It's interesting that the legacy airlines with network effects are always in and out of bankruptcy while the LCCs with no network effects (like Southwest and Ryanair) have done very well.
For all its benefits, the hub model also has great drawbacks - having to coordinate departures and arrivals in banks means you get lower utilization out of your planes which sit idle while they wait for connections (no 15 minute turnarounds) and out of your labor and airport as well (everything is jammed for a couple of hours and then idle for a few hours after). And also passengers hate connections and it adds a lot of travel time. But anyway, it just goes to show that not every business with legitimate network effects is a good one.
One possible model is that the big network airlines have concluded that they're really in the trading stamp business - that's where the money is, and they simply have to fly a bunch of planes around the world to maintain the ability to sell those stamps to credit card companies. (Hopefully it ends up better than Blue Chip or S&H.) You have to keep your unit economics in line so the the losses from your planes don't offset the profit from your trading stamps, and that's where the upgauging comes in. But in that case you're not expanding capacity to take share, you're just trying to keep up with everyone else.
Flying planes also gives you the opportunity to make money by investing in (or extracting warrants from) adjacent startups like Clear and Boom. Or maybe this whole Covid episode has made them realize how reliant they are on good PR to stay afloat - the airlines were incredibly well behaved when they were receiving all that CARES money.
A couple of weeks ago you were asking if anyone knew of any good "Stock Newsletters." Don't know if "Mr. Robling" runs a newsletter, or not, but great article!! Who would have thought that an "old school" company, in an industry "value" investors, love to hate, would be using a "high growth company" playbook and one of its "cornerstone" strategies would be "Network Effects!! Thanks so much for bringing UAL to my attention, will definitely "dive" into the company's strategy!!
It's interesting that the legacy airlines with network effects are always in and out of bankruptcy while the LCCs with no network effects (like Southwest and Ryanair) have done very well.
For all its benefits, the hub model also has great drawbacks - having to coordinate departures and arrivals in banks means you get lower utilization out of your planes which sit idle while they wait for connections (no 15 minute turnarounds) and out of your labor and airport as well (everything is jammed for a couple of hours and then idle for a few hours after). And also passengers hate connections and it adds a lot of travel time. But anyway, it just goes to show that not every business with legitimate network effects is a good one.
One possible model is that the big network airlines have concluded that they're really in the trading stamp business - that's where the money is, and they simply have to fly a bunch of planes around the world to maintain the ability to sell those stamps to credit card companies. (Hopefully it ends up better than Blue Chip or S&H.) You have to keep your unit economics in line so the the losses from your planes don't offset the profit from your trading stamps, and that's where the upgauging comes in. But in that case you're not expanding capacity to take share, you're just trying to keep up with everyone else.
Flying planes also gives you the opportunity to make money by investing in (or extracting warrants from) adjacent startups like Clear and Boom. Or maybe this whole Covid episode has made them realize how reliant they are on good PR to stay afloat - the airlines were incredibly well behaved when they were receiving all that CARES money.
A couple of weeks ago you were asking if anyone knew of any good "Stock Newsletters." Don't know if "Mr. Robling" runs a newsletter, or not, but great article!! Who would have thought that an "old school" company, in an industry "value" investors, love to hate, would be using a "high growth company" playbook and one of its "cornerstone" strategies would be "Network Effects!! Thanks so much for bringing UAL to my attention, will definitely "dive" into the company's strategy!!