Airlines have been in unfamiliar territory of late: They’ve been earning money for their investors. Don’t count on it lasting.

Antitrust officials are investigating whether U.S. airlines are fixing prices, even as they inch toward a market-share war. Ryanair Holdings Plc. predicts cheap fuel will stimulate “irrational price competition” among European carriers later this year. Qantas Airways Ltd. is paying a A$90 million bonus to staff whose industrial action grounded its fleet in 2011. And with tremors from China and Greece spooking markets, the Bloomberg World Airlines Index has fallen more than 10 percent, meeting one definition of a market correction.

It’s all a reminder that the good times for airlines rarely endure. Carriers generate the slimmest returns for their investors of 29 industries worldwide, according to the International Air Transport Association. Warren Buffett once joked that someone should have shot down the world’s first powered flight, saving investors the heartache.

“It’s one of the most competitive industries in the world,” Hans Mitterlechner, a partner at Three Consulting Pty., said by phone from Sydney. “Executives have been burned for too many decades now to sit comfortably.”

The global aviation industry should hit a milestone in 2015: Airlines will generate a return for shareholders above their cost of capital, according to IATA.

“For the first time, the industry on average will be creating value for its equity investors,” IATA chief economist Brian Pearce said in a June presentation in Miami. In any other industry, he added, that would be “the minimum performance expected.”

Investors aren’t yet ready to celebrate. As of Thursday, the Bloomberg World Airlines Index had fallen more than 10 percent from April 27 — its highest point since October 2007 — exceeding the 10 percent decline many traders consider a market correction. The U.S. sub-index has fared even worse, down 23 percent from its Jan. 26 peak through Thursday.

The outbreak of nerves comes amid a bumper year for the industry, with airlines benefiting from slumping fuel prices and weaker competition.

Globally, airline fuel bills will fall about 15 percent to $191 billion this year, even as the amount of fuel consumed rises 4.3 percent, according to IATA.

North American carriers will post $15.7 billion of net income this year, according to IATA, up 40 percent from last year, and passenger traffic is forecast to grow at the fastest pace since 2010.

Shares in constituents of the Bloomberg World Airlines Index are currently worth about 2.8 times their net assets, compared to an average of 1.7 times since the index was formed in 2003.

Such good times can’t last, according to Tony Webber, an aviation consultant and former chief economist for Qantas.

“Whenever airlines start making money, you always see too much capacity go back into the market,” he said by phone from Copenhagen.

By adding extra seating or by flying more frequently, carriers risk losing money on unfilled seats. In the U.S., for example, Southwest Airlines Co. grew capacity in January at the fastest pace since at least 2009.

Delta Air Lines Inc. and United Continental Holdings Inc. are also adding capacity “well above GDP growth,” Bloomberg Intelligence analyst George Ferguson wrote in a briefing note, pushing the domestic industry toward a “market share war”.

“It’s easy to have discipline when you are fighting for your life but when you aren’t, greed starts to take over,” he said by e-mail. “Rational competition always breaks down once companies return to profits.”

The same dynamic is playing out in Europe, according to Ryanair, the continent’s largest carrier by market value.

Lower fuel prices will lead competitors to steal market share from each other, resulting in “irrational price competition” later this year, Chief Executive Officer Michael O’Leary said on a May 26 investor call.

While every corporate executive worries about competition, some aspects of aviation make it uniquely cutthroat.

There are few industries where pressures from suppliers, consumers, distributors, competitors and alternative products are as tough as for airlines, according to a 2013 analysis done for IATA by Harvard professor Michael Porter.

The top 10 airlines globally account for about 59 percent of industry revenue, according to Bloomberg Intelligence data.

Compare that with smartphones, where Apple Inc. and Samsung Electronics Co. alone split about 64 percent of industry revenue. In the auto industry, the top 10 producers make about 81 percent of the world’s cars.

Airlines that spot a competitor making outsized profits can move quickly to compete, Mitterlechner said.

“Our most costly asset comes with its own wings, and can be redeployed in a completely different geography in a week,” he said.

Airline bosses still seem happier than they were a year or two ago, according to Con Korfiatis, the founding chief executive of Jetstar Asia who’s now a partner at executive recruiter Heidrick & Struggles International Inc. But there’s less confidence than there was three to six months back.

“There’s more cautiousness creeping into their thinking,” he said by phone from Singapore. “They’re always asking themselves: ’Is that the light at the end of the tunnel? Or is it a train coming at me?’”

This article was written by David Fickling from Bloomberg and was legally licensed through the NewsCred publisher network.

Photo Credit: An airplane in Spain. xlibber / Flickr