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Warren Buffett Dumps The Airlines

Bill Maurer profile picture
Bill Maurer


  • Oracle of Omaha says he sold all of his airline positions.
  • Another leg down could come as a result.
  • Investors looking for signs that travel is recovering.

Over the weekend, we received some major investing news from Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett. The legendary investor announced that he has sold all of his four major US airline stakes. Buffett admitted that he made a mistake, as the coronavirus situation has completely changed the game for the industry. While he's not disappointed in how the businesses have been run, the major borrowings needed to support these names are going to limit their upside in his opinion. Today, I want to take a look at these names in terms of Berkshire's former stakes and where things stand for each.

Let's look at United (UAL), American (AAL), Delta (DAL), and Southwest (LUV). Within 45 days of the end of each quarter, institutions like Berkshire Hathaway have to report their holdings in stocks like these four. Unfortunately, we don't have the end of March 2020 data in just yet, so the table below shows where things stood at the end of 2019, and how this related to the number of shares outstanding for each airline.

(Data sourced from each company's respective NASDAQ holdings page, for example Delta's page seen here, and 10-K filings, for example Southwest's 10-K seen here)

Now we did receive news in early April that Berkshire had sold some shares in both Delta and Southwest - 13 million for Delta and 2.3 million for Southwest. Based on the NASDAQ information above, Berkshire Hathaway was the largest institutional holder of Delta at the end of 2019, the second largest in United and Southwest, and the third largest in American. It will be interesting to see how some of the other large holders react to this news during Q2, but we won't see all of that share activity logged until mid July.

To give investors an idea of

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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Comments (152)

capitalallocator profile picture
Warren sold the Airlines' stocks not because they will crash and burn BUT BECAUSE THEY WILL UNDERPERFORM WITH A SMALL RISK OF CRASHING.

A lesser investor may hope for a rebound, Warren has better fish to fry. This sort of thinking has worked for 60-70 years for Warren. Also he can write off the tax losses a a few billion too!
Ellenindc profile picture
In our business, every day you are either a hero or a goat. Please remember Mr. Buffett has an enormous war chest reflecting his view of the risk associated with the unknowns. I think that speaks volumes about his mettle.
Preserve & Prosper profile picture
Pan Am, TWA, Continental, Apple Air, Braniff . . . . the list of failed/merged airlines is woefully long. Surprising that Warren Buffett invested in the industry in the first place -- it is highly cyclical, extremely capital -intensive, has high-fixed costs and it's very competitive. A lousy place to invest, even in good times.
LavaTraction profile picture
We knew Buffett sold his airline stock a month ago:

All news outlets are carrying this as if he just now sold. Could he be thinking of buying now? "But Warren Buffett wouldn't do that." Why not.
"Why not."

He's already explained why not. Not hard to find. But to make it simple, it's a business for which he can't see the future with any clarity and it has some very tough hurdles to overcome with no clear vision of how they overcome them before they are severely gored. If is thinking about buying them now you'll know he's gone loco. It's just not the type he wants to get into. He wants businesses that, even if they are having a tough time, have a path out to profit, then growth of profit, he can clearly envision.
CapVandal profile picture
The airlines are a loser for stockholders because they will be more highly regulated in the future. Having been bailed out, and now borrowing more heavily to survive, the prospect for future profits are modest. Modest upside vs obvious pain is a must sell.

Not that I am a buyer, but compare their prospects to Carnival Cruises. Carnival just cancelled everything, borrowed billions, and is selling 2021 Cruises. The airlines are forced to run empty planes, don't have people paying months in advance, and took bailouts. So, the airlines are like the rest of Travel, but worse.
"...because they will be more highly regulated in the future."

No argument from me over that but unless you know what happened when they were highly regulated then you may not know what that could mean. More stability for them. May be just what they need until they can make it on their own again and go back to the more competitive non-highly regulated times. Something i think maybe should be looked at by gvts who intend to make sure their airline companies make it through the night with as little gvt financial support as possible. The competitive times did lead to much lower fares for passengers and the explosion of leisure travel. But to get back there first gotta make sure you have an airline. Ciao
CapVandal profile picture
No problem with airline network treated as a public utility, but doubt if there is room under that paradigm for attractive returns on capital. I also don't see it being done well.

Regarding buybacks, sure. But the fact airlines needed to save a significant portion of earnings for catastrophes (911, Covid19) means they weren't really earnings. They had and have an unfunded exposure to unusual events.
"...but doubt if there is room under that paradigm for attractive returns on capital."

