Last year, legendary investor Warren Buffett said the sector had been a “death trap for investors” reiterating his long-held aversion to the airline industry.
But while Monaco, partner at the boutique, concedes the unloved sector has been “dead money for decades”, the house view was that prospects are looking up, with a few caveats.
“Firstly, we are not investing in the incumbents. We prefer the point-to-point operators, those with low-cost structures. This by itself would not be enough though, had the industry not structurally improved over the last few years,” he said.
Cost control
“Access to the debt market and raising capital was very constrained for these companies over recent years, both in the US and Europe. The only option for the airlines was to restructure and go into cost control mode and make the best of what was available.”
He said the low-cost operators are well-placed to take advantage of the widespread consolidation seen, particularly in the US, delivering gains of 80-180% since initiating positions in the airlines.
“In the US, we have Allegiant Travel and Southwest Airlines, which have similar structures to [prime example] easyJet. We also hold the Panamanian low-cost operator Copa Holdings, which replicates the model across the Americas.”
Elsewhere Boeing is another favoured position, held for very different reasons.
“Boeing is more of an industrial company, with a huge defence business. There has been a depressed perception of the company going back a long time, and it does not take much to surprise people when there is such a negative view of a company.
“We started a position a year ago, just after the Dreamliner battery scare. We could not see any structural problems with the company and felt investors completely overreacted to the concerns. We used this emotion to our advantage. Since purchase, it has returned 70%.”
