All businesses are not the same
We spend a lot of time discussing great businesses, because that’s what we believe will produce the best investment results. But what about the other 3,000+ businesses that are available to purchase? Below is an example of one of the worst – airlines.
Flying passengers and cargo around the world has never produced good results for investors, at least for those publicly traded. Even ignoring the unprecedented losses in 2020-2021, thanks to Covid, look at the other years. A bad year is a profit of $12 billion, while a good year is over $30 billion. With no measurable growth in those 10 years.
Worse, these are the results as passenger miles flown grew from 4 trillion miles to nearly 6 trillion in the 10 years. So more people are flying, yielding roughly the same profits.
Let’s look at it another way. The industry offers 5.8 billion seats to customers at the moment. (That’s 5,800,000,000 seats) Those seats are inside the most expensive and technologically advanced machines in the world–expensive to operate and maintain. But if you divide the profits earned in 2024 by the number of seats, you get just over $5 per seat in profits per year!
In contrast, let’s use Microsoft as an example of a truly wonderful business. This single company produces more profits than the entire airline industry, and the trend is for more growth in the future. Those profits are produced from 350 million desks—paying users.
So, using the same math as we applied to the airlines, Microsoft earns $250 in profit from each user vs. the $5 in profits from each airline seat.
No wonder that in one of his annual letters Warren Buffett wrote the following:
“If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
Best regards,
Daniel A. Ogden
Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Microsoft (MSFT). This article is not intended to be used as investment advice.
Dock Street Asset Management, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. You should not assume that any discussion or information contained in this letter serves as the receipt of, or as a substitute for, personalized investment advice from Dock Street Asset Management, Inc.
It is published solely for informational purposes and is not to be construed as a solicitation nor does it constitute advice, investment or otherwise.
To the extent that a reader has questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult with the professional advisor of their choosing.
A copy of our Form ADV Part II regarding our advisory services and fees is available upon request.
Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Past performance is no guarantee of future returns.