If to me, i don't disagree. Wasn't my point. Survival under maybe the best conditions possible, maybe not, was.
hawkeyec profile picture
@Bill Maurer

"Should these names need another few billion each, you're talking about massive dilution that would come to investors, and if we're at that point, it probably means shares have fallen even more, so the market caps could be a fraction then of what they are now."

That's the risk in value and flexibility that these silly companies took when they kept taking their own shares off the table. Back in the day, the idea with buybacks was that your did it Ben Graham style, when the stock price was less than its intrinsic value. In the last decade companies have bought more than $4 trillion of their own stock in a fast rising market, added cheap debt and left themselves no room to maneuver should (horrors) the market ever really decline and a recession rear its ugly head. Well here we are and these companies served as their own "greater fools." Whoops. (And Buffet missed it.)
Buffet sold uncertainty. He doesn’t know what the airlines will look like in the future and he doesn’t want to wait around to find out. He’ll just move to something that offers more stability and then jump back into airlines later if they prove to be worthwhile. It’s what guys with billions of dollars do. Ride one horse until it’s dead and then switch horses.
In the past Buffet advised in many books and writings against investing in the airlines.
Than he started to invest, first in private airline companies for the rich, that I could understand somehow. When he started to invest in the big airlines I did not understand why because although there was big growth in passenger and goods traffic the profit margins and the competition was still a problem. No he is taking a loss because the airlines will have difficulty to recover in the future. He has ignored his own advise and shows that he is as human as all of us.
I think the big change was the airline consolidation and more rational strategies running the companies. That’s what drew Buffet in.

Business was pretty good. A recession would always hurt for a while, he certainly considered that. No one planned for a virus that would knock out 95% of passengers, and possible long time to fully recover. Even in recovery, they may rack up much more debt just to stay alive.
"...I did not understand..."

Because airlines changed their modus operandi. They finally learned not only how to make profits but how to keep on making them. They restricted their growth, keeping fleet growth and passenger growth in balance rather than try to beat every other airline into the ground and proclaim themselves king. But then a virus came along and it crippled or maybe even killed so many different individual businesses and crippled s many industries. The only thing that differentiates one from the other is how much it's gonna take to come back, in both time and money.

I don't understand why it's so hard for people to see that airlines have changed since he first avoided them, that change leading him t buy in. Now there's been another change, this one that no one could have foreseen coming just a few months ago. It's brought the differences in cost and time to recovery it'll take airlines to come back from this force majeure in comparison with other investment options which have been likewise hit. And that's about the only difference since airlines learned how to properly operate. About the only thing i might fault him for over this particular topic is not seeing the danger a bit earlier than he did, thus not selling out sooner.
6269751 profile picture
@JPV I think pre-pandemic, there was a very simple rationale. Airlines figured out that they can charge customers for a panoply of things. Luggage weight and size. Seat choice. Boarding order. Better water. They were getting more profitable every day.

A future where people did not want to fly was unforeseeable. Why should I go to Paris, to see how French people are scared of the virus coming back? Visiting cafes, watching people dressed for surgery deposit trays on my table with a two-meter pole? Or maybe using modified bomb squad robots to deliver food in restaurants? With my phone app noting that I was at that place and checking back 14 days later to see if that contact contributed to an infection?

Airlines are just one industry which will be severely impacted going forward. Just an easily identifiable tip of the iceberg.
I would like to see his option activity before he sold all the shares. He definitely knew what he was gonna do and how it was going to effect the stocks.
leveled.da profile picture
What will everyone do when he says he bought it again, one month after? If he sold around the 6th of April, what does that have to do with today?
LavaTraction profile picture
I just bought Southwest bonds. Coupon 4.75, maturity 5/4/23. They are yielding over 5%.
I am willing to take the risk over two years that they will not default. Southwest stock is a
different story entirely.
"I just bought Southwest bonds."

Probably not a bad spec i think. They should have the best odds of any of them. But will it take wiping out debt and current shareholders to do it? Kind of doubt it. Won't fill planes for a long time but can they at least get to flying profitable within the next couple of years? If anyone can it should be them. Meanwhile they do have gvt support.

