SKYW - SkyWest: The Only Airline With A Wide Moat
2024-06-03 23:05:50 ET
Summary
- Historically, airlines have performed poorly due to their capital-intensive nature, cyclical exposure, and price competition.
- SkyWest, the largest regional airline, has outperformed its peers due to its niche strategy, which gives it consistent customers, better scale, and a limited need for marketing spending.
- SkyWest's valuation is higher than other airlines, but its unique business model and stability in profitability make it a potentially attractive investment.
- The company's Enterprise Value is around 31% higher than expected from the Big Three, though its growth and stability are far superior.
- In my view, SkyWest's hefty valuation premium is reasonable given its fundamental advantages, but it may become overvalued if it continues to soar.
Historically, airlines have been among the worst-performing industries on the stock market. Since its launch in 2015, the US Airline ETF ( JETS ) has not delivered positive returns, stuck in various trading ranges for years. Fundamentally, I'd argue airlines are not well-suited for public markets. Airlines are highly capital-intensive, have significant cyclical exposure, face tremendous price competition (it is hard to create niches and moats), and can be hindered by government regulatory changes. Hence, in other countries, they're often government-sponsored entities. Even in the US, many depend on various government bailouts ....
SkyWest: The Only Airline With A Wide Moat