Consolidating airline industry

Several trends hint that this year and beyond could be problematic.Oil prices are increasing, and global traffic growth is expected to slow in 2017, according to the IATA — a slowdown that is particularly likely if GDP growth remains sluggish.Warren Buffett got burned with an airline investment in the 1990s. Industry observers have noted that since 2010, “The airline industry is profitable again — really profitable.” Some of that profit is the result of innovative pricing models.He blamed the industry’s notorious low profitability on the “kamikaze pricing tactics of certain carriers” and vowed to not invest in this “death trap” sector again. But two important structural changes have taken place.With less competition to worry about, airlines are now doing exactly what you'd expect them to do: spend less time worrying about how to keep their customers happy, and more time working out how to make more money.It's not rocket science, and it's the same reason your cable company's customer service sucks so much. (It's also the same reason why restaurants tend to treat you pretty well.)A few years back, inspectors at the Department of Transportation tried to figure out exactly how connected competition is to good airline service.

It would therefore be absurd to expect that a common owner of multiple firms in the industry similarly encourages each one of them to steal market share from the other firms in the investor’s portfolio.

Not surprisingly, my latest blog on “Sully” Sullenberger’s AAAA videos campaigning against US ATM reform ignited a strong response from readers.


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