Wednesday, May 23, 2007 | Warren Buffett is the smartest investor in the world. His latest moves show San Diego how to think about our airport.
Buffett, by the way, became the second richest guy in America by simply seeing farther than the rest of us. He didn’t invent anything or inherit money or start something or create a monopoly or catch some overnight fad. Decade after decade, he just figured out what was going to happen in the future and bought shares accordingly.
Start by knowing that Buffett loves airplanes. He once joked that he hoped to be buried in his private jet. But soon the guy fell in love with charter services, so he bought the biggest one, NetJets.
Now these aren’t huge planes, these are smaller birds that often use the secondary airports sprinkled across our county. And the smart money, from people who are spending their own, are developing whole new fleets of lightweight jets, anticipating the future is going that way. (Spectrum Aeronautical, at Palomar Airport, is already taking orders for 2009 deliveries. And they have six competitors with small jets in test phase or on drawing boards, but financed.)
Buffett, of course, doesn’t own any airline stocks. He’s not into losing money. So what’s he investing in today?
Have a seat, please.
Railroads. Yes, the old iron horses. Buffett’s recently put billions into the major railroads. That’s billions, with a “b.”
Of course Buffett gets around. Maybe he saw how Europe, having $5 per gallon gas (in liter equivalents) for several decades, has adapted. It’s a more compact continent, for sure, but the prevalence of train travel in Europe versus America is stunning. And heads don’t turn over there when a business suit and briefcase putt-putt past on a Moped.
Perhaps Buffett noticed that in the long haul, decade after decade, the price of a gallon of gas here seems to go in one direction. That direction would not be down. Or, being a number-cruncher, it could be that one of Buffett’s analysts has gone through the Official Airline Guide archives, and noticed a trend. That trend being fewer North American flights, year after year, for the past 10.
Certainly Buffett’s aware that places like Palomar Airport, Gillespie Field, Montgomery Field, Brown Field, Borrego Valley Airport, Agua Caliente Airport, Fallbrook Airport, Jacumba Airport, Ramona Airport and Ocotillo Airport are quiet, peaceful and underused patches of concrete.
Could it be that Buffett also noticed that traffic is down at Lindbergh Field?
Yup. You read that right. Lindbergh’s traffic is down.
Using the airport’s published documents, the total takeoffs and landing for 2006 were 220,839. Dig back into the oldest published prior year, 1999, and you’ll see that Lindbergh Field handled 222,354 takeoffs and landings back then. Call this anything but don’t call it growth.
And this isn’t peculiar to San Diego.
Government officials, those folks who spend other people’s money, somehow haven’t paid excessive attention to these numbers. The airport boosters hired PR folks who spun new phrases like the “Nation’s Busiest Single Runway Airport” to fog over the facts. Kind of reminds one of that “Weapons of Mass Destruction” thing, eh?
Passenger counts are up, however, and that’s no surprise to anybody who’s flown lately. Have you seen an empty seat? Me neither. Will that change? Not when empty seats and rising fuel costs shove the airlines into deeper losses.
Boeing’s fighting this fuel expense, like the new little jets are, with composite materials for their 787 Dreamliner. This’ll save about 20 percent in fuel per mile over today’s airliners. At current rates of increase for oil, however, that falls way short of keeping up. So costs per flight mile will jump anyway.
And get this, the multi-million dollar forecasts San Diego paid for, predicting airport growth, all assumed ticket prices will drop. Don’t we wish? The single biggest variable expense for any airplane is fuel. Most airlines are losing money at current prices. So where would you guess tickets are headed from here?
Well, Boeing’s currently benefiting from the Airbus debacle, and is getting strong Dreamliner orders. But Boeing showed prototypes with more comfortable seating, trying to alleviate passenger complaints, with a rather cool alignment of staggered seats, eight across. Everybody loved the layout. The problem is, hardly anybody bought that configuration. Most airlines insisted, with their orders, that Boeing shove the seats back together, nine across, for up to 330 bodies wedged into a flight. And unless they want to go bankrupt, they’ll need to pack every one. And unless the Arabs and our pal in Venzuela slash the price of oil, fares still must go up.
