I think Buffett has a useful analogy with US Air - he thought it was the exception to the rule, but it turned out just as bad as the rest.
Frankly, if British Airways can't make a decent economic return while sitting on some of the most valuable slots at the most valuable airport in the world, I don't expect any other airline to be able to achieve anything other than the industry track record over the past 100 years, including the regionals who have a much more risky customer profile.
I have seen broker research suggesting Allegient is the only airline that has an enduring competitive advantage, but I don't believe that either. In reality, it is simply too easy for Joe Bloggs to set up his own airline and take market share.
Think of it this way - JetBlue and easyJet have evolved over a very short time to becoming dominant in their respective geographies. They found it easy to achieve that growth against supposedly strong competitors. Barriers to entry are too low, and returns are ultimately too low as they will also find when seniority and the cost base catches up with them.
Bear in mind that RJet only exists as the unionised pilots at mainlines were too expensive (Frontier excepted). It is a bet on the health of the parent airlines to invest in the regionals, which I am not prepared to make, as there is no margin of safety.
Sure, it is the only airline that does what it does well, but I still see a speculative play and not an investment. |
