Despite Asia’s Booming Airline Growth, Investments Are Still Losing Money
Warren Buffett said a decade ago he’s sworn off putting money in airline stocks since his $358 million “mistake” in US Airways Group Inc. Investors in Asian carriers would do well to heed his advice.
Six of the 10 initial public offerings by airlines in Asia during the past five years are trading below their sale prices, according to data compiled by Bloomberg. The 10 airlines have fallen an average 12 percent from their offer levels, as the region’s publicly traded carriers racked up a combined $1.8 billion in losses last year.
Asia’s airlines have failed to capitalize on a surge in passenger numbers as the start of a dozen new carriers in the past decade has pushed the industry toward overcapacity and made it unprofitable. Investors will today get one more chance to test the region’s appetite for airline stocks as Bangkok Airways Co. starts trading in the Thai capital after a $494 million IPO.
“There’s too much competition in the airline industry,” said Alan Richardson, an investment manager at Samsung Asset Management Co. in Hong Kong who previously lost money buying shares in Thailand’s Nok Airlines Pcl. He didn’t invest in the Bangkok Air IPO. “Until you get a shift in the demand-supply, you won’t get any meaningful leverage in these asset-heavy companies.”