Monday screencast: hope flies eternal

• abnormalreturns
• September 20th, 2010

Hope springs eternal.  Or in the case of the airline industry:  flies eternal.  A quote from Warren Buffett:

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

— Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008.  (Great Aviation Quotes)

The airline industry has nearly a century been a disappointment to investors.  Even today after a great deal of industry consolidation fares remain, by many accounts, too low.  That being said low-cost carrier Spirit Airlines has filed for an IPO.  The only hope for the industry is continued consolidation as represented by the United-Continental merger.  However history has shown us there is no shortage of willing entrants into the industry.  So if you use history as your guide, airlines are always a trade, never an investment.  In today’s screencast we wonder whether anything has actually changed for the industry.

Posts mentioned in the above screencast:

Warren Buffet quote.  (Great Aviation Quotes)

Airline fares remain low.  Really low. (24/7 Wall St.)

Does the United-Continental deal presage higher fares?  (DailyFinance)

Spirit Airlines files to come public.  (Bloomberg, Dealbook)

One writer’s experience with Spirit’s low-cost ethos.  (Practical Traveler also CNNMoney)

Daily chart of the Claymore/NYSE Arca Airline ETF (FAA).  (Finviz)

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