Warren Buffett says Berkshire is reversing course on airlines, again

Warren Buffett is reversing course on his
airlines bet – again.

The billionaire investor said Berkshire
Hathaway completely exited its stakes in the four major US airlines. The sales of
shares of Delta Air Lines Inc., Southwest Airlines Co., American Airlines Group
Inc. and United Airlines Holdings Inc. made up most of the company’s $6.5
billion in equity sales in April.

During his live-streamed annual meeting,
Buffett said the business has fundamentally changed following the economic
fallout from the coronavirus pandemic. He declined to blame the performance of
the airline executives, saying they’ve done a good job of raising money to get
through the crisis.

“The world changed for airlines and I
wish them well,” Buffett said Saturday. He clarified that he made the
decision and that he lost money on his investments. “That was my mistake.”

Buffett’s had a complicated relationship
with the airline industry over the years. After a troublesome investment in
USAir, Buffett joked that he would call an 800 number to declare he was an “air-o-holic”
if he ever got the urge to invest in airlines again.

Then in 2016, Berkshire dove into the industry again, amassing stakes in the four largest US airlines. At the end of 2019, those stakes amounted to almost $10 billion. Buffett’s renewed faith in the industry prompted speculation that he might one day own one of the carriers.

But now, he’s cut those investments again. Berkshire disclosed in April that it had at least trimmed its Delta and Southwest stakes, both of which had previously been above a 10{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} ownership level.

“The airline business – and I may be wrong and I hope I’m wrong – but I think it’s changed in a very major way,” Buffett said. “The future is much less clear to me.”

The disclosure was among the most
significant at the annual meeting, which was notable for its different feel
this year as the event that usually draws tens of thousands was hosted
virtually. Buffett, 89, shared the stage with a top deputy, Greg Abel, who runs
Berkshire’s non-insurance operating units. Vice Chairman Charlie Munger, 96,
didn’t join, though Buffett said his longtime business partner was in good
health.

Buffett said he didn’t know how consumer
travel habits will change after the pandemic subsides, but any reduction in
travel could leave airlines with higher-than-necessary fixed costs. Any impact
could filter down to suppliers like Boeing Co.

“The real question is whether you need
a lot of new planes or not,” he said.

Buffett said the efforts to slow the pandemic
amounted to “quite an experiment,” and while the range of public
health and economic outcomes has narrowed, they remain “enormous.”

“I don’t know the consequences”
of shutting down large parts of the US economy, Buffett said, though Berkshire’s
operating earnings will be “considerably less” than if the virus hadn’t
hit.

Buffett gave an extended history lesson to
back up his assertion that “nothing basically can stop America.” He
said he’s still bullish on the US economy because it has overcome many
obstacles over the past two centuries, though “we haven’t faced anything
that quite resembles this.”