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)