SOPHISTICATED INVESTOR: Airline Blues Make Private Jets All The More Attractive
Tuesday 02/20/2007 7:46 PM ET - Dow Jones News
By Thomas Kostigen
SANTA MONICA, Calif. (Dow Jones) -- JetBlue's Valentine's Day debacle, during which stranded passengers sat for hours on airport tarmacs, helps you understand why so many more people are opting to fly via private jets: you're never in danger of having your bags lost, nor being tantalizingly shuffled on to a later flight (and yet a later one, and even a later one...).
Unfortunately, there are few investment plays to be had when it comes to private-jet operators that serve the masses, also known as fractional jet ownership providers.
The best-known and largest fractional jet ownership operator is NetJets, a subsidiary of Berkshire Hathaway. (BRKB) That company has experienced rapid growth, with the most fractional jet owners and the largest fleet of any independent provider.
Other fractional jet ownership companies include Flexjet, Flight Options, Citation Shares, as well as some offerings from the major airlines. Still, there is no pure stock play.
The closest may be Bombardier's Flexjet because it makes planes and then shares them. Citation is a joint venture between Cessna and TAG Aviation and Flight Options is a division of Raytheon (RTN) , a technology and defense company.
Bombardier, which trades on the Toronto Stock Exchange, has seen a nice little bump in share price too over the past few months, rising almost 30% over the past year. The $15 billion company just announced it's launching a new regional jet. That means it can service both private clients and as well as the new trend of the masses who increasingly prefer regional airlines. Bombardier just sold 30 regional jets to Delta Airlines.
In fact, the airline industry is doing well overall. Nine of the 11 stocks in the Amex Airline Indexare up over the last three months, spurred by a $2 drop in crude-oil futures. Surprisingly, it is Frontier Airlines and Mesa Airlines that are the poorest performers over that time; despite JetBlue's recent setback, in which its stock has fallen from about $17 to about $14 and been downgraded by Morgan Stanley, its shares are up more than $4 from lows in October.
JetBlue (JBLU) is no private jet experience, but it's pleasant enough with its employees trying hard to please. Niceness probably isn't enough to get passengers to forget their tales of 11-hour waits and lost luggage, however. And JetBlue's new "bill of rights" is a good gesture, but hand that to someone in the frustrated throes of flight cancellations and delays and I bet you'd find some novel ideas for its use.
Meanwhile, Southwest Airlines (LUV) is flying high. If nothing else, Valentine's Day showed LUV is better than being blue. Southwest has a whopping 64% gross margin -- double the industry average, as well as JetBlue's. Southwest's most telling stat is its operating margin, which is more than 10%; JetBlue's is less than 5%. Yet Southwest's stock has been range-bound for the last year and trades closer to its 52-week low than high.
I've never been a huge fan of the airline industry. It's akin to investing in the movie business: too expensive to run right and too much risk in things going wrong -- and they frequently do.
The private jet world is another story. Someone would be smart to spin out a fractional jet ownership business. Here's why: There were 5.4 million millionaire households in 2006, compared with 3.5 million in 2003, an increase of 56%, according to a study of U.S. Census Bureau and other data released this month by Phoenix Marketing International in Rhinebeck, N.Y. Phoenix also tracks pentamillionaire households, those with at least $5 million in investible assets: There were about 755,000 of those last year, up 47% from 514,000 in 2003.
Clearly there are enough people -- and the number is growing -- to service the private jet fractional ownership market. I just wish that, like flying private itself, there was more opportunity to get on board.
Meanwhile, airline investors should learn to LUV it. It's going to be too long a haul before JetBlue turns itself around. The problem with the other major airlines is that they don't have Southwest's padding. And that is one thing you definitely need because airlines are always a bumpy ride.
> Dow Jones Newswires
02-20-07 1946ET
Copyright (c) 2007 Dow Jones & Company, Inc.
Tuesday 02/20/2007 7:46 PM ET - Dow Jones News
By Thomas Kostigen
SANTA MONICA, Calif. (Dow Jones) -- JetBlue's Valentine's Day debacle, during which stranded passengers sat for hours on airport tarmacs, helps you understand why so many more people are opting to fly via private jets: you're never in danger of having your bags lost, nor being tantalizingly shuffled on to a later flight (and yet a later one, and even a later one...).
Unfortunately, there are few investment plays to be had when it comes to private-jet operators that serve the masses, also known as fractional jet ownership providers.
The best-known and largest fractional jet ownership operator is NetJets, a subsidiary of Berkshire Hathaway. (BRKB) That company has experienced rapid growth, with the most fractional jet owners and the largest fleet of any independent provider.
Other fractional jet ownership companies include Flexjet, Flight Options, Citation Shares, as well as some offerings from the major airlines. Still, there is no pure stock play.
The closest may be Bombardier's Flexjet because it makes planes and then shares them. Citation is a joint venture between Cessna and TAG Aviation and Flight Options is a division of Raytheon (RTN) , a technology and defense company.
Bombardier, which trades on the Toronto Stock Exchange, has seen a nice little bump in share price too over the past few months, rising almost 30% over the past year. The $15 billion company just announced it's launching a new regional jet. That means it can service both private clients and as well as the new trend of the masses who increasingly prefer regional airlines. Bombardier just sold 30 regional jets to Delta Airlines.
In fact, the airline industry is doing well overall. Nine of the 11 stocks in the Amex Airline Indexare up over the last three months, spurred by a $2 drop in crude-oil futures. Surprisingly, it is Frontier Airlines and Mesa Airlines that are the poorest performers over that time; despite JetBlue's recent setback, in which its stock has fallen from about $17 to about $14 and been downgraded by Morgan Stanley, its shares are up more than $4 from lows in October.
JetBlue (JBLU) is no private jet experience, but it's pleasant enough with its employees trying hard to please. Niceness probably isn't enough to get passengers to forget their tales of 11-hour waits and lost luggage, however. And JetBlue's new "bill of rights" is a good gesture, but hand that to someone in the frustrated throes of flight cancellations and delays and I bet you'd find some novel ideas for its use.
Meanwhile, Southwest Airlines (LUV) is flying high. If nothing else, Valentine's Day showed LUV is better than being blue. Southwest has a whopping 64% gross margin -- double the industry average, as well as JetBlue's. Southwest's most telling stat is its operating margin, which is more than 10%; JetBlue's is less than 5%. Yet Southwest's stock has been range-bound for the last year and trades closer to its 52-week low than high.
I've never been a huge fan of the airline industry. It's akin to investing in the movie business: too expensive to run right and too much risk in things going wrong -- and they frequently do.
The private jet world is another story. Someone would be smart to spin out a fractional jet ownership business. Here's why: There were 5.4 million millionaire households in 2006, compared with 3.5 million in 2003, an increase of 56%, according to a study of U.S. Census Bureau and other data released this month by Phoenix Marketing International in Rhinebeck, N.Y. Phoenix also tracks pentamillionaire households, those with at least $5 million in investible assets: There were about 755,000 of those last year, up 47% from 514,000 in 2003.
Clearly there are enough people -- and the number is growing -- to service the private jet fractional ownership market. I just wish that, like flying private itself, there was more opportunity to get on board.
Meanwhile, airline investors should learn to LUV it. It's going to be too long a haul before JetBlue turns itself around. The problem with the other major airlines is that they don't have Southwest's padding. And that is one thing you definitely need because airlines are always a bumpy ride.
> Dow Jones Newswires
02-20-07 1946ET
Copyright (c) 2007 Dow Jones & Company, Inc.
