What a difference a couple of years can make. In 2013, Warren Buffett called the commercial aviation industry a death trap for investors. In 2016, the legendary value investor spent more than US$1.3 billion buying the stock of four major U.S. commercial carriers: American Airlines, Delta, United Continental, and Southwest Airlines and he has recently upped his stake to more than $8 billion.
Notwithstanding the speculation that this action is a precursor to Buffetts company, Berkshire Hathaway, taking one of these major carriers private, Buffett seems to be betting that consolidation will continue to pay off for the airlines. He may or may not be right, but it is undeniable that airlines in the U.S. and in most other regions are enjoying a run of good results, buoyed by steadily rising demand and an extended drop in fuel costs. Industry-wide passenger traffic grew by 6.3 percent in 2016. And according to the latest International Air Transport Association (IATA) figures, commercial airlines posted their strongest financial performance ever in 2016 reporting $35.6 billion in net profit, just a bit above 2015 results but nearly double those of 2014. For the third consecutive year (and only the third year in airline industry history), carriers reported a positive return on invested capital.