At Berkshire Hathaway’s annual meeting, held virtually for the first time ever due to the coronavirus pandemic, Warren Buffett announced that the company had sold all of its investments in the airline industry.
Previously, Berkshire Hathaway held 70 million shares of Delta, 54 million shares of Southwest Airlines, 22 million of United Airlines and 42.5 million shares of American Airlines. Each investment represented a roughly 10% ownership stake in each company. Also, the four airlines combined account for roughly 80% of the total passenger miles flown in the US.
Buffett said simply, “I was wrong about that business.”
“When we bought (the airlines), we were getting an attractive amount for our money when investing across the airlines,” he said. “It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.”
“I don’t know that three, four years from now people will fly as many passenger miles as they did last year,” he added.
Global Pandemic's Impact on the Airline Industry
Passenger volume went down by 90% compared to a year ago. It’s impossible to tell when travellers will feel comfortable flying again, particularly if the pandemic lingers into the fall or winter months.
Shares of United Airlines are down 70% so far this year, American Airlines shares have fallen 63%, Delta has lost 59% of its value so far this year, and Southwest has fallen 46% this year.
During Berkshire’s meeting, Buffett added, “The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way. I don’t know if Americans have now changed their habits or will change their habits because of the extended period… I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control.”
Interestingly, until 2016 Buffett made it clear that airlines weren’t an investment he was interested in. In a 2007 note to Berkshire shareholders, he said “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
The other major news coming out of the meeting was Berkshire Hathaway reporting a $49.7 billion loss. This came during the first quarter as the coronavirus pandemic caused the markets to plunge in late March. That’s a loss of $30,653 per Class A share in the first quarter, down from a profit of $21.66 billion, or $13,209 per Class A share a year ago.
The company also continues to grow its cash balance. They spent only $1.8 billion on stock purchases and $1.7 billion on buying back Berkshire stock last quarter. The cash balance increased from $127 billion in Q4 2019 to $137 billion in Q1 2020.
Many investors expected Buffett to put that cash to use during the selloff in March that drove markets down 30%. But it appears that Buffett didn’t see any attractive value plays and decided not to make any additional investments.