innerscorecard Posted August 1, 2015 Share Posted August 1, 2015 I have just begun to study the airline industry. Just yesterday, in fact. These are the big picture issues I would like to understand before I start looking at any specific companies. (A lot of the questions below pertain to the US domestic industry specifically.) - What are all the relevant laws and regulations? (Airline Deregulation Act, Airline Relief Act, etc) Any changes on the horizon? - What's the correct look-back period for trying to understand industry dynamics? The time since US deregulation? Or the '30s/birth of the industry? - What have been the dynamics of every cycle to date? Have there been enough cycles to expect those dynamics to continue in the same fashion? - When do investment theses about players in an industry acting rationally work or not work? Is the number of players in an industry/difficulty of entrant the only determining factor? When have new-normal/consolidation stories failed, in other industries? - Are dynamics in other countries' airline industries relevant/useful in understanding the US airline industry? - What are the consensus sources of wisdom on analyzing the industry's history and dynamics? - Why are the standard metrics (PRASM, etc) the ones used? - What is the appropriate level of debt/capital structure for different types (legacy, low cost carrier, etc) of airlines? - If airlines eventually end up competing themselves to death with overcapacity, does the cost of this competition cause value to accrue somewhere else? (companies like Transdigm?) Re: Oil As An Input - Historically, for analysis of industries with a big oil input (as airlines are now) what's been the best way to forecast the price as oil? Assume the current price? Simply be conservative and use the current price as a best-case base case? - If the price of oil as an input drops for a long period of time, will other costs end up eating that all away (ie wage increases, bad capital allocation)? - What is the logic behind hedging or not hedging this cost? Thoughts? I'm sure I'm going at it ass-backwards compared to people who actually understand the industry, but I need to make sure I can dumb things down for my low level. I found the below post from The Red Corner, which I found useful in its simplicity: "Airlines are priced using EV/EBITDAR where: EV = net debt + market cap + (aircraft rent x 8) + pension deficit EV/EBITDAR will tell you what the market price of the airline is. What it is worth, however, is going to depend on all the usual factors: the riskiness of the cash flows which, in turn, is going to depend on its competitive position route-by-route and on its fixed charge cover at the bottom of the cycle. Airlines are hard because the often combine operating leverage and financial leverage. In the past, and for most, that has meant that bk was just a matter of time." Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted August 2, 2015 Share Posted August 2, 2015 Here's what I have on the airline industry. Hopefully it is useful. * There is generally a foreign-ownership restriction (I believe it is up to 25% in the US and generally the same level globally) --- http://www.ft.com/intl/cms/s/0/81c7046e-71f8-11e2-886e-00144feab49a.html#axzz3hc0NYs5N * Standard/Common Airline Valuation Metrics: --- http://www.investopedia.com/articles/active-trading/051415/how-value-airline-stocks.asp --- http://marketrealist.com/2014/06/measuring-delta-airlines-performance-key-operating-metrics/ (great overview) --- http://www.joshuakennon.com/mail-bag-which-financial-ratios-would-you-use-to-value-airline-stocks/ * Airline Industry Investor Guide: --- http://www.investopedia.com/features/industryhandbook/airline.asp * Economic History of Airline Industry (Includes important regulation changes and effects of): --- http://dailyairlinefilings.com/public/furlan.pdf * Airline Value Chains: --- http://imgur.com/a/q4Dwy Good luck with your research. Link to comment Share on other sites More sharing options...
innerscorecard Posted August 2, 2015 Author Share Posted August 2, 2015 Thank you! I had seen a few of those before, but others I would NEVER find and are super useful. The law review paper is especially interesting. When thinking about consolidation/new normal, I really want to understand what has happened before. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted August 2, 2015 Share Posted August 2, 2015 The surest way to become a millionaire - Be a billionaire first and then start an airline business Sir Richard Branson, founder of the Virgin Group Link to comment Share on other sites More sharing options...
innerscorecard Posted August 2, 2015 Author Share Posted August 2, 2015 https://pbs.twimg.com/media/CLac9uhUMAA10n3.jpg:large Link to comment Share on other sites More sharing options...
jawn619 Posted August 4, 2015 Share Posted August 4, 2015 A big question to ask is... has the airline industry reached an Oligopolistic position where the major players are colluding? Link to comment Share on other sites More sharing options...
