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Why Airlines Keep Going Bankrupt Even When Flights Are Packed

View from the Wing·Gary Leff·26 days ago
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Airlines are a terrible business . The old joke is that the fastest way to become a millionaire is to… start off a billionaire and invest in airline. Warren Buffett once said that “If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” While I think that JetBlue should have been allowed to buy Spirit Airlines, I also was clear at the time that it’s almost never a productive use of capital to spend it investing in an airline . The acquisition of Spirit was set to cost about $3.8 billion. The S&P 500 is up more than 75% since the deal was agreed to. I suggested just investing the money in broad-bsaed stockets. $3.8 billion would be worth $6.56 billion today. Instead, JetBlue’s market cap has fallen and is just $2.1 billion. The basic reason why airlines are so tough is because they’re an expensive capital intensive business, they’re heavily unionized, and outside of a few congested airports there are no moats.…

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