Dear Reader,
When it comes to air travel stocks, I've largely stayed away from the fray.
Historically, these companies are poorly run. Executives spend their cash flow on stock buybacks at a reckless pace.
They never seem to have a rainy-day fund in any situation.
When the economy and the market go south, airline executives are typically the first to hold an empty palm out to American taxpayers.
If there is an industry that should not have buybacks, it's the airline industry.
It's tough to run an airline company in the first place. It's very capital intensive; it's highly competitive, it's a massive labor headache (pilots are always striking or at least talking about it), and it's extremely regulated. Margins are tight. Balance sheets typically hold a lot of debt.
Yet, in 2021, entrepreneurs have been busy. More than 90 airlines have launched around the world in 2021. From executive charters to puddle jumpers between neighboring countries, a lot of money flows into this sector. The trend deserves exploration.
Of the more than 90 new airline firms, not everyone will survive.
The one that has the best chance is
Breeze Airways, which David Neeleman founded. He also founded
JetBlue (
NASDAQ:JBLU)
and
Azul (
NYSE:AZUL). This guy likes planes. Perhaps a little too much? But I am very intrigued by the company's approach, and I think it will be successful.
By connecting second-and third-tier U.S. airports, he's going to exploit a very successful business model from Europe that is championed by a firm called
Volotea.
The company will have 16 cities on its map by mid-July and fly routes like Tampa to Charleston, Tampa to Louisville, and Charleston to Hartford. This focus will allow travelers from having to fly through large hubs like Atlanta when traveling between these destinations.
Trust me, there is nothing I hate more when traveling than flying through Atlanta and having to walk a half-marathon to get to my connecting gate. (East coast travelers, rejoice!)
We'll watch this company because Breeze could easily find itself going public through a Special Purpose Acquisition Company (SPAC) or IPO in the future.
The other thing that is important about this firm is that it will put a lot of pressure on firms like
Frontier Airlines (
NASDAQ:ULCC),
Spirit Airlines (
NYSE:SAVE), and even
Southwest Airlines (
NYSE:LUV). This is something to watch for the future.
A Party in the SkyIt turns out that there will likely be plenty of demand to satisfy everyone soon. CBS News noted today that more than 37 million Americans are likely to travel this Memorial Day – a 60% jump from last year. And a lot of people are jumping on planes.
Airlines are using this industry as a "Welcome Back" to travelers. Airlines are ramping up their travel plans and schedule, but it seems that everyone is looking to expand their routes. This feels like a "rising tide lifts all boats" situation.
But rather than tap into airline companies, I want to look a little deeper for opportunities. I think there is potential in the infrastructure itself and some of the companies that cater to these larger airlines. I'll start digging into this trend in the week ahead and report back if I discover any exciting opportunities.
Best,
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