innerscorecard Posted August 4, 2015 Author Share Posted August 4, 2015 A big question to ask is... has the airline industry reached an Oligopolistic position where the major players are colluding? The big thing to answer is whether that is even possible or not. Link to comment Share on other sites More sharing options...
innerscorecard Posted August 4, 2015 Author Share Posted August 4, 2015 Via Credit Bubble Stocks: http://philip.greenspun.com/flying/unions-and-airlines Also: http://blogs.law.harvard.edu/philg/2015/08/04/pilot-job-market-no-longer-clearing-republic-airways-cutting-flights/ Link to comment Share on other sites More sharing options...
Gamecock-YT Posted August 4, 2015 Share Posted August 4, 2015 The solution to the pilot shortage problem: Link to comment Share on other sites More sharing options...
Jurgis Posted August 4, 2015 Share Posted August 4, 2015 The solution to the pilot shortage problem: LOL. Quite true though. There is zero need for a pilot anymore. Planes can take off, fly, land and handle unexpected situations better than pilots. It's just human prejudice that pilots can fly better than machines... Link to comment Share on other sites More sharing options...
Pelagic Posted August 5, 2015 Share Posted August 5, 2015 A pilot friend told me that in 20 years the flight crew will consist of a computer a pilot and a dog. The computer will fly the plane, the pilot will reassure the passengers that everything is ok and the dog will make sure the pilot doesn't touch anything in the cockpit. Link to comment Share on other sites More sharing options...
Jurgis Posted August 5, 2015 Share Posted August 5, 2015 A pilot friend told me that in 20 years the flight crew will consist of a computer a pilot and a dog. The computer will fly the plane, the pilot will reassure the passengers that everything is ok and the dog will make sure the pilot doesn't touch anything in the cockpit. +1 LOL agreed. Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted August 5, 2015 Share Posted August 5, 2015 I get this is a common joke so maybe I'm missing the sarcasm, but this couldn't be farther from the truth. Autopilot is only used once speed/altitude are reached. It's actually extremely congested in the air and most airplane accidents have improved outcomes because pilots manually bring down the plane. In tight spots, flying is manual. Interesting article on unions/pilots Inner. I'm still working through the law review (economic history of industry) paper I sent you and trying to find more for other industries that I don't have as much info on. Any thoughts on the industry since you've been reading about it? Have you been able to answer any of your questions? Link to comment Share on other sites More sharing options...
Gamecock-YT Posted August 5, 2015 Share Posted August 5, 2015 Autopilot is only used once speed/altitude are reached. Respectfully disagree, my father is an air traffic controller and my uncle is a 777 FO for one of the big 3. Basically from the time the plane lifts off the ground to sometimes final approach, the autopilot is flying the plane. It's much more efficient from both an operational perspective and an airspace perspective. But you are correct that in tight spots the flying is done manually, the problem that is starting to come about is that pilots are so used to the autopilot running the show that when the shit hits the fan ( ) they don't have the piloting skills to get themselves out of trouble. The Air France A330 that crashed off the coast of brazil is a classic example. This is a great read on what happened: http://www.vanityfair.com/news/business/2014/10/air-france-flight-447-crash Edit: Had to add the airplane! video Link to comment Share on other sites More sharing options...
Jurgis Posted August 5, 2015 Share Posted August 5, 2015 Autopilot is only used once speed/altitude are reached. Respectfully disagree, my father is an air traffic controller and my uncle is a 777 FO for one of the big 3. Basically from the time the plane lifts off the ground to sometimes final approach, the autopilot is flying the plane. It's much more efficient from both an operational perspective and an airspace perspective. But you are correct that in tight spots the flying is done manually, the problem that is starting to come about is that pilots are so used to the autopilot running the show that when the shit hits the fan they don't have the piloting skills to get themselves out of trouble. The Air France A330 that crashed off the coast of brazil is a classic example. This is a great read on what happened: http://www.vanityfair.com/news/business/2014/10/air-france-flight-447-crash Exactly. And the capability of automatically getting out of most tight spots is there, but not sold for the same reason pilots are not trained enough for these situations: they are very rare and nobody wants to pay for it. This only comes up after accidents like Air France crash or when German Lufthansa pilot crashes the plane. AFAIK, the only situation that humans might handle better than automatics is emergency landing not in airport. This is not developed AFAIK. Also with $20K pilot salaries (OK, I am kidding a bit, just reffing that article above), no airline wants to be a test rabbit of flying pilotless plane or even flying single pilot + automatics and trying to push the change in regulations to allow such things. It's much more likely that we will see pilotless planes in Air Force way before we get pilotless planes in civilian airlines. Oh wait. ;) Link to comment Share on other sites More sharing options...
