Warren Buffet invested $10B into Big Four airlines
Warren Buffet‘s Berkshire Hathaway invested nearly $10 billion into American, Delta, United, and Southwest Airlines. Surprisingly enough, in 2013, Buffet referred to the country‘s airline industry as a “deathtrap for investors”, according to Business Insider.
Over the past two years, the chosen airlines have reported record profits, positive post-financial crisis capacity discipline and lower labor costs. Thus, instead of picking one airline to invest in, Warren Buffet selected all four.
Warren Buffett’s investment in America’s big four airlines compiles from $2.1 billion in American, $2.2 billion in United, $2.4 billion in Southwest, and $3 billion in Delta.
The number of domestic market‘s competitors diminished after the Big Four merged with or acquired such companies as America West, US Airways, TWA, AirTran, Continental, ATA, and Northwest Airlines.
Thus, these four airlines – especially American, Delta, and United – are most likely to compete among themselves.
How are they competing?
In early 2015, Delta changed its frequent-flyer program, rebasing it from a mileage to a revenue system. So, passengers are awarded based on the new system‘s calculations of frequent-flyer miles according to the amount of spent money.
Shortly after that, United and American released almost identical programs to what Delta offered. A similar situation occurred with basic economy fare class and baggage fees.
On the other hand, Southwest appears to stand out of the competition tendencies by operating a single type B737 aircraft, using a low-cost business model. Also, the airline differs by abstaining from trans-oceanic routes, checked baggage fees, and business class cabins.
The airlines’ performances
Despite the fact that the Big Four were the most profitable airlines in the world in 2015, they had experienced financial difficulties not that long ago.
Fortunately, by absorbing other airlines, the carriers became stronger. The merger between Delta and Northwest in 2008 was a success. The resulting airline is considered to be the strongest of the Big Four.
In 2010, United‘s takeover over the Continental airlines seemed to be a questionable transaction. Luckily, the airline’s new management has made an improvement over the past year, working out the airline’s labor and performance issues.
Another acquisition in 2010 was made by Southwest, when it merged with AirTran Airways. It appeared to be a fortunate venture, due to the latter airline‘s help to consolidate the Dallas-based airline east of the Mississippi.
And the last merger between American and US Airway airlines formed the largest new airline‘s company in the world by fleet size, company’s revenue and carried passengers in 2015. While having to overcome the cultural and operation differences, the new company with its vast domestic network makes it a formidable competitor.