To state the obvious, this blog isn’t about investing (well, other than “investing” in your points balance), 😉 though I do often discuss airline economics, and sometimes the topic of airline stocks comes up.
While I’m interested in investing, I’m by no means a financial expert, so please don’t interpret any of this as financial advice, or anything like that. This is just an airline nerd sharing his (probably baseless) opinions, so take it with a grain of salt. However, here’s a topic that I find interesting — under what circumstances are airlines worth investing in through the stock market… if ever?
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Warren Buffett once famously joked that if a farsighted capitalist had been present at Kitty Hawk in 1903 (when the first flight took place), he should have shot Orville Wright.
Keep in mind that before the pandemic, Buffett’s Berkshire Hathaway was the largest shareholders of US airlines. Those stakes were all panic sold at the start of the pandemic, when they were at absolute lows. Interestingly, Berkshire Hathaway recently got back into airline investing, buying a stake in Delta.
There’s no denying that the US airline industry at large has made massive progress when it comes to becoming more sustainable. That’s largely because US airlines have figured out how to tap into loyalty programs as major profit centers, though not all airlines benefit equally from that. Airlines have also gotten much better at monetizing their products, which is a double-edged sword for consumers.
Looking at US airlines, the absolute top airlines might have a margin of 10% in good years, while most players still lose money. And when things go wrong? Well, they’re quickly begging taxpayers for a bailout to stay afloat.
Let me be clear, there are certainly situations where airline stocks appreciate over time, even without “buying the dip,” so to speak. For example, if you purchased United stock in mid-2023 at its rough peak at the time, you would’ve seen a roughly 100% return over that period, compared to the stock price today. Pretty great, eh? And if you bought during a dip, you might’ve even seen a return of closer to 200%.
United’s turnaround, and in particular, the company’s narrative, is something we haven’t otherwise seen replicated much. You would’ve seen healthy returns with Delta stock as well, but not as high, given that the airline was already the leader at the time.
A great solo travel tip spotted this week on One Mile at a Time.
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