Aiming at Orville

I made my dumbest mistake in the early 1980s. I bought some stock in Braniff — which had the hottest flight attendants I’d ever seen — and lost the modest amount I invested. I’ve bought exactly one airline stock since then, American Airlines, when it was in bankruptcy. I made some quick money and got the heck out.

— W.D., online The Fool responds:

Here’s hoping you weren’t making your investment decisions based on the attractiveness of the company’s employees. Airlines can seem like great investments, but it’s a very challenging industry, and gobs of airlines have gone out of business. Often, when they file for bankruptcy protection, their stock investors end up with shares worth little or nothing — so don’t think of bankruptcy as a promising time for a stock.

Airlines have to deal with volatile fuel prices, very complicated scheduling logistics, unpredictable weather, fare wars, labor unions, the cost of empty seats on flights, expensive equipment and much more. A few companies, such as Southwest Airlines, have managed to be profitable over many years, but it’s a tough business in which to establish and maintain durable competitive advantages.

Warren Buffett has made some money in airline stocks, but he has also quipped, “... if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”