Dear Mr. Berko: 

K.B., Moline, Ill.

Dear K.B.: 

In 1978, the Airline Deregulation Act shifted control over air travel from the mullahs in Congress to the marketplace. That was a watershed year, eventually leading to the Civil Aeronautics Board Sunset Act of 1984, which allowed ticket prices, intercarrier agreements and consumer issues to be driven by market forces. Airline stocks never have been good long-term investments, and since 1984, airline equities have been the province of fools, speculators, hedge funds, traders, arbitrageurs, leveraged buyout firms, gamblers and wealthy egomaniacs seeking tax losses. I like Warren Buffett’s comment in 2002: “If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money.”

But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You’ve got huge fixed costs; you’ve got strong labor unions; and you’ve got commodity pricing. This is not a great recipe for success. There is a toll-free number now that I call if I get the urge to buy an airline stock. I call at 2 a.m. and say: “My name is Warren, and I’m an aeroholic.” And then they talk me down. 

Last November, American Airlines completed its merger with US Airways, which was celebrated by government regulators, airline management, Wall Street and investors. However, the two flight attendant unions (American and US Airways) are thrashing against each other like children for the right to represent the new carrier. This brings back memories of eight years of incessant union squabbles between pilots for US Airways and those for America West as the two entered into a merger agreement. Meanwhile, the union that represents the mechanics at US Airways boycotted the November merger festivities.

The $18 billion merger created the world’s largest airline, with $40 billion in revenues and more than 100,000 employees, so now the hard work begins. The airlines will continue to operate separately for about 24 months as they work to combine their operations – merging frequent-flier programs, coordinating thousands of systems and procedures, and eventually reducing the workforce by 23,000 employees. And by the way, your American Express Platinum Card no longer gives you access to the lounge at American or US Airways.

The new company, called American Airlines Group (AAL-$28.85), has taken off like a rocket. Investors piled into the cabin, oblivious to myriad problems that will cause numerous bad takeoffs and rocky landings while creating messy conflicts, squabbles and jealousies among employees jockeying to save their jobs. It didn’t work when Eastern, National, Pan American, TWA, Braniff and others attempted merger strategies on a wing and a prayer. What makes investors believe that this merger will work when all the others crashed as they tried to fly?

I expect that the hubris of this merger will carry the stock higher, and some on the Street are projecting a share price in the low $40s this year. So the shares do have some short-term appeal if you are a trader, but this is not a proper investment for a retirement account. I wouldn’t spoil a beautifully crafted IRA portfolio with junk such as AAL.