A number of years ago, Warren Buffett said he would never own airline stocks, because there are too many failures in the industry or it is hard to make money. In recent years, the best time to buy airline stocks was after the pandemic. The shares were very low and just by returning to what was normal, money was to be made. The industry has returned to normal, what is the future for airlines?

In an article by Joe Brock of Reuters, at the annual IATA submit in Rio de Janeiro, Willie Walsh director-general of the International Air Transport Association (IATA) expects that higher fuel costs will expect some airlines to go out of business and others to be acquired by larger carriers.

Airlines are expected to protect margins by cutting unprofitable routes, while fares which have surged are unlikely to come down soon.

Budget carriers have been among the hardest hit, lacking higher-margin revenue streams such as premium cabins, high-paying travelers and credit-card loyalty programs.

In the US the big three carriers are United Airlines, Delta Air Lines and American Airlines.

In Europe, the best run company is Ryanair a low-cost airline which continues to have a strong performance.

Mr. Walsh does not expect the United Airlines and American Airlines to merge. Both companies are open to buying airport slots, gates or other assets.

The Iran conflict has upended traffic flows through the Middle East hubs such as Dubai, Doha and Abu Dhabi, creating acute challenges for Gulf carriers including Emirates, Qatar Airways and Etihad.

The popular carriers account for 14% of global capacity. Mr. Walsh expects the Gulf carriers to regain their important position in the market.

Adding to the strain is the slow pace of aircraft deliveries from Boeing and Airbus, along with engine delays from GE Aerospace and Pratt & Whitney limiting airlines’ ability to expand fleets and improve efficiency. Part of the reasons for the delay are post pandemic supply chain disruptions and political trade disputes.

An alternative is Comac from China but they need certification in Europe and the US (without certification a plane can not be sold). Cormac uses Western engines and avionics.

Linking to dividend paying stocks, people fly and there is money to be made in the airline business, although most of the time looking at supplier companies seems to be more profitable. When there is money to be made, there is money to be lost, if you do buy, ensure you know your alternatives.

There are more questions than answers, till the next time – to raising questions.