Creator: Maxinomics · Published: 2025-02-20 · Length: 9:50 · Watch on YouTube

The total profit of the airlines is tens of billions less than the amount of money investors have put into them. I look at why, even when their planes are packed, profits are rarely found. (video description)

1) Detailed outline

[0:00] The airline business

• Phil boards a plane in San Francisco for a ski trip to Denver. People love to travel, and they're taking more flights than ever before.
• So why have airlines been such a reliably terrible investment for five decades?

[0:22] Commodity competition

• Over the last 50 years, the money invested in airlines is tens of billions of dollars more than the profit they've made.
• The core problem is that airlines are all the same. Any of them can fly to and from the same airports, and no airline has a monopoly on, say, Denver. On a given Monday you can fly Boston to Miami on any of five airlines, not just Delta.
• So airlines compete on price or on the seat. Even seats offer little room to differ: there are only about four plane models to buy from Boeing or Airbus, all the same basic shape with limited configurations. Two inches of extra legroom or a few more first-class seats isn't a market-beating advantage.
• Air travel is at an all-time high and planes are fuller than ever, yet airlines are on a treadmill, flying the same planes to the same destinations and airports.

[1:29] Industry catastrophes

• Routine travel is punctuated by catastrophes: three mega events (shown on screen) either grounded planes completely or made people travel far less for months or years.
• The worst case for an airline is planes sitting idle on the ground. They aren't just not earning; they're losing money. Each idle hour costs a major airline at least $400, and it can creep toward $800 depending on the plane and how it was paid for.

[2:13] The Southwest model

• Idle time is how Southwest bucked the money-losing trend in the 2000s. Its fleet was built from exactly one type of plane, the Boeing 737, while other airlines ran big planes for long or busy routes, medium planes for national routes, and small planes for regional hops.
• With one plane, Southwest trained staff and pilots on one plane and one seating layout, stocked parts for one plane, and its mechanics only had to troubleshoot one plane. Fewer mistakes and faster work meant planes rarely sat on the ground.
• It turned planes around in 10 minutes in the 1970s; that has crept up to 35 minutes in recent years, still the fastest of any airline.
• Phil says Southwest's stock outperformance versus other airlines was almost entirely due to keeping planes in the air, which kept costs low, let it serve more destinations, and kept fares low.

[3:02] Depreciating assets

• Now imagine the inverse: planes that can't take off at all, even if the airline and its customers want them to, because the government says no.
• Apart from fuel, the costs stay almost the same: staff, health insurance, pensions, and airport fees for terminal space.
• Most importantly, planes are huge, expensive, complicated machines that, like cars, lose value from the moment the airline takes possession. They're depreciating assets.

[3:46] The plane shortage

• There are 28,000 passenger planes in service worldwide. An airline that wanted to win loyal customers by offering more routes than its rivals would need more planes, and would join a list of 15,000 planes on order but not yet built, an all-time high backlog.
• Every one must be built by Boeing or Airbus. Boeing has three U.S. assembly lines and Airbus has four around the world, where each plane body moves along at a snail's pace while parts gathered more than a year earlier are riveted together.
• A narrowbody jet takes about a year to build, and a widebody like the 787 takes three to five months longer. Together the two companies make about 100 planes a month, and any stoppage grows the backlog.
• Order a Boeing 737 or Airbus A320 today and you won't get it for at least eight years, assuming nothing goes wrong, like an emergency exit door blowing out mid-flight and forcing Boeing to stop production on two assembly lines.
• Airlines are at the mercy of two companies building arguably the most complex product on the planet.

[5:07] Fleets worth more than the airlines

• United Airlines did the math last year and found the cheapest planes it could buy were its own. Its stock had never really recovered from COVID, as investors feared another shock, so its market value was well below the value of its 950-plane fleet, even at an average age of 16 years.
• Boeing's production stoppages made used planes hold their value better than at any point in history.
• So instead of ordering planes or buying on the secondary market, United bought back its own stock, which Phil says explains the stock's sharp run-up from August to December (the captions say 2020, but the buyback-driven rally he describes fits 2024).
• It's also part of why Elliott Management launched an activist campaign at Southwest Airlines, pointing out that the company's market value was below the value of its fleet. Even with the cash to buy 857 planes like Southwest's, you couldn't take delivery for 8 to 10 years, so well-maintained, flyable planes are worth far more than usual.

[6:12] Industry investment map

• Looking back 20 years: once travel truly recovered after 9/11 around 2004, a reasonable investor might have seen airlines as a good buy. Warren Buffett loaded up on Delta, United, American, and Southwest in 2016. Returns came with huge swings.
• The plane makers, Boeing and Airbus, were a much better group.
• Better still were lesser-known companies that help airlines maintain or lease planes. Airlines repair planes as a normal course of business, and that has been amplified as they keep planes they'd rather retire while waiting for new orders. Phil names a plane storage and leasing company (the captions render it "FTI," likely FTAI Aviation), HEICO for parts, and TransDigm for parts.
• On the chart, you'd have lost money on American Airlines over that period, and only Delta has passed Boeing, and only in the last couple of months of 2024, with wild swings along the way. TransDigm did far better: selling parts to airlines is a much better business than flying passengers.

