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Stock Strategist Industry Reports

Will the Airline Industry Face Heavy Turbulence?

We take an in-depth look at the conditions airlines encounter.

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Following the Morningstar approach to evaluating a company's durable competitive advantage, the airline sector is arguably one of the worst industries within the business realm. Low barriers to entry and intense competition have benefited consumers immensely, pushing down inflation-adjusted yields (ticket prices) 2% per year during the last 71 years compared with a 4% annual increase in overall inflation, according to the Air Transportation Association. As a result, the industry has experienced an astonishing number of failures, and investors have been burned often. In fact, even value investor Warren Buffett denounced the airline industry in 1999, quipping:

"I like to think that if I'd been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn't have done as much damage to capitalists as Orville did."

Basili Alukos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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