If you had thought about investing in an airline stock, maybe you should first read what's below !
I was stuck the other day when watching a CNBC show about American Airlines. They interviewed Robert Crandall, the charismatic ex CEO of the airlines, named by the Wall Street Journal "the man who changed the way the world flies".
Indeed, the guy not only was a great leader but also a revolutionary innovator. He led American Airlines to sky-high profits through the creation of the first frequent flier program, deep-discount fares and cutting-edge reservation systems — innovations that rapidly became industry standards.
Though, this guy who spent 25 years shaping his business and the entire industry made a very blunt statement : "the airline industry is a great place to work but it is a lousy one to invest in...Over the years, it simply hasn't given back its cost of capital" !
And the one quote which summarizes all : "I'm an airline manager, not an airline investor" !
Your post is fully in line with one of the classic jokes in the airline business. That's the way it goes:
Question : How do you become a millionaire in the airline business ?
Answer: Start with a billion !
Posted by: Laurent | February 21, 2007 at 07:19 AM
It goes beyond cost of capital, the fact is that the entire airline industry since its inception has only produced a negative return. And the NPV for the future is frightening.
Posted by: Marc | February 21, 2007 at 01:25 PM
That was a joke from Richard Branson !
Posted by: Michel de Guilhermier | February 21, 2007 at 01:44 PM
Warren Bufffet legendary wisdom :
“If a capitalist had been present at Kittyhawk 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..."
Posted by: Michel de Guilhermier | February 21, 2007 at 01:45 PM
cont'd :
"...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."
Posted by: Michel de Guilhermier | February 21, 2007 at 01:46 PM