Big Bets Volume 1 -- April 21, 2018

The big bet:

Incumbent Airlines will be acquired by Big Banks during the next financial crisis….

Here are my predictions:

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(they’ve actually already laid the consumer-facing groundwork + branding for this!)

United + Chase

Delta + American Express

American Airlines + Citi

(*Note - not talking about ‘disruptor’ airlines like jetBlue, Southwest, Virgin, etc. That’s another Big Bet, for another time)

During the next recession, the service industry will get crushed like it always does. In a race to protect margin and keep discretionary spending fueling their credit card business, banks will take extreme measures. Airlines, already operating at close margins, are increasingly incurring unforecastable expenses, (things like TSA delays, costs associated w/ rescheduling customers, vacillating price of oil, regulatory changes, union demands) will be challenged like they always are.

But this time, the government won’t save the airlines like they did after 9/11. Here’s why:

  • competition - upstarts like Southwest, jetBlue, and Virgin keep nipping at the profit margins of the incumbent airlines. The upstarts won’t need a bailout because they run a different and leaner ship.

  • It’s a dog eat dog world out here -- we are operating in a MAGA society where it’s hard to imagine that the Federal Government would bail out commercial airline companies. Welcome to capitalism in 2018, friends.

Enter big banks who have deep financial relationships with aforementioned airlines….they are already trading money for miles! Ponder that for one moment -- by issuing credit cards with mileage points associated with the amount of money a consumer spends on the card, the banks get a pretty healthy insider focus group with which to understand the airline industry….and their acquiree’s business.

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Keep your friends close and your potential acquisitions closer, is, I guess, how the old saying goes.