You can be right and wrong at the same time.

In my office I have a picture of the 6 blind men and the elephant. The blind man that touched the tusk said the elephant is a spear; the one who touched it’s trunk said it was a snake; the one who touched it’s body said it was a wall. And so on. They were right based on their individual experiences and yet they were wrong when you saw the bigger picture. (I put up the picture to remind myself never to be too sure of what I know. After all, each of the blind men was only too sure of himself. )

In 2018, I presented to a group of investors on Indigo. Looking back, I was right about the moats in the business and the future growth prospects etc. The market share in 2018 was 40% and now it is 60%+.

And yet I was wrong about it as an investment. Because, most Airlines are fragile. What makes them fragile?

• Little or no cash on their books to tide over bad times
• Operations intensive business that requires working with many, many different variables: fuel, airplanes, pilots, cabin crew, ground staff, maintenance, airports, regulators, tour operators etc etc. More the variables, more the chances of something going wrong.
• Planes, pilots, fuel and cabin crew are expensive. But the experience is mostly commoditized and hence there is very little power to charge more.

And every year I learn new ways in which airlines can fail. A few years ago, they discovered a snag in Boeing 737 and very quickly airlines all over the world were banned from flying that plane. So if you were a low cost carrier flying that model, you were in for some rude shocks. And now, the latest being that a resignation by 40 odd pilots has created a crisis of survival for an airline.

In a podcast, I heard Steve Udvar Hazy say that starting an airline was the dumbest mistake he did. He realized that while he was working hard to make money running his airline, the lessor was making money regardless. So he quickly pivoted from being an airline to an air lessor. You know- better to sell shovels than to be a gold digger yourself.

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Since childhood, we are taught to be hardworking like the ant and not be the lazy grasshopper. This is a good moral in most situations. But you have to teach yourself to not always be the ant; sometimes it’s better to be the grasshopper (Air Lessor or an Airport) than the ant (Airline).

In my own portfolio I own many lending businesses. One of them is an ant which works hard, does a lot of due diligence before lending and is very efficient at collecting money back. And there is a grasshopper which is a kind of a monopoly and therefore does very little work. The ant has my utmost respect but it is the grasshopper that has made the money.

My friends were telling me that in parties an airline operator or a restauranteur is always looked upon with awe. So, you can be sure of more ants in the future.

–Cheers!