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Airline Stocks: Making the Connection

Airline Stocks: Making the Connection. Why airlines?. XAL: NYSE Arca Airline ETF. Yahoo finance. Back to basics. Airline bankruptcies in recent years F undamental challenges Fuel prices volatile Fare wars break out frequently Capital -intensive C omplicated business model

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Airline Stocks: Making the Connection

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  1. Airline Stocks: Making the Connection

  2. Why airlines? • XAL: NYSE ArcaAirline ETF Yahoo finance

  3. Back to basics • Airline bankruptcies in recent years • Fundamental challenges • Fuel prices volatile • Fare wars break out frequently • Capital-intensive • Complicated business model • Mother Nature interference

  4. Confessions of an aeroholic: Warren Buffett • Warren Buffett is skeptical! • “seriously, the airline business has been extraordinary… • …It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.” • I have an 800 number now that I call if I get the urge to buy an airline stock. I call at 2 in the morning and I say: 'My name is Warren, and I'm an aeroholic.' And then they talk me down.”

  5. Terrible decade: Fuel analysis ?

  6. Asian strength

  7. Positive Point • Worst is over: Passenger revenue up 1.4% in January 2010 • ↑ seasonal travel • ↑ financial footing • ↑ capacity constraint & cost controls • Low cost carriers (LCCs) creating new markets • Government support for state-owned airlines

  8. China flying high • Citi2010 forecast 18% air-travel growth for Chinese airlines • Evidence:14% passenger growth already in first two months • Momentum to the The Shanghai World Expo:70 million visitors. • Chinese airlines elevating competitiveness • Balance-sheet restoration • Network optimization • Operating efficiency improvement • Embracing global airline alliances • State help: Domestic consolidation opportunities • As such, the [mainland Chinese airlines] sector looks interesting with many positive features," Citigroup analysts Ally Ma and Brian Lam

  9. China Southern Airlines Co Ltd 1055:HKG • China’s biggest carrier • Outperformed HIS • Balance Sheet: • Latest price: 3.47 HKD • Market Cap: 6.11bn • P/E (ttm): 7.60 • EPS (ttm): 0.457 http://finance.yahoo.com/q?s=1055.HK Financial Times

  10. Opinions on investment • OK to long winners • 2010: Global outlook –only way is UP • ↑ seasonal travel • ↑ global economy • ↑ capacity constraint & cost controls • Caution (or short) for industry as a whole • Fundamental issues remain

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