Airlines are way overvalued at the moment. That does not mean the ETF cannot go higher.
But if you are long airlines I would suggest taking profits for the following reasons.
50% of all pilots are out of work and grounded. If airlines were to start to return to
normal then they should be hiring right now for the summer season. It takes time to
interview, train, and get pilots back up and flying. Between 2 to 3 months start to finish.
We already in March just about and there are no airlines interviewing with any significance.
Unless something drastically changes in the next month airlines will flop in the summer.
Planes in the desert do not fly by themselves. Carrying the leases on grounded planes is
extremely expensive even with Gov't assistance who are trying to solve an insolvency problem
with liquidity, Like trying to hammer something with a screwdriver. Doesn't work that well.
Having said that there will be some improvement in flying all else being equal. The pilots
currently flying are not flying all that much, so there is some room to increase flying by
20 to 30%. Hardly enough to justify current price levels. Especially with oil rising.
Lastly, if something were to frantically start hiring in the next month, they will run into
other problems. Simulator, instructor, examiner availability. This is the bottleneck that
will limit rapid recovery for airlines if they panic hire. Remember instructors must be
removed from flying to train and examine pilots who have not flown for a year. The instructors,
examiners themselves have to be trained before training others. This will reduce available pilots
flying the line initially at a time when airlines will want to fly more. Not to mention the cost
of training everyone with airline monetary benefit while they continue to pay for planes in the
desert.
From a risk-reward standpoint it is best you lose 20 30% upside than lose 20 30 40% to the
downside. Markets are not cheap and definitely, airlines air not either.
With engines falling out of the sky like candy you don't want your portfolio falling too.
Price is what you pay value is what you get!
But if you are long airlines I would suggest taking profits for the following reasons.
50% of all pilots are out of work and grounded. If airlines were to start to return to
normal then they should be hiring right now for the summer season. It takes time to
interview, train, and get pilots back up and flying. Between 2 to 3 months start to finish.
We already in March just about and there are no airlines interviewing with any significance.
Unless something drastically changes in the next month airlines will flop in the summer.
Planes in the desert do not fly by themselves. Carrying the leases on grounded planes is
extremely expensive even with Gov't assistance who are trying to solve an insolvency problem
with liquidity, Like trying to hammer something with a screwdriver. Doesn't work that well.
Having said that there will be some improvement in flying all else being equal. The pilots
currently flying are not flying all that much, so there is some room to increase flying by
20 to 30%. Hardly enough to justify current price levels. Especially with oil rising.
Lastly, if something were to frantically start hiring in the next month, they will run into
other problems. Simulator, instructor, examiner availability. This is the bottleneck that
will limit rapid recovery for airlines if they panic hire. Remember instructors must be
removed from flying to train and examine pilots who have not flown for a year. The instructors,
examiners themselves have to be trained before training others. This will reduce available pilots
flying the line initially at a time when airlines will want to fly more. Not to mention the cost
of training everyone with airline monetary benefit while they continue to pay for planes in the
desert.
From a risk-reward standpoint it is best you lose 20 30% upside than lose 20 30 40% to the
downside. Markets are not cheap and definitely, airlines air not either.
With engines falling out of the sky like candy you don't want your portfolio falling too.
Price is what you pay value is what you get!
Comment:
Getting ready for the drop
Comment:
And way overvalued, Airlines were!
Another Great Call!
Follow me so you don't miss the move-up when it comes.
Another Great Call!
Follow me so you don't miss the move-up when it comes.
Real Macro Economic Investing
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