(NOTE: this post courtesy of the Old Space Cadet)
When I was a wee young lad in the mid 1960s I bought some stock because of my confidence in the company’s principal. His name was Warren Buffett. Since then, I have made a point of treating the annual reports of Berkshire Hathaway the same way many people treat outstanding textbooks. The latest is no exception. Substitute any of the terms alt.space, space tourism, new space, or suborbital tourism for the term airline in the following Buffet comments from the Berkshire Hathaway Inc. 2007 Annual Report, (Page 8):
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 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.
The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But then we got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.
Given the regulatory environment, economic volatility, and gigantic entry barriers associated with alt.space, and given the frequent demands of the alt.spacers for “airline-like” operations for their fantasy spaceships, could Warren Buffet possibly be making a valid observation? If we are truly not quite into the DC-3 era of space flight, perhaps now is the time to think things through very carefully.