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  • hello and welcome to sectors up close.

  • I'm Angeline on first.

  • Our focus today is airlines, and our guest is Burkett, who we, who covers the aerospace industry in the US at Morning Star.

  • With most international travel still off the cards and much of the industry's staff on follow, the market seemed to be already pricing in a recovery.

  • The SNP Composite Airline index counts Southwest on Delta and United as its top three holdings.

  • This index is up 25% in February alone.

  • This is despite United saying as recently as January that 14,000 jobs are at risk when payroll support expires on April the first.

  • And while more financial help appears to be included in the latest round of congressional stimulus, the industry is not out of the woods yet.

  • So why is the sector seeing a recovery for investors while many of its planes are still grounded?

  • Let's speak with Burkett, who we at Morning Star Burkett.

  • Thank you so much for joining us.

  • I guess the first question is, why is the S and P Composite airline index performing so well?

  • Is it largely due to vaccines?

  • Yes, I'd say that vaccine rollout is probably the most important factor for airlines right now.

  • Aggregate travel demand has decreased substantially during the pandemic.

  • Yada reports that globally roughly two thirds of demand has been cut out from the pandemic in 2020 which is substantially greater than previous aviation shocks.

  • So returning to normal levels of travel is probably the most important factor for airline investors at this time now.

  • There's also a lot of talk about consolidation about the Big Four in the U.

  • S.

  • Becoming the Big Three.

  • What's your take on that?

  • I think that this is a pretty consolidated industry and that additional consolidation will be ah, little bit difficult.

  • Thio.

  • Ah, a little bit difficult to muster.

  • Um, I'd say that also, I'm not necessarily sure if any airline has the balance sheet right now to really take on to really act aggressively at a moment like this.

  • You also mentioned in your notebook at that airlines a lot, not letting this crisis go to waste.

  • Do you mean that they're becoming mawr refined and how they react to the pandemic?

  • Are they becoming more nimble?

  • Mm.

  • I'd say that the three things that you need to value an airline right now, our degree of operating losses in 2020 and 2021 progression of recovery and then a mid cycle operating margin.

  • I believe that that mid cycle operating margins should be higher than the previous five year average for most US based for all the US based airlines that I cover.

  • Um, and I think that the, uh, cutting of management overhead, along with a few efficiencies, can drive Ah couple increasing a couple 100 basis points of margin increases and in a normalized setting.

  • So, given what you've mentioned, the vaccine rollouts that we're seeing globally, Andi also potentially more help in terms of stimulus.

  • Would you buy, hold or sell on the sector?

  • I think the sector is roughly fairly valued.

  • I think investors should demand deep discounts Thio by airlines at this time, given the pretty substantial uncertainty in the recovery and the operating environment, Um, I don't see significant margin of safety, um, in any of my US based airline coverage.

  • Thank you for care That was Morningstar Equity.

  • Alice Beckett.

  • Huey.

  • Now, before we go, let's get you a round up of some of the top stories in the airline sector, international holiday bookings and UK surged after the government yesterday laid out plans to lift coronavirus restrictions.

  • EasyJet said flight bookings from Britain jumped more than 300% on holiday bookings by 600% over the same period last week after the government indicated travel could restart from mid May.

  • The U.

  • S National Transportation Safety Board says that damage to have family that failed on a United Airlines Boeing Triple seven is consistent with metal fatigue.

  • NTSB Chairman Robert Sumwalt told reporters that Pratt and Whitney PW 4000 engine failed on Saturday with a loud bang four minutes after takeoff from Denver following an initial analysis of the flight data recorder on cockpit voice recorder.

  • He said it remained unclear whether the incident is consistent with an engine failure on a different Hawaii bound United flight in February 2018 that was also attributed to metal fatigue.

  • The engine that failed over Denver was used in 128 planes, or around 10% off the global Triple seven fleet.

  • On finally planemaker's, Airbus and Boeing are bracing for some jet order cancelations from Norwegian air.

  • This is according to industry sources, Norwegian last year.

  • One bankruptcy protection in both Norway and Ireland, where most of its assets are registered.

  • The Irish High Court this week is hearing arguments concerning the repudiation of some of Norwegians liabilities, including aircraft leases.

  • That's your roundup off the airline sector.

  • I'm Angeline on.

  • And this is Reuters.

  • Oh, okay.

hello and welcome to sectors up close.

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B1 airline sector operating industry recovery index

Outlook for U.S. airlines less than certain even as shares surge

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    林宜悉 posted on 2021/02/26
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