Economies of Scale and Network Effects are distinct business powers. "Network Effects" means the Nth person doing business with the company generates more valu

Economies of Scale and Network Effects are distinct business powers. "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.