Daily Management Review

Warren Buffett Says Berkshire Sold Off Its Entire Stock Of US Airlines


Warren Buffett Says Berkshire Sold Off Its Entire Stock Of US Airlines
The entire stocks of the four largest airline companies of the United States were sold off by Berkshire Hathaway, said chairman Warren Buffett. "The world has changed" for the aviation industry, Buffett said while making the announcement
According to the annual report and company filings, large stocks were held by it in the airline which included stocks in 11 per cent, 10 per cent, 9 per cent in Delta Air Lines, American Airlines and Southwest Airlines, and United Airlines respectively at the end of 2019.
Berkshire Hathaway has the largest stocks individually in the four airlines and the investment company has started putting in money in the airlines since 2016 after avoiding investing in the sector for many years.
The coronavirus pandemic has forced travel restrictions throughout the United States which has severely hit demand for air travel and hence airline stocks have been hard hit.
Demand for air travel has reduced by 95 per cent since the emergency measures imposed to reduce spread of the pandemic in the country forcing cancelling of hundreds of thousands of flights by US airlines and grounding of thousands of planes. The airline industry also does not have a clear guideline or a timeframe for air travel demand returning back to pre-crisis levels.  
There has been rapid change in the outlook for the airline industry, Buffett said.
“We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss,” Buffett said. “We will not fund a company that - where we think that it is going to chew up money in the future.”
At the beginning of April, Berkshire had revealed that it had sold off about 18 per cent of its stake in Delta Airlines and 4 per cent of the stake it holds in Southwest Airlines.
Around $7 billion or $8 billion had been spent by Berkshire for purchasing shares of the four airlines, including American Airlines Group. Buffett said.
“We did not take out anything like US$7 or US$8 billion and that was my mistake," Buffett said at the company's annual meeting which was livestreamed. "I am the one who made the decision."
No comments were available on the issue from Southwest, American and United.
While stating that it was aware of the sale of its shares by Berkshire, Delta said in a statement that it has "tremendous respect for Mr. Buffett and the Berkshire team." Therefore it remains "confident that the strengths that are core to Delta’s business – our people, our brand, our network and our operational reliability – will endure and position Delta to succeed," the airline added.
"It is a blow to have essentially your demand dry up ... It is basically that we shut off air travel in this country," Buffett added. Grim sentiments about the financial and performance outlook for the airline industry had beeen previously expressed by Buffett. He did invest in USAir in 1989.
“If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down," Buffett wrote in his 2007 annual letter. "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it.”