BT 291222: https://drive.google.com/file/d/1BfsBxxu8mt...?usp=share_link

Airline industry is capital-intensive (due to expensive airplanes and all sorts of charges). It doesn't matter how good the service is, charge too high a price, people will shift from FSC to budget airlines (budget airlines also suffer from the same problem, i.e. expensive airplanes).

It's low-margin business for a variety of reasons. Firstly, low market concentration. There're just too many airlines out there, from an investor's perspective. M&A is supposed to be the way to survive yet as you can see during the recent pandemic every country seek to protect their own image and thus will bail out their respective "national" airlines. It's this "anti-market" act by most governments which prevent the margins from improving in the long run.

Looking at the supplier side, airplanes are expensive due to duopoly of Boeing and Airbus (even Airbus's margin is around 10%ish only). Then there is fuel. Demand for oil is highly inelastic. The pricing power falls on the supplier. Pilot unions are another force to be reckoned with. Not any Peter and Jane can become a pilot. Their pricing power is there. Training and manpower costs add up. Ground handling services also eats into margins. These services are usually long-term contracts, guaranteeing fat profits for aviation service providers like SATS and dnata (excluding periods when flights are grounded worldwide, e.g. during Covid). Lastly maintenance of those expensive airplanes...

To improve on returns for shareholders (not margins), airlines may take risks and load up debts which exacerbates the impact to equity holders during period of high oil prices/lockdowns. The leveraged balance sheet makes the stock price more volatile. 

*A single plane takes 6-7 years to breakeven (for FSC) and 8-10 years for low-cost airlines.

https://www.quora.com/How-long-does-it-take...rplane-purchase

https://www.news24.com/news24/travel/what-d...omplex-20200124

BT 200123: https://drive.google.com/file/d/1WDIjt2I8CA...?usp=share_link



Happy Chinese New Year to all SGX counters investors.