Airlines are, uh, really cheap. Too cheap.

Feel free to disagree. Just an idea that has been on my mind as an investment idea.

1. Oil price, even in sustained secular inflation, comes in periods of sharp spikes and troughs. This happens every time. During those periods it would be wise to fade energy during extreme spikes, and perhaps while staying net long overall.
2. If you think inflation will be structural and persistent on a multi-year view, you obviously want to own real assets. Companies that own the most real assets as a percentage of valuation are energy infrastructure, transportation, and industrials. In the last 15 years there has been a premium on asset-light/SaaS/internet/tech companies. Tangible assets have been considered depreciating liabilities. If there is a structural inflationary regime shift, those tangible assets flip from liabilities to appreciating assets. Basically the cost of building a new pipeline or purchasing new airplanes, or building new factories, becomes extremely high, so the value of the existing assets increases dramatically as well.
3. Airlines are very capex heavy. Those airplanes are very expensive and could increase dramatically in value as the price of new airplanes goes wild. It is true that fuel cost is very important for the bottom line, but the stock prices have been hammered to reflect this. If energy prices come in spikes, this might be a time to fade energy and play the reversal with airlines. I find it interesting because transportation is still a long-term play on higher inflation with its high capex %, so even without betting on the energy reversal it is still interesting.
4. Airlines are critical infrastructure for countries. In a time when governments around the world step in and save companies that are too big to fail, this might be a non-trivial point to consider. Lufthansa (DLAKY -4.8%) for example, is Germany's largest airline, and the second largest in Europe measured by passenger volume. They are certainly in distress right now, but the downside tail risk might be a little reduced due to too big to fail.

Just some recent thoughts. Don't know if it is right, but something I am watching.

-Kyle