“It seems yet another airline is ready to bite the dust,” she said, keeping the newspaper aside. 

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“Yeah,” I replied. 

“I wonder why people don't just listen to Warren Buffett and stay away from investing in airlines.” 

“Which is what?”

“As Buffett once said: “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down.”” 

“Oh that.”

“On another occasion Buffett said: “Despite the huge amounts of equity capital that have been injected into it, the industry, in aggregate, has posted a net loss since its birth after Kitty Hawk.” 

“Oh.” 

“Isn't it good enough for you V?” she asked sarcastically. 

“No,” I replied, wanting to see how many Buffett quotes she could come up with. 

“Let me quote Buffett again on airlines, something he said in 1990, nearly three decades back: “The economics of the airline industry have deteriorated at an alarming pace, accelerated by the kamikaze pricing tactics of certain carriers. The trouble this pricing has produced for all carriers illustrates an important truth: In a business selling a commodity-type product, it's impossible to be a lot smarter than your dumbest competitor.””

“Hmmm.” 

“Now what?” 

“You see the thing is that Mr Buffett has changed his view on airlines, since he said these things.” 

“Really?” 

“Yes.” 

“So, what is his view now?” 

“As late as 2013, he called investing in airlines, a death trap. And then things started to change,” I said. 

“Oh. I didn't know that.” 

“Yup.” 

“What changed his view on owning airlines?” 

“Let me give you some background from a book I have been reading lately.” I got up to get the book.

“Okay, so here it is,” I said. “Let me read from it.” 

“What is the name of the book?”

“It's titled The Myth of Capitalism—Monopolies and the Death of Competition and has been written by Jonathan Tepper and Denise Hearn.” 

“And what does the book say about Buffett?” 

“Let me read it out: “Buffett invests in monopolies. They are even more attractive if industries have the appearance of competition, but are in fact local monopolies. Airlines are the perfect example.””

“Interesting.” 

“From not owning any airline stocks, Buffett now owns stocks in major American airlines. As the authors write: “He is not betting on a company but exercising control over the industry. They all know he likes pricing power, and the message from his shareholding is clear.””

“But how did he come around to changing his view on airlines?” 

“The airline sector in the United States was deregulated in 1978. Over the decades a lot of new entrants entered the market. Over and above that, there was a lot of buying and selling of airlines and a lot of consolidation happened in the sector.”

“Hmmm.' 

“As Tepper and Hearn write: “All US Airlines consolidated into four manors: American, Delta, United, and Southwest. Buffett waited until industry consolidation was complete with each major airline operating a regional monopoly. He then invested heavily… into all four them. Little competition means there is little threat to your investment. Buffett is now a majority shareholder in every key competitor in the same industry.””

“Interesting,” she said. “But aren't monopolies bad for the public at large?”

“Oh yes. But monopolies come with pricing power. Pricing power means higher profits. And that is something which is good for the stock price of the company, and hence, shareholders.”

“Never looked at it that way,” she said.

“Well, good and successful investing is all about looking at things differently.” 

“Hmmm.”

“If you go up with the herd, you also fall with the herd,” I said. 

“That's a nice thought.” 

The example is hypothetical 

(Vivek Kaul is the author of the Easy Money trilogy)