Watch the skies before investing in airline stocks

This post was part of Equity Wednesday Issue #4

Richard Branson, the billionaire owner of Virgin Atlantic Airways, once said, “If you want to be a millionaire, start with a billion dollars and launch a new airline.” Here is a look at how stock prices of some of these deeply unlucky companies have changed since the beginning of this year.

Indigo’s share price is the least impacted amongst them all. What we don’t understand, is where this optimism in Indigo’s share price is coming from. The airlines which released quarterly results this week posted further losses to the tune of Rs.1,200 crores. To be fair, this figure is less than the loss they posted in the Q1 of this FY (Rs.2,850 crores). But it is still really significant. The total losses Indigo is about to incur this year will pretty much wipe out the entire profits they made over the last 4 years! Is the market seeing something we are not?

Let’s take a look at the skies. Here is a comparison of how many flights were in the Indian skies on different dates.

On Sunday 9th of August 2020 (3 months ago)

On Sunday 1st of November 2020 @ 10:53AM

Clearly the number of domestic flights in our skies have increased in the last 3 months. But that is only half of the story – They are still a long way to go to just match the number of flights we had in our skies a year ago. Take a look below.

On Sunday 3rd of November 2019 (1 year ago)

Also, notice there are a lot fewer flights above our seas – indicating that while domestic flights are coming back to life slowly, international flights are simply not.

Exacerbating the problem is this – it is not just that there are fewer flights in the skies, there are fewer people on board these flights. Load factor for Indigo was 65% in the most recent quarter vis-à-vis 84% during the same quarter a year ago. Here is a look at the load factor for all airlines across the country.

But here are the images that terrify CEOs of airline companies the most. Alice Springs, which is in the middle of the Australian desert, has an airport with an attached aircraft storage unit. Here is an aerial image of that storage unit about a year ago in November 2019. You can hardly see any aircraft in storage.

The same aerial image shot by a satellite last week looks like this. Those crowded white dots on the image are all aeroplanes packed up and stored.

The aircraft storage business is BOOMING! And based on our cursory view, the number of aircrafts in storage has only gone up in the last 3 months and not down! Recovery in airlines is going to take a really, really long time.

Tesla car owners keep saying, “if I’d bought Tesla shares instead of the car, my money would have tripled in the same time”. I can hear airline stock investors saying, “if I’d bought a plane ticket instead of the shares, my money would have taken me to places”. Well, may be not even that.

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