Investing in the Airlines: Still a "death trap for investors"?
So far I have eschewed investing in the airlines. I've followed the sage advice, since changed, of Warren Buffett who famously said (2002):
"It's been a death trap for investors ... If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You've got huge fixed costs, you've got strong labor unions and you've got commodity pricing. That is not a great recipe for success. I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: 'My name is Warren and I'm an aeroholic.' And then they talk me down.”He since has changed his mind ... at least a bit (2017):
These aren't last century's airline companies, and that's why legendary investor Warren Buffett is spending money on them. "It's true that the airlines had a bad 20th century. They're like the Chicago Cubs. And they got that bad century out of the way, I hope," Buffett said Monday on CNBC's "Squawk Box." "The hope is they will keep orders in reasonable relationship to potential demand." Buffett's Berkshire Hathaway revealed late last year in an SEC filing it had taken a stake in American Airlines, United Continental Holdings and Delta Air Lines. CNBC also reported that Berkshire had taken another stake in Southwest Airlines. Ironically, Buffett implied he had not taken a commercial flight in several years. "We'll save that (conversation) for after the show," he said. The Oracle of Omaha also revealed why his holding firm previously hesitated to take significant positions in the industry. "I think there have been almost 100 airline bankruptcies. I mean, that is a lot," he said. "It's been a disaster for capital."So I am thinking of dipping my toe into the airlines ... just 10 shares of each. Thoughts? Advice?
Top image: Biplane crash, East Boston Airport, 1928-05-31
Updated: Passengers may hate airlines, but investors love them (even United)
Any business "boob" can create a nickel. Someone out there will buy your product "once" ( no matter how stupid ) Remember Pet Rocks?
ReplyDeleteTo build a lasting business model is quite different.
You cannot continue to have the Ivory Tower model with arrogant executives pulling the strings.
What UAL did by asking passengers "off" the plane was not wrong. The pitiful situation exists when the Nazi boss called in the "three tugs" to rough -up the poor Dr into submission. In the law suit they will pay more than if they found another solution to the problem. At fault was arrogant narrow minded thinking from the top down. Great companies love their customers. Remember Sears, Roebuck & Co .. ? Low level employees ( who incidentally loved their jobs ) Creative thought from the little guy was quickly and easily discarded. Who shops @ K-Mart?
Well, United DID drop a few points yesterday, so that might be an opportunity for buying....I'm still with Buffett from 2002, though. Avoid buying stock in companies that own aircraft. Capital intensive, heavy government involvement and regulation, unions, and commodity pricing rarely lead to prosperity. Never mind that when you can drive and avoid being groped by the TSA....
ReplyDeleteAirlines stock was a good investment for all of those who shorted it before 9/11. Hey.....was that a coincidence? Did they get "lucky" and guess that shorting was a good play, ahead of 9/11? Or did they know it was going to happen?
ReplyDeleteIt's always good to know of a terror event ahead of time so you can manipulate the market and have your shorts in play for the right stocks, like airlines after 9/11 or oil after a rig explosion. I think that the market is not always fair because most people do not know of these pre-planned events and only the few insiders take the profits.
ReplyDelete