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Even before the coronavirus my firm were not big fans of the airlines business. Planes are expensive. Airlines have to pay for them whether they are fully occupied during normal economic times or when they are half-loaded during recessions. Their other big cost is fuel – airlines have little control over it. If they hedge the oil price and it goes up, they are heroes. If they hedge oil and it declines, their unhedged competition will have an economic advantage. It is very difficult to develop competitive advantage; customers usually have very little loyalty and price is the deciding factor for most buying decisions.

Warren Buffett invested in the airlines industry in the 1980s, lost money, and swore he’d never invest in it again. However, after the Great Financial Crisis the industry went through significant consolidation by mergers and attrition, leaving four carriers controlling the bulk of the market. Fewer competitors made competition more rational and turned these airlines into much better businesses. So Buffett changed his mind and bought a 10% stake in all four of the largest U.S. airlines. For a few years it seemed that he was finally right about the airlines.

Airlines were never our cup of tea. The high fixed-cost structure of the industry and its past history of going bankrupt every other recession made our EQ when it comes to airlines very low. When Buffett bought them, for some value investors, the airlines had been blessed by the high priest. We are agnostic (growing up in Soviet Russia has its rare benefits) and have to own our decisions, so we passed on the airlines without spending much time thinking about them.