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Frank Holmes: Airlines Are Cheapest Industry in S&P 500 (Audio) · Bloomberg Intelligence

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  Speaker 1: of w T. I I'm Charlie Pellett. That's a Bloomberg
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  Speaker 1: Business Flash. This is taking stock with Kathleen Hayes and
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  Speaker 1: Pin Fox on Bloomberg Radio. Airlines stocks Delta Airlines, for example,
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  Speaker 1: saying that it would seek to boost the key passenger
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  Speaker 1: revenue yardstick because they're gonna reign in an expansion in
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  Speaker 1: seats that was set for later this year. That capacity
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  Speaker 1: would only increase about one percent in the fourth quarter.
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  Speaker 1: Investors like the news. The shares of Delta Airlines higher
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  Speaker 1: today by more than three and a half percent. Here
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  Speaker 1: to tell us more about airline investing, Frank Collins. He
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  Speaker 1: is the chief executive and the chief investment officer of
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  Speaker 1: US Global Investors. Joining us from San Antonio, Texas. Frank
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  Speaker 1: always a pleasure tell us about jets, tell us about
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  Speaker 1: US Global Jets. That's the e t F. And what
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  Speaker 1: the news. The news today from Delta means, well, it's good.
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  Speaker 1: It's good news because all the negative going into the
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  Speaker 1: bricks that going into the quarter, and it was very
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  Speaker 1: negative on global growth. And we saw that the airlines
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  Speaker 1: were sold down to such an extremely low level that
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  Speaker 1: companies like American Airlines then were trading at three times
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  Speaker 1: earnings three times and the industry itself trades it over
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  Speaker 1: six times, and when you look at transports, they traded
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  Speaker 1: eighteen and so the negative sentiments seems to now getting
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  Speaker 1: behind us, and they're starting to see these stocks have
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  Speaker 1: big pops, especially after Deutsche Bank made a call that
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  Speaker 1: that they believe that this is the bottom and things
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  Speaker 1: will trade higher. All right, So this is what Deutsche
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  Speaker 1: Bank says. But what does Frank Colin say, because Delta
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  Speaker 1: said it's slowing the expansion of flights and seats because
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  Speaker 1: it wants to deal with the potential slide and passenger revenue. Well,
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  Speaker 1: Delta's concerned regarding particular Brickxit that the flights the British pound,
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  Speaker 1: that the volatility of the British pound has had a
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  Speaker 1: big impact. Uh, and so the bri has come to
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  Speaker 1: America now for holidays that they're gonna have going to Europe,
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  Speaker 1: and that sort of travel is concerned, and so for
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  Speaker 1: going into the winter, they're going to cut that path
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  Speaker 1: route by six percent. However, they've got great growth in
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  Speaker 1: Asia and there's robust activity for all the big three,
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  Speaker 1: in particular United American and Delta in their Asian travel.
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  Speaker 1: So is it possible that the exchange Traded Fund will
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  Speaker 1: add non US flag carriers, we do, you know, that's
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  Speaker 1: a good question. Um it's dominated by four of them,
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  Speaker 1: that Southwest, Delta, American and United about of the index
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  Speaker 1: and every balance of the quarter. And then we own
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  Speaker 1: other names based on who has the highest cask forward
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  Speaker 1: turn investor capital and revenue per share, and that would
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  Speaker 1: be Jet Blue, it would be Hawaiian Air, et cetera.
