RE: Look beyond the share price12 May 2020 23:08
John, not trying to be dishonest here but here are the facts
1) AIG has GBP10bn of liquidity and is burning GBP200 a week. This equates to 50 weeks until they burn through (assume 1 year). They will need to either borrow more debt or issue equity that will result in significant dilution and impact on equity. Even if they reach normal capacity in 2023 (as they say), they will have to pay off debt for a while and it will take time for them to pay off dividends. You are potentially looking at a long hold until you see a meaningful share price appreciation. There is just better value else where
2) Demand and Capacity Factors: Demand is significantly affected as people simply won't travel with uncertainty in respect to 1) virus and impact on their own health; 2) travel restrictions and the fact that each country has their own rules (e.g. Argentina said they won't accept any flights until later this year); 3) people saying why should they travel when hotels, restaurants, airports will have significant coronavirus restriction and rules (how can one enjoy a ****tail when the pool is not allowed to being used, etc.) 4) people lessening their travel overall as people don't need to do so many trips can do a business meeting on Zoom or people driving towards more sustainability and awareness of carbon footprint of air travel 5) cost: cost will increase due to companies increasing their prices due to lower capacity hurdle rates which means that demand will be affected --> all these factors will result in short-term, medium-term and long-term impact on capacity and financials. Airplane companies like IAG, Ryanair need to operate with close to optimal capacity to make money
There's too much risk. There's better value in other companies in my opinion. Think about the debt and demand factors. Why do you think Warren Buffet sold all his shares in airplane companies?
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