a complete recovery.

Or you could go AAL in.... I'll show myself out.

I agree with these sentiments and always like your posts.

celerystalks

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Re: Thoughts on Southwest? (Airlines)
« Reply #7 on: January 30, 2021, 10:51:00 AM »
I used to be a diehard Southwest passenger. Then they pulled out of EWR. Now they are dead to me. I would not be surprised if they lost a huge amount of customer loyalty due to this move. Also pulling out of EWR is not the sign of a healthy airline.

With the airline short on aircraft due to the 737Max grounding Southwest had to choose markets a little more carefully and decided they had better opportunities for the available aircraft. EWR is a very expensive airport at which to operate.

Expensive for a good reason. It services Northern NJ, eastern PA, as well as NYC. Southwest already serviced LI by Islip. Instead of dropping LGA and keeping EWR, they did the opposite. So have two destinations east of the city and none to the west.

No self respecting New Jerseyan would be caught dead flying out of LGA. I had to cancel flight reservations due to this change in 2019. The guy on the phone at Southwest was trying to tell me that LGA was just as convenient as EWR where I had originally booked the tickets.  Clearly Southwest is clueless to what NYC traffic is like and that the bridge/tunnel tolls alone make it uneconomical to buy Southwest ticket and fly out of LGA for anyone west of the city. Add to this that LGA has a reputation for being a dangerous airport due to all the birds and the short runways which basically have planes barely lifting off before splashing into the LI sound. No thank you.

This decision was made by bean counters sitting in boards rooms looking a geographic maps. It did not take into account the realities of what people will and wonít do in Ny metro region.

They should have dropped LGA and kept Islip and EWR.


MustacheAndaHalf

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Re: Thoughts on Southwest? (Airlines)
« Reply #8 on: January 30, 2021, 04:09:37 PM »
BoostJunky - Thanks, although after Covid recovery I plan to have more boring investments, so there probably won't be as many posts like that one.

---
I'd like to change my earlier sentiment - avoid the airlines, I was wrong about the recovery numbers.  Yes, the stock price as of a year ago was correct - but all of the airlines have diluted their stock, which reduces the recovery.

For example, Southwest Airlines started 2020 at $54.38/sh, but since then they added 14% more shares which now share the company's market cap and earnings.  So for calculating a recovery, that $54.38 needs to be divided by 1.141 to get $47.66/sh.  With dilution calculated in, LUV only has 8.5% in a recovery...

SAVE's 1.428 dilution leaves it only 9.9% away from a full recovery
Dividing AAL's starting price of 2020 by 1.459 gives +15.7% until recovery.

With dilution factored in, there isn't much room for recovery in airline stocks.

reeshau

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Re: Thoughts on Southwest? (Airlines)
« Reply #9 on: January 30, 2021, 05:52:45 PM »
BoostJunky - Thanks, although after Covid recovery I plan to have more boring investments, so there probably won't be as many posts like that one.

---
I'd like to change my earlier sentiment - avoid the airlines, I was wrong about the recovery numbers.  Yes, the stock price as of a year ago was correct - but all of the airlines have diluted their stock, which reduces the recovery.

For example, Southwest Airlines started 2020 at $54.38/sh, but since then they added 14% more shares which now share the company's market cap and earnings.  So for calculating a recovery, that $54.38 needs to be divided by 1.141 to get $47.66/sh.  With dilution calculated in, LUV only has 8.5% in a recovery...

SAVE's 1.428 dilution leaves it only 9.9% away from a full recovery
Dividing AAL's starting price of 2020 by 1.459 gives +15.7% until recovery.

With dilution factored in, there isn't much room for recovery in airline stocks.

Plus, all the asset-secured debt, adding to the risk relative to a year ago.

JetBlast

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Re: Thoughts on Southwest? (Airlines)
« Reply #10 on: January 30, 2021, 10:06:05 PM »
BoostJunky - Thanks, although after Covid recovery I plan to have more boring investments, so there probably won't be as many posts like that one.

---
I'd like to change my earlier sentiment - avoid the airlines, I was wrong about the recovery numbers.  Yes, the stock price as of a year ago was correct - but all of the airlines have diluted their stock, which reduces the recovery.

For example, Southwest Airlines started 2020 at $54.38/sh, but since then they added 14% more shares which now share the company's market cap and earnings.  So for calculating a recovery, that $54.38 needs to be divided by 1.141 to get $47.66/sh.  With dilution calculated in, LUV only has 8.5% in a recovery...

SAVE's 1.428 dilution leaves it only 9.9% away from a full recovery
Dividing AAL's starting price of 2020 by 1.459 gives +15.7% until recovery.

With dilution factored in, there isn't much room for recovery in airline stocks.

