Airline Economics

What is it with airlines? Why are they always in financial trouble?

For as long as I can remember, the airlines have reminded me of everybody’s poor uncle, always in debt and down on his luck. Whether it’s price wars, mechanic strikes, or terrorism, the industry seems to live under one of those dark clouds that storms and rains just on the main character.

Currently the pressures are immense: soaring jet-fuel prices, serious maintenance issues, unprecedented flight delays, and cutthroat competition are combining with an economic slowdown to make many consumers question whether it’s worth flying at all this summer.

Airlines strike me as one of those businesses that are great fun to be in, but are often lousy investments. The excitement and glamour of flying make it so attractive that loads of very smart people get involved in the business. As a result, competitive pressures push margins to the minimum, and there’s just no wiggle room.

Don’t get me wrong: I love flying. But right now the industry seems to be hitting a perfect storm.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T18:58:53+00:00 May 27th, 2008|Global Market Update|0 Comments

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