It's not that surprising once you think about it: Booming technologies means more companies enter the market. Some will be able to produce cheaper or better products than what's already there. If the old ones can't adapt they'll struggle.
In the case of solar what happened was that the Chinese government underwrote Chinese manufacturers who produced significant volumes of solar panels which they dumped on the global market for incredibly cheap prices which put pressure on all the other global manufactures and consolidated the market. That said a lot of the Chinese manufacturers also went bankrupt as they undercut each other on prices to fill out the manufacturer queue.
Also in energy tech you don't have infinite upside like technology -- as you deploy hard capital you have a finite range that you can get returns on. In the electricity markets you typically have to build technology and sell it for cheaper than what is currently available (i.e. project finance your project on a PPA < market rates). Already a fundamentally difficult structure to do well in - add in regulatory slowdown, political mandates, utilities as your clients (slow lead times).
the solar industry is literally zero moving parts. Panels and inverters are off-the-shelf commodities that are in a race to the bottom for price. this is further helped by the fact that they are largely interchangeable.
Wind turbines do not function like this and they are complicated, dynamic systems requiring continuous monitoring and regular maintenance.
The reality here is that the wind energy industry is and will continue to see a boom and order books are often full years into the future. Despite the headlines, onshore wind isn't going anywhere because there are many regions around the world where offshore wind does not work well.
Offshore wind is being hyped up by Europe - coincidentally, a region with relatively shallow seas and limited land area. Despite the boom, there are not that many manufacturers of wind turbines precisely because it is a capital intensive industry. This is not good news.
"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." [1]
The last sentence is a sarcastic quip, for those who aren't familiar with his personality.
[1]: warning, pdf link: https://www.berkshirehathaway.com/letters/2007ltr.pdf
Airlines lack substantial economies of scale, customer captivity, captive supply, or regulatory protections. The airline industry is a textbook case of an industry with no durable competitive advantages, thus the only performance factor is operational efficiency.
Insurance on the other hand, there are substantial economies of scale (large fixed costs and also larger insurance companies are more diversified thus less costly/risky) and high customer captivity (high switching cost, high search cost).
The other major factor which prevents airlines from ever sustaining high profits is pilot unions. The pilots will demand most of the extra profits, and usually get it because a strike instantly shuts down the entire airline.
Airline A can have 100% coverage everywhere in the world and be the largest airline. But if Airline B enters a specific route, there is no advantage to a customer whether they ride with A or B for that specific route. This is why there are so many entrants into the industry.
The biggest factor to the lack of durable profits in the airline industry isn’t labor or unions. It’s the ease of entry into the market which puts tremendous pressure on price. There are no substantial barriers to entry, prices go down until profits are close to zero. So in classical value based investment lingo, it is an industry with no competitive advantages.
The airlines industry in aggregate has never had a ROIC greater than its cost of capital over the long term (>1 yr) for the lifetime of the industry.
However, for investors, we care about profits from capital deployment, or returns from invested capital minus cost of capital. The marginal earnings that leading airlines generate from loyalty programs and business traveler accounts do not make up for the huge demand for capital, thus insufficient to break even the cost of capital.
Tickets are fungible and people will make insane choices to save a dollar. The constrained resource is gates. The network effects that make big airlines viable are expensive, so without regulation there’s always upstarts who drive the price as low as possible. That’s why Emirates is fancy.
If you live near NYC, there is an airport in Newburg that attracts weird financial engineering airlines that leverage leases to fly international cheaply. When I saw Hamilton, I flew Norwegian airlines from NY to London for $24. The long term parking cost more.
It’s an industry where the low barrier to entry ensures that the industry as a whole is barely profitable.
"Network Effects" means the Nth person doing business with the company generates more value for the business's service to everyone else, all else equal. I don't think airlines have network effects. There isn't much benefit to flying a highly-trafficked airline vs a lower-trafficked airline, provided they have the same routes. (If anything, this might be marginally inversely correlated? Small airlines seem to have a better experience than the big ones)
"Economies of Scale" means that cost of goods sold becomes a lower percentage of revenue as revenue grows. This doesn't hold true for airlines, because jet fuel & taxes thereon, and leasing gate space make up the biggest fixed costs IIRC. Bigger airlines don't have a lot of negotiating edge vs small ones, here. Plus, big airlines have an exponential logistical problem to solve, which is costlier to solve "at scale". Thus, profit scales basically linearly (some might argue sub-linearly) with revenue.
There are indeed regional economies of scale for those airlines that invest in monopolizing growing transit hubs. Virgin Airlines and Southwest built their businesses on them, and are well-studied examples. But they are not durable over a long enough time horizon, and don't "scale" up to bigger footprints.
Airlines "own" far too little of their costs, and startup cost is far too low, for them to be durable and large business.
The dynamic is terrible for value investors like BRK, but arguably quite great for consumers (fliers). And not too shabby for early-stage investors, either.
Ultimately the problem boiled down to plain arithmetic. Just addition, subtraction. Hard problems involved multiplication.
After like the tenth problem I lost my patience & raised my hand - why don't you just do these problems with small numbers ? Like 23-(5+12+4) = 2 ? Why are you making us do 23,000,000 - (5,000,000 + 12,000,000 + 4,000,000) = 2,000,000 ?
The Professor said - Accountancy is arithmetic. With Big numbers. That's money for you.
You picking a cheaper airline with worse margins does not mean that airlines are a good business
Spirit (and other airlines) innovated and temporarily enjoyed a large market share of a second modality of commercial flight (very low budget travel). But it isn't (and wasn't, if you compare their operating margin over time [1]) a durable advantage.
The reason is there's very little preventing you and I from starting Soul Airlines, and copy-pasting the Spirit playbook. Many airlines have, and more will. And this drives their prices down, which is great for you but not for long-term Spirit investors.
At the end of the business cycle, the logical limit of their operating margin has proven to be functionally indistinguishable from Delta's.
[1]: https://www.macrotrends.net/stocks/stock-comparison?s=operat...
The reality is it's harder to fully book a plane like the one you describe, than one with a distribution of seats that more closely resembles the distribution of the commercial airline customer population, especially when you consider how to pass on the cost of spiky jet fuel to the people in the cabin.
On a plan with 8 business class seats, you can pass on most of that price to those 8, and you'll still fill the rest of the cabin and make money on the flight. With "only" 30 business class seats, it's a different story. Missing 6 seats might cause you to lose money.
Wikipedia says Ted folded in 2008, amid a spike in fuel prices.
I am just lamenting the loss of an airline where I, being taller than the average human economy seating is optimized for, was actually comfortable for the whole flight. The only times I've been comfortable on a plane have been in exit rows or the small number of times I've splurged and flown first class.
Lots of companies provide valuable services, yet are crappy businesses from a FCF standpoint.
Unfortunately, the skills involved in deploying on land don't transfer very easily to sea work. Doing anything at sea is a specialty of its own. So, people with long sea experience will learn to put up wind turbines.
A wind turbine (even an extremely large one) otoh is only earning $400/hr so if you spend a million dollars getting it up 3mo earlier you've made a loss.
I'm sure some have adapted though.