Making Money is a Grave Mistake For Airline

In the airline business there’s nothing more damaging to a company’s internal harmony than making a profit. The pilot strikes that have grounded almost all British Airways flights for the next two days are a case in point.

Unlike most industrial sectors, the usual state of affairs for airlines is spending vast sums of money for little return (Warren Buffett famously opined that this makes the sector a trap for investors). In one respect this lousy reputation is actually helpful: Unionized staff won’t drive as hard a bargain for higher wages if they think it might make their employer go bust.

Recently, however, the industry has broken with its dismal profit trend, with returns on capital expected to be positive for the fifth year in a row. British Airways’s parent International Consolidated Airlines Group SA is a good example. Its net profit increased to 2.9 billion euros ($3.2 Billion) last year, and the return on invested capital climbed to a very respectable 16.6%, according to the company’s calculation. Hence IAG felt able to return 1.3 billion euros to shareholders in dividends over the past year. Analysts are generally admiring.