Morning! Graham here.


I'm sure you will all appreciate the cheery headline.

As a follow-up to yesterday's Covid-19 update, I thought I would spend a few minutes reflecting on the poor financial health of the travel & leisure industry, which is currently a fast-moving situation.


Last night, it emerged that Virgin Australia entered into a voluntary administration (Sky, BBC), after the Australian government turned down its request for a loan.

It had already been struggling under a large pile of long-term debt (A$5 billion), and figured that this was the best way of restructuring.

Shortly before that news broke, Sir Richard Branson (who owns 10% of the company) published an open letter to employees. He wrote:

We are hopeful that Virgin Australia can emerge stronger than ever, as a more sustainable, financially viable airline.

With regards to Virgin Atlantic, he said:

...we will do everything we can to keep the airline going - but we will need government support to achieve that in the face of the severe uncertainty surrounding travel today and not knowing how long the planes will be grounded for. This would be in the form of a commercial loan – it wouldn’t be free money and the airline would pay it back (as easyJet will do for the £600m loan the government recently gave them).

The entire industry is facing calamity.

I've been doing some work on Easyjet (LON:EZJ) recently - that's a stock that I would consider selling short, to hedge against the risk of continued lockdown and/or to speculate on its cash burn accelerating via operating losses and too many Airbus orders.

The dispute at easyJet with its major shareholder adds to the controversy and the drama.

The general public shouldn't be overly concerned by any of this - as others have noted, it doesn't matter to them who owns the planes or the brand they are flying with.

For equity holders, it's a different story. There is a real risk of airlines changing hands, from their current owners to their lenders or to new investors.

Something I didn't mention about Berkshire Hathaway (BRK.B)* in yesterday's report: one of the few noteworthy trades it made recently was the sale of $400 million in airline stocks.

It still owns big stakes in the airlines, so I don't…

Unlock the rest of this article with a 14 day trial

or Unlock with your email

Already have an account?
Login here