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  Speaker 1: And then we have twenties foreign names at one percent
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  Speaker 1: each and that's helpers mitigee this currency volatility and that
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  Speaker 1: rebounces one supquarter. But it's all based on key metrics
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  Speaker 1: that value these stocks. So it's a smart betas are
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  Speaker 1: rules based thought process well. I note for example of
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  Speaker 1: that Quantas Airways is in the jets et f as
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  Speaker 1: well as China, Southern Airlines, Air Canada as well as
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  Speaker 1: Air China and WestJet correct in in order of when
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  Speaker 1: you look at the whole global scene, those foreign holdings
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  Speaker 1: have the highest cast forward turns invested capital on a
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  Speaker 1: relative basis and the highest UMU. The other the key
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  Speaker 1: factors that revenue perceed mile revenue proceed mile. This is
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  Speaker 1: the one of the industry standards as far as UH
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  Speaker 1: input costs go to airlines. It's got to be jet
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  Speaker 1: fuel prices, right. It's a key component, there's no doubt
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  Speaker 1: about it. And the other part is it moves with
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  Speaker 1: the stock market. It is a greater beta in the
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  Speaker 1: stock market. So the stock markets up one percent, this
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  Speaker 1: category is up one and a half percent, Marcus off
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  Speaker 1: one percent, it's down one and a half percent. Uh
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  Speaker 1: And I think the longer they go was showing these
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  Speaker 1: uh inexpensive pe ratios and rising dividends, and the dividend
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  Speaker 1: increased last year was almost a hundred percent increase in dividends.
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  Speaker 1: Uh And and they've been buying back their stock. I
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  Speaker 1: think that they're going to go to that re rating.
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  Speaker 1: And that's always been the biggest money in the capital
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  Speaker 1: markets to him, is that when people will pay going
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  Speaker 1: from six dollars for that same dollars of earnings to
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  Speaker 1: twelve dollars, or they turn and get worried about the
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  Speaker 1: stock market and they just pay a less pe ratio
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  Speaker 1: for that same dollar earnings. Uh. The airline industry as
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  Speaker 1: a whole is the least expensive out of the approximately
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  Speaker 1: hundred industries that make up the SMP five stocks. Frank,
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  Speaker 1: I know you've been paying attention to the news out
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  Speaker 1: of Farnborough, the Farnborough Air Show, which has just concluded
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  Speaker 1: orders for Boeing and Airbus commercial aircraft that came through
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  Speaker 1: from Farnborough. We're down about compared to last year's Paris
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  Speaker 1: Air Show. Is that of concern? No, I don't really
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  Speaker 1: think it's a concern. Um that I just don't feel
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  Speaker 1: that's a big concern. Why is that Because if they're
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  Speaker 1: not ordering aircraft, does that indicate that maybe there is
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  Speaker 1: a glut of aircraft on the market. No, there's no glut.
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  Speaker 1: That that's a good question. In fact, Boeing is ten
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  Speaker 1: years backlog and when you fly you can still see that.
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  Speaker 1: I still because I'm a rapid fly millions of miles. Uh.
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  Speaker 1: A lot of these planes are not up to speed
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  Speaker 1: and so there's a big upgrade that needs to take place.
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  Speaker 1: And uh, I think that some of that slow down
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  Speaker 1: those orders would be coming of the Middle East and
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  Speaker 1: out of Latin America, but the new order is coming
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  Speaker 1: out of the US. They remain strong and just finally
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  Speaker 1: frank new efficient engines, whether it's the Neo from air
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  Speaker 1: Bus or on the seven three seven or even the
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  Speaker 1: new geared turbo fan from ut X. Is that going
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  Speaker 1: to change the market profile of these companies. No, but
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  Speaker 1: I'm so impressed, Pim. You just really get into those
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  Speaker 1: great details of these engines and uh, you know, it
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  Speaker 1: is fuel efficiencies everywhere. Uh, and I think it's a
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  Speaker 1: key component for upgrading on these airlines. So that's just
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  Speaker 1: gonna be a good business model for both Bowling UH
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  Speaker 1: and Airbus and the airlines. Thanks very much for spending
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  Speaker 1: time with us. Is Frank Holmes. He is the chief
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  Speaker 1: executive and the chief investment officer for US Global Investors,
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  Speaker 1: joining US from San Antonio, Texas. Thanks for taking stock.
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  Speaker 1: I'm pim Fox. This is Bloomberg coming up, Bloomberg Law,
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