Southwest Line on Credit?

[SWA Bubba]

+1

The legacy carriers build their networks around international routes, and half-a** the domestic stuff. WN starts with an incredibly strong domestic network that the legacies can never compare to. If WN can get their house in order in terms of IT department then they could be a serious powerhouse globally.

Someday.

Shhhhh.... Don't tell the General, though. Just tell him that Southwest is thinking about starting an international network out of LBB.

Bubba

 

[OurMoney1]

Saw this on another board and thought is relevant to both the SWA & JBLU folks...enjoy


Where is there more discretionary spending, Seattle or New York?
Which has better ROIC, Hawaii or NY?
Which aviation market is the most lucrative market on this planet?
How much exposure do we have in said "most lucrative market on this planet"?
As much as this sucks ...
Jetblue has (all max #s):
173 non-stop takeoffs out of JFK with very nicely build 26 gates!
37 non-stop takeoff out of LGA (no comment on the gates )
141 non-stop takeoffs out of BOS
18 non-stop takeoffs out of DCA
Gary wants 15% ROIC? He ain't gettin' it outta Lubbock or Wichita, he'll get it out of NY market!
Now, here is the scary part:
Current total net assets (after liabilities): $1.88 billion
Market cap (if you were to buy all outstanding shares this am): $1.9 billion
(One could buy the entire airline for a $120 million dollar premium! Remember years ago when hostile takeovers / leveraged buyouts was the big threat? I would definitely be worried if I was a JBLU pilot).
Now if you look at the last LGA / DCA slot auction (they went for $4 - $5 million per slot pair; then consider how unlikely it is ANYONE WILL ever get any more slots [with any significant numbers] aside from one airline buying another); their 228 NY & DCA slots are "worth" just about a billion dollars (228 * $4.5 mil), and this is NOT included in Total Assets above! One could buy the airline, sell 27 slots and have the airline for their present value, no premium.
If you wanna jump across the pond out of the NE with your own equipment, you do it from JFK, though BWI could work.
Prepare, because BOHICA, though this time with a little blue juice!

 

[PCL_128]

Trying to value JB based on current assets and market cap is incredibly deceptive. JB is leveraged to the hilt. They have $2.5 billion in long-term debt. It would take them 20 years at last year's earnings to pay off that debt, not counting interest. At nearly $7/share, it's overpriced.

 

[madjack]

LUV is overpriced

 

[Tripower455]

+1

The legacy carriers build their networks around international routes, and half-a** the domestic stuff. WN starts with an incredibly strong domestic network that the legacies can never compare to. If WN can get their house in order in terms of IT department then they could be a serious powerhouse globally.

FWIW, Delta was a very strong domestic (only) carrier until just prior to purchasing Pan Am.

 

[tzskipper]

FWIW, Delta was a very strong domestic (only) carrier until just prior to purchasing Pan Am.

...purchasing "parts" (shuttle and route authorities) of Pan Am, and then effectively allowing the doors to close on the remaining employees who bought into Delta's proposed 45% ownership/codeshare in the "new" Pan Am plan (which the remaining deal was supposed to be)?

Just to clarify...

S

 

[Tripower455]

...purchasing "parts" (shuttle and route authorities) of Pan Am, and then effectively allowing the doors to close on the remaining employees who bought into Delta's proposed 45% ownership/codeshare in the "new" Pan Am plan (which the remaining deal was supposed to be)?

Just to clarify...

S

Yeah, I was there too. No point in rehashing it, as the point was that DAL wasn't, until relatively recently, a "Legacy" international carrier.

 

[tzskipper]

Yeah, I was there too. No point in rehashing it, as the point was that DAL wasn't, until relatively recently, a "Legacy" international carrier.

Agreed.

Have a good weekend.

S

 

[PCL_128]

LUV is overpriced

Yep. And by a huge margin.

 

[maxblast72]

"LUV is overpriced"

Yep. And by a huge margin.

How do you figure? LUV currently trading at 1.4X book value or 13.5X projected 2013 earnings?

BTW, I did agree with your earlier statement on JetBlue. A lot more leverage than LUV or ALK.

 

[scoreboardII]

These other airlines do more than domestic flying, look at total ASM levels. SW has always been a smaller airline than United, Delta and American.

My point is simply that SW doesn't need to be the same or larger than the other carriers just because there has been consolidation. They have never been the biggest carrier and it's never hurt them before. They don't need to do another acquisition to be competitive. Damn, touchy

Touchy, yes, sorry. But your point is inaccurate on an ASM level, SWa doesn't do the 12hr flight so if you want to compare ASMs you have to normalize, and the best way is enplanements, which SWa owns.

SwA does need another merger to remain a growth carrier to keep costs down. That and they need a merger into a far international carrier, or else they will have to fight their way into these markets, which GK just proved he doesn't want to risk.

