The natural of Airline industry is always bumpy.

Somebody asked me AirAsia has been expanding very aggressive since its existing, so is it a good choice for investing? It is not that easy.

Undeniable, AirAsia is a legend in airline industry and people recognise AirAsia equal to low cost airline just as like Starbucks equal to coffee and Nike equal to shoe. Such a strong brand, that's the result of hard work by Tony Fernendes. Besides that, the management board is prominent in driving AirAsia to a continuously strong growth that make this once one-plane-but-lots-of-IOU(debt) airline company to today unstoppable airbus customer. However, just some point that investors have to take note before they get in any airline companies.

First unpredictable disaster make airline the first victim. H1N1, terrorist attack or event plane crash can shake the industry instantly without any prior notice. This kind of disaster can shake travellers' confidence in travelling that affecting sales of airline companies.

Fluctuation of oil price also fluctuate the income sheet of airline companies. Kerosene is the spirit of airline industry. That is a general knowledge to all, that is : plane need kerosene to fly, the margin of airlines' profit is highly depend on kerosene price just like food price affecting a restaureant's profit. Kerosene is priced around USD 20 more that the crude oil price, thus crude oil price is a proxy to kerosene price. Undeniable ( as i mentioned in previous post) the general crude oil price direction is upward ( as the general movement of CO supply is downward). Thus, airline companies' everyday work is to control the kerosene price they order. One of the normal pratice airlines are doint is to hedge the kerosene price, which means airlines fixed the price of kerosene they would like to buy at large amount for future utilization. As conclusion, airlines are always trying their best in controling the cost of operation, which is always increasing and determining how much of this cost is to be transferred to the clients. The case will be even more challenging for low cost airline, where the margin is natrutally low, rising of oil price cost will narrow their margin, which make the earning difficult to controlled well.

Forex risk is the next one. As airline is a international business where clients from all over the world accepting thir services by paying the price with their own currency. Thus, the income sheet of airlines is, again subjected to forex risk.

Financing problem make airlines at risk. Airline is a high capital business, where airlines always required tonnes of financing to keep their operation and also to expand their business like buying airplanes need a lot of capital. Any financing problem ( unable to receive financing) and changing interest rate push the beta of airlines higher. This is because increase of interest rate increase their cost of capital.

Economy downturn also make airlines business unpopular. Businessmen travelle less in bad economy condition as bussiness oppotunities are low.

Political factor is another thing investor has to put in to to-watch list. To successfully get approved of new route is not an easy job.

In conclusion, buy and hold is never the case for airline industry, investor has to aware of the factors they have to watch out. Any sudden change of condition on the factors i mentioned above can put airlines on a cautions list.

Anyway, if really i have to select an airline, i'd choose AirAsia, as their management are always prominent. They are brave, always be the first player rule out fuel charge & admin charge whenever they thing time allow. Economy downturn make low cost airline a first choice for distressed travellers. AirAsia's brand is so strong to make everyone can move.