Thesis: The Great American Airline Reset
The Historical Challenge
For decades, investing in US airlines has been a reliable way to destroy capital. It’s something we’ve grown accustomed to - airlines are where money goes to die. Even for legends - Warren Buffett, in his 2007 investor letter, said of airlines
If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down
But if the past year has taught us anything, it’s that industry dynamics can change quickly. After all, industrials used to not trade at 30x earnings… There’s always more money to be made in “this time is different” than there is in “nothing ever happens”, could airlines finally be undergoing a transformation?
To evaluate that claim, we’ll have to look back at the last time people asked that question. The industry's one brief moment in the sun was during 2012-2014, the period marking the first sustained profitability since deregulation. These years delivered +240% sector returns, led by LUV +310% and DAL +320%.
And then, the airline supercycle was destroyed by one OPEC decision.