Warren Buffett breaks up with the skies: Berkshire Hathaway sells entire airline stake
Snacks / Monday, May 04, 2020
All's fair in love and War(ren)... With air travel down around 95% compared to a year ago, airlines are getting pummeled — and their plight just got worse now that one of their top investors expressed zero confidence in their future. Over the weekend, Warren Buffett's legendary holding company Berkshire Hathaway revealed that it sold its entire airline stake.
- Flirtation: After avoiding airlines for years, Warren was finally seduced by steady profits and began investing in 2016.
- Commitment: Big Berkshire money poured into shares of America's 4 largest airlines — Berkshire gained an 11% stake in Delta, 10% of American and Southwest, and 9% of United.
- Break-up signs: Back in April, Berkshire sold 18% of its Delta stake and 4% of its Southwest holding as the pandemic destroyed profits.
- Cold turkey split: Berkshire has now sold its entire airline holding. The shares were acquired for around $7.5B, and are being sold for around $4B — a massive loss. Berkshire announced a record $50B loss for its first quarter.
It's not you, it's me... Warren said that investing in airlines was his mistake, and that the "excellent CEOs" of the 4 airlines did nothing wrong. Still, the fact that long-term investment icon Buffet sold his entire investment at a significant loss suggests a dire outlook for airlines.
Airlines' pain could be a long-term issue... Even after the COVID-19 situation improves:
- Airlines will have to take money-draining precautions, like leaving middle seats empty and running half-full flights.
- Fear/germophobia could continue long-term, so people could end up flying less. Plus, some may not even have the money to anymore.
- The WFH experiment will likely reduce biz travel in the future, as companies realize those business class trips to London may not have been that necessary.
- Even when airlines start making some money again, the massive debt they will have racked up may overshadow any gains.