Airlines

Airlines fly people and cargo. They lease or own a fleet of expensive planes, employ thousands of crew, and try to fill every seat on every flight at a price that covers their costs.

It's one of the largest service industries in the world — and historically one of the worst at making money. Warren Buffett famously said: "If a capitalist had been present at Kitty Hawk, he should have shot Orville Wright."

Picture one flight. The airline pays for the plane (lease/financing), the crew, the fuel, the airport fee, the food and the cleaning. If enough seats sell at high enough prices, what's left is profit.

If too many seats are empty, or oil prices spike mid-flight, that one flight loses money. Run a whole network of flights this way and small swings in cost or demand make the difference between a great year and a bankruptcy.

Ticket sales are the big number. But increasingly airlines make real money from "extras" — baggage fees, seat selection, upgrades, food, Wi-Fi.

Loyalty programs are the hidden gem. Airlines sell miles to credit-card companies, which give them to customers. For some carriers the loyalty business alone is worth more than the airline.

Fuel is the biggest cost and it moves with global oil prices. Labor is the second biggest and is heavily unionized. Planes themselves cost $100-300 million and have to be paid for whether they fly or not.

In good years a great airline keeps 5-10 cents of every dollar in profit. In bad years it loses money. The industry has filed for bankruptcy more times than almost any other.

Big network carriers (Delta, United, American, Lufthansa) fly worldwide and feed traffic through hub airports. Higher revenue per passenger but higher cost.

Low-cost carriers (Southwest, Ryanair, easyJet) fly simple point-to-point routes with one aircraft type and tight turnarounds. Lower fares, but much cheaper to operate.

Recessions cut business travel sharply. Pandemics ground entire fleets (2020 was the worst year ever for airlines). Fuel-price spikes hit margins instantly. Labor disputes can shut an airline down for days.

And the industry is unusually exposed to terrorism, geopolitics, and rare events — one safety incident can damage a brand for years.