Doesn't it matter to the stock of United Continental (UAL) if a customer is dragged off bodily because of some lack of seating? Didn't it matter when the airline banned two girls flying with leggings against the dress code of the friends and family seats?
In a word "no." That's because United's planes are so often full that there's nothing a P.R. nightmare will do other than, hopefully, free up more seats for others.
The story of the airlines and their low valuation is in synch with that nightmare video. It's ugly, and I am sure there will be some disciplinary actions against a crew that dragged a doctor off, not that his profession had anything to do with it, other than to express more urgency than someone with a different profession.
But the issue with the airlines has to do with capacity, not manners. The airlines trade based on revenue per seat mile, and it's been very strong because of supply and demand, meaning that they can continue to charge high prices -- and be unable to meet all of the demand because they are being disciplined about new planes added, and because of competition among the airlines themselves. Obviously this incident wouldn't have happened if seating weren't so tight that every airline feels emboldened and under pressure in dispensing seats.
This incident isn't what Warren Buffett liked when he decided to take positions in the airline stocks. That said, though, the end of cutthroat competition and the beginning of discipline among the carriers, after a series of mergers created an oligopoly among domestic routes -- the international travel business is another story -- created an environment where Buffett saw that, at last, the airlines can return their cost of capital and then some.
One of the airlines that Buffett likes so much, Delta Air Lines (DAL) , reports Wednesday. The Oracle owns 8.2% of the company. It is supposed to earn about $5.30 this year and can do so provided that it doesn't expand its fleet.
Buffett also likes Southwest Airlines (LUV) , having taken a 7% stake. Some have speculated that he might want the whole thing as he did with Burlington Northern, but I find that far-fetched. That said, it does have the best economics and, unlike all of the other airlines, has never reported a loss. It also doesn't have the ruinous international competition that dogs the rest of the group.
Yep, the stocks don't trade on P.R. fiascos, even though so many think they should. The only dip would come from a surprise announcement that Delta is going to add a lot more planes and offer a lot more competition to United, making it so some might want to book Delta after this P.R. nightmate. That said, though, it would be highly unusual, as the discipline is that severe and the desire to keep the planes packed while raising fees is what has made them investible for the first time in years. I have been watching them collectively swoon every few years -- which made them trading vehicles, not long-term investments, as Buffet now intends to own them.