Are you flying lately? It’s okay, you’re probably not. As governments all over the world try to slow the spread of COVID-19, there has been an overwhelming effort to discourage travel. Travel is down. ALL types of travel are being discouraged, including air travel. Air travel is down 96% and airline companies are struggling to cope with the changes.
Take a seat, Q1 2020 is out
As the close of the first quarter of the year, investors have carefully listened to the financial results coming out to see how bad it looks. Here we are! Q1 2020 results are out and oh boy… if you’ve poured money into the airline industry, you’re going to want to sit down for this one.
Let's open up the hood of the airline industry
Revenues are almost 90% down and it is already a low margin business. Across the board, companies reported pre-tax losses in the amounts of $2B. The leaders of the industry, Delta, American Airlines, United, all had investor relations calls that were similar to a horror story. It is a balance sheet game. Everyone’s checking to see if their B/S is just BS. CFO’s talked about each of their expected cash burn rates on Q2 2020. American Airlines reporting an expected $75M a day rate. Airlines have to decommission underutilized aircrafts by parking them in expensive parking lots. They talked about unencumbered assets (Assets that no credit has claim on - like a paid off car, or a house with no mortgages). They have mentioned how much they’ve received from the CARES act and plead that they will be able to optimize operational expenses.
The Oracle divests
The Oracle of Omaha, Warren Buffett divested his entire portfolio from the industry! Curious how much he owned? Here are some staggering numbers:
Buffett was pretty much THE AIRLINE GUY. That’s not a big vote of confidence at all.
Some great links: