I missed out on the big move in the airline companies last year because I never bothered to look at them. And the reason I never looked at them is because I have been conditioned to be skeptical about airline stocks. The mantra chimes away about high capital costs and low hurdles to entry, profits on the horizon that will be never quite there.
But things have changed and with only three major carriers in the United States (down from around 10 a decade ago) price-wars and seat sales have been replaced by full planes and higher profits.
One thing the airline industry has going for it that is rarely mentioned is that once you pass the hurdle of covering your cost, every incremental passenger is at an 80% margin (give or take, depending on the airline).
This provides a lot of leverage if things start to go well. With 5 years of improving profitability (coming off the disastrous bottom of 2008-2009) things are going well right now. The moves last year was a recognition of this.
So when I got a second chance to invest in a couple of airlines, fresh from a beat down caused by the transitory effects of the falling Canadian dollar and exacerbated by the sheer size of the moves to the upside, I added not one but two stocks to my portfolio. Both are out-sized as starter positions for me. Here were my tweets at the time: Read more