Not all airlines. Alaskaís shares outstanding are up year-over-year by less than 1%. Delta and JetBlue both have lower outstanding share count from a year ago.

I used to be a diehard Southwest passenger. Then they pulled out of EWR. Now they are dead to me. I would not be surprised if they lost a huge amount of customer loyalty due to this move. Also pulling out of EWR is not the sign of a healthy airline.

With the airline short on aircraft due to the 737Max grounding Southwest had to choose markets a little more carefully and decided they had better opportunities for the available aircraft. EWR is a very expensive airport at which to operate.

Expensive for a good reason. It services Northern NJ, eastern PA, as well as NYC. Southwest already serviced LI by Islip. Instead of dropping LGA and keeping EWR, they did the opposite. So have two destinations east of the city and none to the west.

No self respecting New Jerseyan would be caught dead flying out of LGA. I had to cancel flight reservations due to this change in 2019. The guy on the phone at Southwest was trying to tell me that LGA was just as convenient as EWR where I had originally booked the tickets.  Clearly Southwest is clueless to what NYC traffic is like and that the bridge/tunnel tolls alone make it uneconomical to buy Southwest ticket and fly out of LGA for anyone west of the city. Add to this that LGA has a reputation for being a dangerous airport due to all the birds and the short runways which basically have planes barely lifting off before splashing into the LI sound. No thank you.

This decision was made by bean counters sitting in boards rooms looking a geographic maps. It did not take into account the realities of what people will and wonít do in Ny metro region.

They should have dropped LGA and kept Islip and EWR.



It isnít surprising that a reservation agent isnít familiar with traffic patterns in New York City, but you can be sure the network planners and revenue managers at every major airline in the US are.  Itís a core part of their job.

When Southwest was deciding whether to leave EWR they would have pulled data from all the itineraries originating at the airport and examined the residential data in credit card purchases to get a good feel of exactly where their EWR outbound passengers live. They would analyze deeper by looking at things like frequent flier program data and what fares were paid by area to determine the relative value of passengers in each area and correlate that with information about transportation in the region. Theyíd model what amount of that traffic and revenue could be expected to consider alternative airports like LGA and PHL, and what amount will stick with EWR and choose another airline.

At the end of that they determined the best scenario for them was to leave EWR and redeploy assets elsewhere in their network.

MustacheAndaHalf

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Re: Thoughts on Southwest? (Airlines)
« Reply #11 on: January 31, 2021, 09:33:05 AM »
BoostJunky - Thanks, although after Covid recovery I plan to have more boring investments, so there probably won't be as many posts like that one.

---
I'd like to change my earlier sentiment - avoid the airlines, I was wrong about the recovery numbers.  Yes, the stock price as of a year ago was correct - but all of the airlines have diluted their stock, which reduces the recovery.

For example, Southwest Airlines started 2020 at $54.38/sh, but since then they added 14% more shares which now share the company's market cap and earnings.  So for calculating a recovery, that $54.38 needs to be divided by 1.141 to get $47.66/sh.  With dilution calculated in, LUV only has 8.5% in a recovery...

SAVE's 1.428 dilution leaves it only 9.9% away from a full recovery
Dividing AAL's starting price of 2020 by 1.459 gives +15.7% until recovery.

With dilution factored in, there isn't much room for recovery in airline stocks.
Not all airlines. Alaskaís shares outstanding are up year-over-year by less than 1%. Delta and JetBlue both have lower outstanding share count from a year ago.
Those are good examples of potential gains in a full recovery.
Alaska Airlines (ALK) with 1.008 dilution could gain +39%
JetBlue (JBLU) with 1.114 dilution could gain +18%
Delta Airlines (DAL) with 0.992 dilution could gain +56%

I used y-charts to lookup the share dilution, so if you have another source I'd be curious to see that (especially since y-charts charges steep membership rates for full access to their site).
https://ycharts.com/companies/JBLU/shares_outstanding

Of those 3, I'd probably go with Alaska Airlines (which I owned last year, but sold to diversify away from too many airline-related stocks).  They haven't diluted much, and their price/book (2) and debt/equity (1.6) are reasonable.  Although Delta offers a bigger recovery, the 18 price/book and 12 debt/equity ratio signal that Delta would probably go bankrupt before the others.

JetBlast

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Re: Thoughts on Southwest? (Airlines)
« Reply #12 on: January 31, 2021, 09:43:43 AM »
BoostJunky - Thanks, although after Covid recovery I plan to have more boring investments, so there probably won't be as many posts like that one.

---
I'd like to change my earlier sentiment - avoid the airlines, I was wrong about the recovery numbers.  Yes, the stock price as of a year ago was correct - but all of the airlines have diluted their stock, which reduces the recovery.

