Dunking on Airlines Once More

We’re doing a bit of media hating again today, but more, we’re doing airline hating. To me, airlines are some of the worst companies to invest in, and it is for one main reason: They cannot differentiate themselves. Even among the airlines that go the bare-bones approach, selling tickets for as cheap as possible and ignoring all other amenities, competition is still fierce. Southwest, for example, has long led in this department, but Southwest’s market cap is now less than the total amount of money they would receive from selling all their planes. Southwest, the entire company, is worth less than their planes. This has been spurred by a Wall Street Journal article I saw recently, Summer Travel Is Booming. Why Are Airlines Doing So Badly? I just do not understand how we have not learned our lesson yet. Airlines have always been awful businesses, and they will continue to be.

And this isn’t a matter of less air travel. This year has been the highest rate of air travel in history, but airlines are still getting pounded, and it is because of their margins…or lack thereof. I’ve already mentioned low-cost carriers like Southwest, but Spirit and Frontier are also struggling because their before-flight and during-flight costs have risen. Pilots are more expensive, fuel is more expensive, unit costs excluding fuel are higher, and cabin crews are more expensive. The only major carrier with larger margins than pre-pandemic is Ryanair.

And even the airline stocks which are supposedly doing the best like Delta, for example, are still struggling. Delta’s stock is down 17% over the past five years. And legacy airlines like Delta, United, and American are only struggling less. Their premium bookings are growing for sure, but their business bookings are decreasing at a similar rate. Business and airline spending (adjusted for inflation) is down 13% since 2019.

And then there is the classic airline, airfare battle. And this is why airlines are just the worst. It doesn’t matter when you are in history, where you are in history, or what company you are looking at. One airline is always beefing with another in terms of airfare. The biggest problem isn’t the actual cutting of prices, which happens in business all the time, it’s the getting prices back up. All airlines must raise at one time because of some catalyst, or they can take the risk of raising individually. But there is so often, so little differentiating one airline from the other, so consumers often look to price.

An airline has to break from the pack, raise prices, and risk a big downturn in business, or continue watching its profits shrink one by one. And that is where we are now, and that is where we always will be with airlines. Ten years from now, airlines will be cutting prices aggressively against each other, and investors will still not make money.

Please learn from your fellow investors’ mistakes, do not buy airline stock, sell it if you have it, and just give the spare money to me plz.