peter1234 Posted August 5, 2015 Share Posted August 5, 2015 The oracle once remarked: I have an 800 number I call when I get the urge to buy an airline stock. And I call them up at midnight and say my name is Warren and I'm an airholic and they talk me down. No more airlines! ;) Link to comment Share on other sites More sharing options...
Guest Schwab711 Posted August 5, 2015 Share Posted August 5, 2015 Thanks for the info, each of your responses make a lot of sense. Always good to keep up with what's actually going on. @Peter: Just because airlines have historically been bad investments doesn't mean it's a waste of time to learn the industry, in my opinion. Never know when the economics will change or if you can find a TDG-like company in the industry. Link to comment Share on other sites More sharing options...
Guest longinvestor Posted August 5, 2015 Share Posted August 5, 2015 hmmm...if widespread use of auto pilot technology makes highly trained and disciplined pilots vulnerable in special situations, what about idiots driving fully automated cars? I'd like all of my loved ones dead (from natural causes) before this becomes reality. There is a raging debate on another thread. Link to comment Share on other sites More sharing options...
Jurgis Posted August 5, 2015 Share Posted August 5, 2015 hmmm...if widespread use of auto pilot technology makes highly trained and disciplined pilots vulnerable in special situations, what about idiots driving fully automated cars? I'd like all of my loved ones dead (from natural causes) before this becomes reality. There is a raging debate on another thread. Perhaps you should petition for a ban of cruise control. It is known that the driver reaction time in automated driving is slower - exactly as you claim. And almost every single car has cruise control. NTHSA wants to hear from you. Link to comment Share on other sites More sharing options...
Pelagic Posted August 5, 2015 Share Posted August 5, 2015 I think we'll see pilot-less or a single pilot as a backup to the auto-pilot for air-freight carriers like FedEx and UPS before we see it in the major airlines. Since in general they fly the same planes (sometimes a bit older even) this will be a test platform for further removing the pilot from the equation. Eventually we might even see separate airports for autonomous freight aircraft and commercial transport with the latter keeping the pilot at least partially in the loop. Link to comment Share on other sites More sharing options...
augustabound Posted August 6, 2015 Share Posted August 6, 2015 Full on auto pilot with landing capabilities is only on the Boeing 777 and 787 from what I remember of an article I read about the MH370 disappearance. Link to comment Share on other sites More sharing options...
innerscorecard Posted August 15, 2015 Author Share Posted August 15, 2015 Still in the process of researching (lots of life events). A few useful tweets: Link to comment Share on other sites More sharing options...
innerscorecard Posted August 18, 2015 Author Share Posted August 18, 2015 http://www.fool.com/investing/general/2015/08/17/what-are-delta-american-and-united-doing-with-all.aspx Link to comment Share on other sites More sharing options...
nodnub Posted August 18, 2015 Share Posted August 18, 2015 Full on auto pilot with landing capabilities is only on the Boeing 777 and 787 from what I remember of an article I read about the MH370 disappearance. had a rough landing in wind a month or two back. After plane landed the Pilot announced that it was a test of the "automated landing system". It was not a new plane. I think it was an older 737 on United. Maybe what he was referring to was not a fully automated system? Link to comment Share on other sites More sharing options...
augustabound Posted August 18, 2015 Share Posted August 18, 2015 Full on auto pilot with landing capabilities is only on the Boeing 777 and 787 from what I remember of an article I read about the MH370 disappearance. had a rough landing in wind a month or two back. After plane landed the Pilot announced that it was a test of the "automated landing system". It was not a new plane. I think it was an older 737 on United. Maybe what he was referring to was not a fully automated system? I just looked it up and some planes have an auto landing feature now. That lets them land under conditions that they never used to be able to. Link to comment Share on other sites More sharing options...
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