Large airline stocks are hard to buy at the best of times. They are capital hungry and affected by the oil price, weather, intense global competition, price discounting, business-travel cyclicality, safety and terrorism risks.
US investment legend Warren Buffett once described airlines as the “worst kind of business” because they need high fixed investment and deliver low profit margins. But even he became bullish on the sector in 2017, when Berkshire Hathaway Inc bought into three US airlines.
Qantas Airways defied the airline bears when it rallied in 2017 and the first half of 2018. Its gains were deserved: Qantas’s Return on Equity (ROE) has improved from barely positive a decade ago to 26% at the end of FY18 – an excellent result, especially for an airline.