Warren Buffett once said that a durable competitive advantage has proven to be elusive in the airline industry. Spirit's shares currently appear to be undervalued, and the company's structural cost advantages could be both significant and durable.
International Airport near Baltimore, Maryland on March 11, 2019. In his 2007 Chairman’s letter, Warren Buffett said that, in the airline industry, “a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.
As a result of these and other changes, airlines have improved their ability to match capacity with consumer demand and maintain high load factors during both peak and off-peak times, resulting in improved profits and better asset utilization. It is no wonder, then, that Buffett’s Berkshire Hathaway has become a top-two shareholder in all four of the largest airlines .
Because of its strong focus on keeping costs down, Spirit Airlines should have the kind of durable competitive advantage which Buffett used to claim was so elusive in the airline industry. Unfortunately, the market capitalization of Spirit Airlines is probably still too small for consideration as an investment by Berkshire Hathaway.
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