I see many problems with regionals that would prevent me from investing. I do agree that we are unlikely to see more competition in the market, so yields will likely rise. However, I do not see them as undervalued from a value perspective, as rising yields will inevitably in the medium to long term attract more competition that will again resume the race to the bottom in terms of costs once again.
My specific causes for concern are:
- Limited customer base, particularly when contracted to work for one or two major, increasing reliance on the health of not on the regional but also the customer
- The rise of American Eagle that will occur post-separation for AMR Corp, that will induce greater competition on new contracts as it is no longer restricted from working only for AMR Corp
- The possible, though unlikely, threat that unions will come to their senses and negotiate lower pilot flying rates for regionals from mainline, which will negate the use for the smaller E-Jets (E135/145)
- It is an airline, therefore a terrible business in general
I wish I could get enthusiastic about them, but I cannot and never will |
