What contributes a good or even great business?
There are definitely many ways to measure.
However, to me, the key is in ROE or better yet, ROIC.
By and large, Airlines businesses generate low ROIC or even minus.
Flying in the sky is tough.
Assets are huge and competitions are tight.
It is an almost perfect competition in work.
However, handling the airlines grounding is generally milder.
Be it passengers handling, cargo handling or owning airports.
There are regulations, licenses and oversights either by Government or Standardisation bodies.
To a city, Airport is generally monopoly or duopoly.
To an Airport, it is more effective to give license to mono or duo established Ground handlers based on fulfilment of strict criteria and also the more important factor of good track records.
The barrier of entry of such ground handling businesses is much higher.
MOS, Margin Of Safety,
is one of the key points in Benny G’s Intelligent Investor.
And hence, the heart of Value Investment.
However, just as the term Value Investor, the MOS is ubiquitous and overused.
It is common to see people mentioning MOS as if it is the magic word in the Investment.
It is overused and under-understood (let’s pretend such word exists). (:
Let me try (so I can say, at least I’ve tried) to put our understanding in perspective, shall we?
Generally, airline business is not attractive to Investor.
This can be seen from the history of poor returns of most airline companies in the world.
Naturally, it also applies to Indonesia, as reflected in the results of Garuda Indonesia (one of the most prestige airline company in Indonesia).
It has been losing money at least 5 out of the past 10 years.
However, as in the mining industry, the return is generally higher when investing in the companies supporting the industry than the companies in the industry itself.
So today, I will try dancing in the turbulence of the airline industry with one of the biggest player in airline supports/services company, Cardig Aero or CASS.
CASS has 3 main business units, as segmented by the company:
1. CAS Destination – Airlines/Planes Services
2. CAS Food – Food Catering
3. CAS Facility – Facility Maintenance