I hate it, but SwA is in the merger stage of its life cycle.

 

[PCL_128]

How do you figure? LUV currently trading at 1.4X book value or 13.5X projected 2013 earnings?

The problem is that you're well versed in reading a balance sheet, but you don't know jack about business valuation. Put simply, a business (or a piece of a business) is really only worth the discounted value of its future owner earnings plus its current cash. The value of current non-cash assets is usually extremely inflated on a balance sheet, so if you want to factor that in, you need to heavily discount them. Especially a business like an airline, where assets would usually be sold at extreme discounts if the company needed to generate cash.

Owner earnings are generally recognized as earnings + amortization and depreciation - annual capital expenditures

I haven't run numbers on LUV lately, because I can tell by a quick glance at the numbers that the shares are incredibly overpriced and don't need further evaluation. But just eyeballing the numbers, I would guesstimate that LUV is priced at about double a fair price, let alone an attractive price.

 

[scoreboardII]

You have heard of the term P/E ratio?

 

[B6Busdriver]

Sounds like d?j? vu. Southwest assumed 2 billion in debt when they purchased Air Tran.

 

[PCL_128]

You have heard of the term P/E ratio?

Yes, it's a rather simplistic and useless measurement of the true value of a business.

 

[scoreboardII]

Oh reeeally?

Maybe you should read up:


I'll give you this:

P/E should never be used alone in valuing a company because earnings are fluid and can change due to a variety of circumstances.

this is the important lesson:

P/E is most useful in comparing one investment to another

which is the basis of this discussion, comparing one like company in an industry to another.

http://wiki.fool.com/P/e_ratio

 

[PCL_128]

Oh reeeally?

Maybe you should read up:


I'll give you this:



this is the important lesson:

which is the basis of this discussion, comparing one like company in an industry to another.

http://wiki.fool.com/P/e_ratio

Ok, scoreboard, you keep reading the idiots at the Motley Fool, and I'll stick to Buffett, Graham, and Dodd. We'll see who comes out ahead. :beer:

"Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation..." - Warren Buffett

 

[scoreboardII]

To funny, now, lets show the crowd the whole statement you conveniently removed;

Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business. Indeed, growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years. Market commentators and investment managers who glibly refer to "growth" and "value" styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component -- usually a plus, sometimes a minus -- in the value equation.



Read more: http://www.investorwords.com/tips/572/growth-and-value-creation.html#ixzz2Rjw78100




Nice try at cheery picking though...

 

[PCL_128]

To funny, now, lets show the crowd the whole statement you conveniently removed;

Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business. Indeed, growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years. Market commentators and investment managers who glibly refer to "growth" and "value" styles as contrasting approaches to investment are displaying their ignorance, not their sophistication. Growth is simply a component -- usually a plus, sometimes a minus -- in the value equation.



Read more: http://www.investorwords.com/tips/572/growth-and-value-creation.html#ixzz2Rjw78100




Nice try at cheery picking though...

You clearly don't understand what you just posted. Posting the entire quote just supports what I was telling you. Buffett's statement is telling you that while price to earnings, book value, and other standard metrics provide "clues" to the money coming into a business, they don't provide a real picture of what is going on. Which is exactly what I told you.

He goes on to talk about the discounted value of future cash flows, and how current expenses can exceed them, which isn't reflected in these standard yardsticks that you want to rely upon. But, I would imagine that you don't know what the discounted value of future cash flows really means in the first place, so the importance of his comment is lost on you.

In plain language, what Buffett's entire statement is saying, is that looking for companies with low P/E ratios, low P/B ratios, high ROE values, etc. is a great way to pick companies out of a list of thousands for further evaluation. But you should never invest in a company simply because of these yardsticks. You use them only as an initial screener, and then you delve deeper and determine what real owner earnings have been over the past decade, what they are likely to be in the future, how much they need to be discounted to arrive at a current value, and then what an appropriate margin of safety would be.

 

[canyonblue]

Nice try at cheery picking though...

He's great at cherry picking, just look at his tag line. It doesn't really give the whole story does it?

Lorenzo, 72, formed Jet Capital Corporation, which advised airlines, in 1969. In 1972, Jet Capital acquired Texas International, which "was threatened with extinction because Southwest was breathing down its throat," flying the same routes out of Love Field, Lorenzo said. "(Southwest president) Lamar Muse said he was going to put Texas International out of business." The threat devalued TIA enough that Lorenzo could afford it.

"I have often said that we wouldn't have had an opportunity if it wasn't for Southwest," he said.

Soon thereafter, the Civil Aeronautics Board awarded new routes, including Dallas to Los Angeles via Albuquerque, to TIA, and the airline had a chance to become profitable. "In 1977, we came up with peanut fares, the first unrestricted fares to be filed," Lorenzo said.

I'd say my tag line says it all...