For example, Southwest Airlines started 2020 at $54.38/sh, but since then they added 14% more shares which now share the company's market cap and earnings.  So for calculating a recovery, that $54.38 needs to be divided by 1.141 to get $47.66/sh.  With dilution calculated in, LUV only has 8.5% in a recovery...

SAVE's 1.428 dilution leaves it only 9.9% away from a full recovery
Dividing AAL's starting price of 2020 by 1.459 gives +15.7% until recovery.

With dilution factored in, there isn't much room for recovery in airline stocks.
Not all airlines. Alaskaís shares outstanding are up year-over-year by less than 1%. Delta and JetBlue both have lower outstanding share count from a year ago.

I used y-charts to lookup the share dilution, so if you have another source I'd be curious to see that (especially since y-charts charges steep membership rates for full access to their site).
https://ycharts.com/companies/JBLU/shares_outstanding


I just went to their investor relations sites and looked at the Q4 2020 earnings releases. Each has a year over year comparison and in the income statement section lists shares outstanding used in computing earnings per share.

MustacheAndaHalf

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Re: Thoughts on Southwest? (Airlines)
« Reply #13 on: January 31, 2021, 10:22:16 AM »
I looked at quarterly earnings reports for SAVE and JBLU.  For Spirit Airlines (SAVE), the numbers are very close between earnings reports and y-charts.

Normally I'd trust the quarterly earnings report of JBLU, since it's made under penalty of perjury, while I doubt y-charts guarantees their numbers.  But in this case, JetBlue's own website admits their underwriting 40.25 million shares, which closely matches y-charts numbers but is ignored in the quarterly earnings report.
http://mediaroom.jetblue.com/investor-relations/press-releases/2020/12-01-2020-213514063

According to J.P. Morgan, only Delta and Alaska have been able to avoid material dilution of their shares.  Hm, it might be time to unload my Spirit Airlines call options, and consider Alaska shares/calls instead.

reeshau

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Re: Thoughts on Southwest? (Airlines)
« Reply #14 on: January 31, 2021, 10:53:03 AM »
That's "weighted average shares outstanding" at work.

(272.4M shares (as of Sept. 30) *2 (months--Oct and Nov) + (272.4+ 40.25M shares offered) * 1 month (Dec) ) / 3 = 285.8

Give or take doing this on a daily basis since it happened Dec 4, and you get the reported average 284.1M shares for Q4.

That's why the financial statements themselves can be tricky at times like this. The 10Q or 10K will say the actual shares outstanding as of the end of the period.

JetBlast

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Re: Thoughts on Southwest? (Airlines)
« Reply #15 on: January 31, 2021, 12:19:51 PM »
Normally I'd trust the quarterly earnings report of JBLU, since it's made under penalty of perjury, while I doubt y-charts guarantees their numbers.  But in this case, JetBlue's own website admits their underwriting 40.25 million shares, which closely matches y-charts numbers but is ignored in the quarterly earnings report.
http://mediaroom.jetblue.com/investor-relations/press-releases/2020/12-01-2020-213514063


Fair enough.  Looks like JBLU diluted their investors too.

I didnít take a look at other news releases, just quickly grabbed the earnings releases for Q4.

MustacheAndaHalf

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Re: Thoughts on Southwest? (Airlines)
« Reply #16 on: February 01, 2021, 05:42:10 AM »
That's "weighted average shares outstanding" at work.

(272.4M shares (as of Sept. 30) *2 (months--Oct and Nov) + (272.4+ 40.25M shares offered) * 1 month (Dec) ) / 3 = 285.8

Give or take doing this on a daily basis since it happened Dec 4, and you get the reported average 284.1M shares for Q4.

That's why the financial statements themselves can be tricky at times like this. The 10Q or 10K will say the actual shares outstanding as of the end of the period.
Thank you for pointing that out!  I found it really puzzling and annoying, and your explanation (and calculation) make sense.  That helps reconcile the quarterly reports with what I see on ycharts.

And it matters - I'm now ready to sell Spirit Airlines call options, where before I thought they had more room before they recovered.

One systemic risk for investors in airline stocks is the way bankruptcies spread.  If Delta has to charge more for tickets to be able to pay it's debts, then tickets cost more.  If Delta goes bankrupt, discharging it's high debt load, it can now be profitable at lower ticket prices.  That puts pressure on other airlines to go bankrupt, and gain the benefit of restructuring their debts.

ChpBstrd

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Re: Thoughts on Southwest? (Airlines)
« Reply #17 on: February 01, 2021, 10:09:51 AM »
I'm thinking the least-diluted airlines, plus XLE (energy ETF), are the way to profit from the imminent end of the pandemic. There are some juicy deals on put options for both.

I'm very much feeling a desire to fly somewhere and burn a bunch of fossil fuels right now.