On November 9, 1989 the Berlin wall suddenly and unexpectedly fell. The prison which had split Europe in half was breached. Today we live with the consequences of the creation and destruction of the wall: Britain's vote in 2016 to leave the European Union was in large part caused by the migration of people whose countries had suffered neglect during Communist administration and their search for a better life in the West.

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One of the less obvious consequences of the fall of the wall and the associated demise of the Soviet Union is the growth of Asia. In the 1950s a flight from London to Tokyo took 36 hours because airlines couldn't fly over Russia. Instead airlines had to fly around the largest country in the world. The cost in terms of time and fuel to travel between Europe and Asia must have stifled trade between the two continents. 

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Only two years after the fall of the wall the Soviet Union collapsed and the opportunity to fly in a straight* line from Europe to Asia emerged. However Russia did not embrace a liberal approach to aviation. Unlike most other countries, Russia only allows - for the most part - one carrier per country to fly through its airspace and it is suggested Russia earns around $100 per passenger that flies through it.

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The reason Russia restricts the number of carriers that can fly through its airspace is to maintain the profit margins of these flights, which in turn allows the Russian government to capture a decent proportion of the profit margin of each flight.

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Compare this to highly competitive EU aviation where the carriers are on razor thin margins. They barely have enough margin to provide sweeties to their passengers at the end of the flight, let alone pay a ransom to the countries they fly through!

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It is hard to judge the extent to which the demise of the Soviet Union and the opening up of transportation links since the 1990s has impacted the growth of Asian economies - but you can be fairly confident economists will underestimate it. No doubt they would point at "reforms" made in Asia as the explanation for its growth. Otherwise one would start to question the point of economic advisers if their "policy advice" or "economic reforms" mattered little in comparison to: geography, resources, technological innovation, transport infrastructure and geo-politics.

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But as an economist - by education - I do have some policy suggestions. The airlines which are allowed to fly over Russia (BA, Lufthansa, KLM, AirFrance, Iberia, SAS etc.) have a durable advantage over their rivals who can't. For example in the video above the plight of Norwegian Airlines is highlighted. They are unable to fly Norway to Asia because technically SAS has the rights to fly from Norway through Russia. Instead Norwegian Airlines is forced to operate more competitive and much less profitable routes.

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For example in the summer of 2019 I met a group of guys at a party who I hadn't met before. Naturally small talk turned to where we were going on holiday and they proudly explained to me they were off to Brazil and the return flight only cost them £350.

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The carrier: Norwegian Airlines.

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I seriously doubt Norwegian Airlines made any meaningful profit charging £350 for a return flight from London to Brazil. By comparison Lufthansa is charging £930 for a return from Frankfurt to Shanghai in a month from now.

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The profitable Europe to Asia routes the large European carriers operate make their shares attractive as I suspect institutional investors are not correctly pricing in the quality of a portion of their earnings. Instead these companies are being valued as if they exist within a highly competitive low margin business - which with the exception of Europe to Asia routes they do.

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For example Lufthansa currently trades at a €13.42 per share. Which equates to a Price to Earnings ratio of 4.8 and a whopping dividend yield of 6.1%. By comparison McDonalds currently trades at a Price to Earnings ratio of 28.7 and a dividend yield of 2.1%.

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Lufthansa and other similar airlines don't have much scope for growth any more but I think you can be fairly confident they will keep churning out dividends for a very long time. Airlines might no longer be sexy but the old birds can still make money.

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*due to the curvature of the Earth flights do not go in 'straight' lines. 'Straight' has been used to illustrate the shortest route from one point to another.