Southwest Line on Credit?

[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...