AMR Files for Bankruptcy

A few years ago, someone had run the numbers and found that the historical profits of the airline industry added up to less than zero. In other words, in aggregate, one person paying another person to be flown on an airplane had been at less than cost.

The sad fact is that airlines are often terrible investments. Even Warren Buffett lost money on the airlines. He said that if a stockbroker had been at Kitty Hawk, he would have shot the plane down.

Today we get the news that AMR ($AMR), the parent of American Airlines, has filed for bankruptcy. This is particularly sad for American since it had been the only legacy carrier that hadn’t filed for bankruptcy. In early 2007, the stock had been over $40 per share. Yesterday it closed at $1.62. The airline has lost money for the last three years in a row.

I’m not sure what it is about airlines that have made them such poor investments. They seem to have endless union trouble. They’re hurt by price wars. They’ve managed to be hurt by both regulation and deregulation.

A few years ago, Money Magazine celebrated its 30th anniversary by looking at which stocks had been the best performers over the previous 30 years. Interestingly, the #1 stock over the three decades came from the worst-performing industry. The stock was Southwest Airlines ($LUV).

Posted by on November 29th, 2011 at 10:13 am


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