Look at this from a local economic perspective. San Diego’s biggest business is tourism. Our image is world class. Imagine flying into Lindbergh for the first time. If you’re on the left window, you see a sparkling bay, a graceful bridge and a dramatic skyline coming in. From the right, it’s Balboa Park. Stepping out, you’re tranquilized by a salty sea breeze. During that harbor drive, the masts seem to wave hello to you, welcome, visitors. You hear boats and waves.
If you’re a tourist or conventioneer, chances are your hotel’s minutes away. There’s not a more convenient airport in the country — nestled near to a resurgent downtown.
Yes, some business growth went to North County and the UTC area. And Miramar, one of the prior wet dreams, would’ve been more convenient for those travelers. But North County’s growth was recently eclipsed by the South Bay, neutering that argument.
Just imagine visiting for the first time, but landing at Miramar. On the port window, you see our landfill and the nation’s largest RV dealer. To the starboard, it’s franchise row and furniture stores mixed with adult entertainment. Upon exit, a waft of desert air dries your nose, with hints of smog and you hear the sounds of jammed traffic on the I-15 and the 805. This introduces a different San Diego to our visitors.
Sure, there are common-sense things like diverting more commuter routes to the smaller airports and shifting freight to the emptiness at Brown Field. But that misses the big picture: takeoffs and landings are dropping. There is no problem. Okay, should the price of oil drop in half and stay there, then Warren Buffett’s a dummy and we would suffer from airport constipation.
If the new airport commission could just take their $170,000 salaries and do nothing, we’ll all benefit. That’s strange advice in a city and state that are going broke, but that last gang of bobbleheads spent $17 million trying to convince us the end was near.
Lavish entertainment expenses rang up while examining the Borrego Springs airport. No mention of the fact that Borrego’s average summer temperatures mean a commercial plane cannot takeoff from there with a full load of fuel … from a location that’s 15 miles further from downtown San Diego than John Wayne Airport. That gaggle of bandits actually reviewed Borrego with straight faces.
Brown Field, unused, got no such lavish inspection since it’s tougher to justify overnights when they’re nearby, and the wine cellars there lean towards screw-top varietals. Sure, putting air freight out there makes sense, but much of that stuff comes and goes during off-peak times, making the relief minor. On the other hand, since freight takes space to load, warehouse and truck, the handling expenses would drop with that cheaper real estate.
March Air Force Base? No ridicule needed. That lunacy is self-evident.
Imperial Valley with a high speed rail? When we can’t even get high speed rail through to LA, with 250,000 cars going both ways every day? The suburban NIMBYs killed that LA idea, and can’t you hear the back-packers and environmentalists shriek if they hear plans for a bullet train slashing through our eastern slopes?
So perhaps the previous commission thought that, by studying the bizarre, it would make Miramar appear inevitable. One surprise was something that nobody noticed. That came when Duncan Hunter pointed out that Miramar is critical for the Marines when they start training with the F-35.
That’s a vertical takeoff and landing airplane. It should operate from an oversized driveway.
So, we see Warren Buffett thinking the price of fuel is going up. He’s betting his own money and shareholders’. Small airplane makers think security lines at big airports and underused regional airports will build their market. They’re betting their own money and some investors’. Airlines, wanting to reduce flights to fill cabins tighter, are configuring their new aircraft to do so, in the belief that fuel prices will continue up. They’re betting their jobs and shareholders’ money.
Government officials, spending your tax dollars, believe the price of fuel will drop, bringing down air fares and building commercial air traffic.
Who would you bet on being right?
Gary Sutton is a retired CEO. He is the author of “Corporate Canaries Avoid Business Disasters with a Coal Miner’s Secrets.” Send a letter to the editor.