My colleague and me were just discussing about airline stocks today...We were wondering how do one become a stock holder of an airline and what advantages are there?

Regards,
Empress

It is as simple as calling your broker or visiting your online broker and placing an order. As far as advantages, there are no perks for stockholders (that I know of). You should only consider investing in airlines if you are serious about its investment value or if you have extra money to play with.

Check out URL http://www.planebusiness.com

Are you really certain you want to buy in to an airline for other than "the glamour" factor? Check out Stephen Northfield's column in the Globe & Mail's Report on Business today (B13) and see that most investment advisors don't recommend putting serious money into airlines. This column is rather negative, suggesting than even the likes of Warren Buffett and Carl Icahn have not done well by their respective purchases of USAir and TWA. But he doesn't mention the Checchi brothers success with their NWA buy-out. And there is little doubt, the merged model Gerry Schwartz is trying to put together in Canada would rejouvenate the business up here and make shareholding a better proposition than it has been.

We all know the story of Cdn, whose shares have plunged from $5 to less than $2 and never paid dividends. And there is AC which went public at $8 and has basically languished in the $6 to $7 range prior to the Onex offer. (It peaked twice at $12 and $15 over its 15-year cycle, but immediately plunged back down to the doldrums.) AC has never paid dividends either.

British Airways has been delivering quite healthy profits through its lifetime in thep rivate sector, and has always been a good investment, though it has been through a slight bit of turbulence recently. They did offer shareholders some perks, but don't know if they still do.

That's right, you don't even get a shareholder's discount, or a free drink in economy.

Westjet has done well since it went public last month, but it is a very focused carrier with a low overhead model. Most US lines have made profits and paid dividends, and their share prices have risen, but not at the same levels as the rest of the market.

Airlines are capital intensive, and have high operating costs, many of which are beyond their control (fuel, taxes),and very reliant on their labour forces and weather to both be "calm".

As my "nom de plume" implies, I own share in a few airlines. (And builders of airpplanes.) Not a lot, and not really for a high return investment. It's just to "be in the business", though I would like to take a ride with Onex and think the deal is actually a very good one for bringing stability to the Canadian marketplace and better return to shareholders. (See my comments in other streams on the Onex deal.)

What it means to us "elites" is another matter altogether. We all fear AA's involvement if it means a drop to their standards of service i nthe air and on the ground. (And unlike the press, I am not convinced Cdn will shut down in February, as you suggest in another posting, Empress.)

One thing to be careful of is conflict of interest.

If you work for private industry and travel for your job, it could be seen as a conflict of interest to own stock on an airline you travel on for work (especially if you have lee way in selecting your travel provider).

You must be kidding! It would be silly enough if a Fortune 500 Director of Travel services had such restrictions on his/her stock ownership, let alone on an individual frequent traveler.

I guess it would be silly to buy airline stocks...especially when an elite flyer gets more benefits than as a shareholder. A good example is Canadian Airlines' stock which have plummeted in the last year or so.

Regards,
Empress

I doubt if it is conflict of interest (I doubt if I make a dent in United's bottom line). But then airlines, which are actually making profits are not fashionable these days. I'd suggest some unprofitable stocks which are in fashion.

I happen to own stock in CO AND NW. No, you won't get free elite status or anything. But, being a shareholder is of GREAT value when you complain to an airline. Elite status comes and goes, but as a shareholder, their obligation to you is sarcosanct.

As an industry, airlines have not done so well recently. The trick is to invest in "turnaround" airlines, such as CO or NW. They have had excellent value.

Finally, when you're a shareholder, many of the inner activities of the airlines are already known to you by the Annual/Quarterly Reports sent out every quarter. Instead of waiting for rumors or press releases, you know of things ahead of time.

Actually, it was Air Canada's ownership of a large block of CO stock -- they held about 15% when that company was re-launched ten or so years back -- that generated most of AC's profits for a long while. AC was losing money on operations, but making money selling off its CO shares at a handsome profit. (One of the better decisions Hollis Harris made when he ran AC. His good ol' boy links to the new team at CO forged a stronge alliance between the two carriers, which lasted until UA entered the scene and STAR Alliance began to come together.)

AC also "created" profits by selling off its aircraft fleet, then leasing the same planes back from the buyer(s). That way the fleet could also be expensed differently, old debt reduced or paid off, in addition to providing immediate cash to cover off operating loses. Ergo: both profits and a healthier balance sheet.

AC also was an early investor in one of the major aircraft leasing firms out of Dublin in the 70s. The carrier also sold those shares off at a handsome profit during the late 80s, also off-setting operating losses.

(By the way, these are but a few of the advantages AC has had over its rival, Canadian Airlines, in having its financial house in better order. So all Cdn's problems cannot be put down to bad management, nor AC's success on good management. Foresite maybe, but good management is another matter.)

Also, check out some further comments in Saturday's REPORT on BUSINESS in the GLOBE & MAIL. Buried on the inside pages there is an article about "when should I buy and when should I sell" my stocks. It contains a most revealing comment by an institutional fund manager about AC and its market price, and an assessment of its management competence when it comes to enhancing shareholder value. It also suggests why many such managers may still find ONEX's $8.25 offer worth serious consideration.

Also revealing is the prospectus/offer from ONEX for AC. Go to website "www.airco.ca" and pull down the main document (it's 150-pages long in Acrobat). Makes fascinating reading about the operating economics of airlines, and the problems in the business (at least here in Canada, but provide a good global context and assessment of alliances).

As for conflict of interest when making purchase decisions, I suppose that could be a matter of consequence if you booked in the $100,000+ range of tickets monthly. But as another writer has already pointed out, it would hardly dent the bottom line of a carrier like UA or AA. Even as a shareholder in AC, I prefer to fly Cdn and most often book it, not AC. (Albeit, I also own Cdn shares, bought at $1.80 so I haven't suffered much, and do stand to gain a few pennies if the ONEX deal goes through.)

I suppose buying stock in airlines is a bit like buying stock in brewers or wineries (or Ben & Jerry's ic ecream). Yes, you want to make money on your investment -- and certainly not lose your capital -- but you also like to know you own a piece of a brand leader or quality act in a given sector. Afterall, the line in the 50s and 60s was that we should be in the stockmarket to "own a piece of America". It was in the 80s and 90s that maximizing short-term returns-on-investments became the mantra of the market.

Most certainly, at least 75% of your portfolio should be in solid, good sectoral performers, 15% in speculative and launches, and 10% in companies that you are emotionally attached to for totally irrational reasons (airlines, beer and wine companies, ice cream dairies, movie studios...).

Actually, by the time shareholders receive the quarterly (or is it annual?) reports, the rumors and the press releases have already been out for quite a bit.