[7:25] Bankruptcies and profits

• Spirit Airlines is the latest in a long list of airline bankruptcies, the 213th since 1977. In the budget segment it fought Southwest and Frontier for the least profitable customers, while paying about $1.08 million per plane per year in maintenance, part of it to TransDigm and the leasing and maintenance company.
• Spirit's planes won't leave service when the logo comes off; another airline will pay about the same $1.08 million a year to maintain them, with the same suppliers getting their cut.
• Airlines are trapped in the part of air travel that absorbs all the bad parts of the industry: weather, customer service, and huge capital costs, while mostly competing on price.
• Phil is amazed people keep starting airlines. The bankruptcy list since 1977 includes United, Delta, Hawaiian, Continental, Pan Am, and American.
• After 50 years of bankruptcies and bailouts, the whole airline industry's cumulative profit is about $22 billion, a lot of money but less than Google earns in one quarter. And most people agree the product kind of sucks; it isn't that customers are delighted and delight just costs more.

[8:46] Economic impact

• Airlines are, however, an incredible investment for the areas around airports. You land somewhere far away and spend money there that had no other way of arriving: "You are a wallet with legs," and airports are portals into new local economies.
• Many governments publish reports on how lucrative their airport systems are. Florida, with 122 airports, calculates that a visitor spends at least $1,258 once they arrive, a figure that easily tops $2,000 in total economic impact.
• Air travel isn't going anywhere, but the excess profits will never end up with airlines or their investors. You can trade the stocks, but owning them is another matter.
• A closing clip (speaker not identified in the captions) calls the airline industry a labor-intensive, capital-intensive, largely commodity business that has been "a death trap for investors."
• Phil says airlines are one of four big, well-known businesses that are bad places for investors' money, and he'll cover another of the four in the coming weeks.

2) Things mentioned

Economics, markets, and policy

• Commodity competition: airlines offer near-identical products at the same airports and compete mainly on price.
• Capital intensity and depreciation: planes lose value from delivery, and fixed costs keep running while they're idle.
• Cost of idle planes: at least $400 and up to about $800 per hour for major airlines.
• Fleet standardization: Southwest's single-type 737 fleet and fast turnarounds (10 minutes in the 1970s, about 35 now).
• Supply bottleneck: 28,000 passenger planes in service, a record 15,000-plane backlog, about 100 planes a month from two makers, and waits of eight years or more.
• Market value below fleet value: United's buyback logic and Elliott's case at Southwest.
• Stock buybacks and activist investing: United repurchasing shares and Elliott Management's Southwest campaign.
• Value capture by suppliers: leasing, maintenance, and parts companies outperform the airlines.
• Airline bankruptcies: 213 since 1977, plus government bailouts.
• Cumulative industry profit: about $22 billion over 50 years, less than one quarter of Google profit.
• Grounding events: three industry-wide shocks that grounded planes or cut travel for months or years.
• Local economic impact: Florida's estimate of at least $1,258 spent per visitor, over $2,000 in total impact.

Companies, organizations, and products

• Southwest Airlines: the single-fleet low-cost outperformer, later targeted by Elliott Management (fleet of 857 planes).
• United Airlines: 950 planes averaging 16 years old; bought back its own stock instead of planes.
• Delta, American, Frontier, and Spirit Airlines: competitors; Spirit is the latest bankruptcy.
• Hawaiian, Continental, and Pan Am: names on the list of past airline bankruptcies.
• Boeing and Airbus: the only two big passenger jet makers, with three and four assembly lines.
• Boeing 737, Airbus A320, and Boeing 787: the narrowbody and widebody examples.
• Boeing door-plug blowout: the mid-flight emergency exit door failure that halted production on two lines.
• Elliott Management: the activist investor behind the Southwest campaign.
• Berkshire Hathaway (Warren Buffett): bought Delta, United, American, and Southwest in 2016.
• FTAI Aviation (likely; captions say "FTI"): stores and leases planes for airlines.
• HEICO and TransDigm: aircraft parts suppliers that beat the airlines as investments.
• Google: its quarterly profit exceeds the airline industry's 50-year total.

Places

• San Francisco and Denver: Phil's flight for a ski trip.
• Boston to Miami: the example route served by five airlines.
• Florida: 122 airports and published visitor-spending estimates.

3) Biographies

Phil Andrews (presenter)

Phil Andrews is the producer and on-camera host of Maxinomics ("the guy in the videos and the comments"), a Morning Brew channel that explains economics, business, and geopolitics through stories. Here he flies to Denver to explain why airlines are a poor long-term investment.

Warren Buffett (mentioned)

Warren Buffett is the chairman and CEO of Berkshire Hathaway and one of the most famous investors in history. He long criticized airlines as an investment, then bought stakes in Delta, United, American, and Southwest in 2016; the video cites that as an example of a reasonable investor betting on the industry.

Elliott Management (subject)

Elliott Management is a large activist hedge fund founded by Paul Singer. In 2024 it took a stake in Southwest Airlines and pushed for changes, arguing in part that the company's market value was less than the value of its fleet.

Production credits

Producer Phil Andrews; video editor Greg Jacobs; motion graphics by Tom Grillo; director of production services Sam Wolf; thumbnail by Seth Laupus; supervising producer James Atamian; chief content officer Devin Emery.