Me, i just took a tiny flyer myself. Airplane manufacturer. Dflyf. Depends on how big you want your airplanes. Anyway, just caught an interview with their ceo. Intriguing. Paid with a bit of the money i just made on the stml takeover bid, a mini-windfall i wasn't expecting, at least not so soon. I doubt anyone would want to be a passenger of one of dflyf's. Imagine flying like an amazon delivery package.
Boeing, GE, Pratt & Whitney (RTX), a whole host of airline vendors, anything related to mass movement of people - Autos, Cruise lines, trains (WABtech/Siemens), BKNG, should be shorted if we follow what Warren is signaling
@Sleepless@FED - Best to understand what part of RTX is actually the jet engine space. Balance looks quite strong, impact my be quite manageable. . . . . just say’in.
I agree, Warren usually talks in code as not to spook the market. To sell all his airlines stocks speaks HUGE. I never had an appetite for airlines stocks but was interested in RTX and BA.
Not just mass movement of people. Virtually all businesses will be affected in some way.
March 23rd levels of s&p500 are similar to Dec 24th 2018, they factor in a deep recession but it didn’t remain that low long enough for Warren Buffett to step in and start buying...I guess JPowell, whom he respects a lot, ruined his legendary purchases at the bottom...
Dump stocks of companies that are raising more debt to survive while facing declining/rapidly falling revenue seems to be the message from Buffett...
Wonder why Buffett is still holding on to Bank stocks...aren’t they overvalued at current prices if the economy will be that bleak in the interim...?? There will be a spike in non performing assets...Buffett thinks airlines will take longer to recover than Banks...Airlines will have to borrow more just to survive with falling demand ...may take forever to recover??? He has access to data that the rest of us don’t...so, difficult to dispute the oracle of Omaha
Too big to sell, low cost basis. They literally cannot sell all those bank holdings. The man absolutely loves his banks and I will never understand why - given that every decade or so banks blow up a huge chunk of their balance sheet in one way or another
He said the banks are well capitalized and will be fine, they will have some bumps and credit losses along the way but the balance sheets are in much better shape than those of the airlines. Also they're not facing a nearly 100% loss in demand like the airlines.
We all know the bankers will be the last to fall, its just the way it is.
Bhughes7918 profile picture
No one asked the most important question, will the 4% fee the small banks are getting more than off-set the bad loans that are coming for the clean small banks, ( great asset quality only)
I would vote yes the profit on these will more than off-set future losses and the growth in new accounts for the good ones from the big ones that will come from this will be also great for them go NWIN, go AROW, OPY. All way under tangible book other than AROW!
Henry Miles profile picture
Poor guy looked defeated on Saturday.
How can ANY of the airliners avoid bankruptcy? They can't. Only if the govt gives them money, as a gift, and even then tough chance.
Imagine ALL air-business in doldrums - not too difficult, it turns out.
@Zionsville - Bankruptcy may be best and only avenue. That was banks will share to burden with other creditors instead of shelling out proportionally more cash to keep them going.
HiSell profile picture
Was underwhelmed by Buffet’s weekend performance, I respected him, but it’s time for him to move on. His airline investments wasn’t an understandable mistake, just a bad one. The rest of his portfolio needs trimming, especially the bank stocks.
Bhughes7918 profile picture

She says "without your health you got nothing"
She says " All Things In Moderation."
She buys stocks and almost never sells them.

My mother always said health is the most important thing over and over "without your health you have nothing" she said this over and over growing up. Today at 89 she still swims walks 3 miles a day. She eats almost anything she wants like a Warren. But always drank lots of cold water my cousin was a doctor and he always said drink 8 cold glasses a day, not sure why cold, but common sense says it cleaner then and tastes better cold for sure.
He died in this eighties but was always in great health and in great shape as a surgeon you had to be.anyway, she always said do things in moderation, anything you want and you will be fine.d held for the long - termOutrunning in the woods today I saw the most people I have in 25 years, people of all ages no one running like me but at all hiking, it has been building the past month but today was crazy, so I think this virus will in the long run probably save 1,000,000lives or more, people are so out of shape in the USA it is not funny you see kids in high school walking the track for their mile run day with sandals on if that was my kid I would have a heart attack, some schools no gym now, just crazy people get out there get in shape today period, no more excuses. Get out there today, stay healthy, and stay alive.
But what really strikes me is people this weekend most driving in their cars by themselves all wearing masks today. But at the parks by me at least almost nobody has them on. So we really as a country we have lost our way.
Airlines want you to wear a mask know, as things open up, how was this not mandatory or not being done the past 45 days. Everything is done backward, sideways, everybody has a different opinion. I have never seen something that seems simple, use common sense wear masks period if you go out. Yet our leaders don't wear them in hospitals, I really not sure what all this means yet other than massive USA debt for all.
Even Warren Buffet said last night he has no idea how this will end but it probably won't be good he said. So, in fact, he sold stocks last quarter and bought none. Even his stock was much higher last quarter when he bought but he did nothing with this time, which means he likes cash more today. That is a statement itself.
But there are always good values he said, so if you stay in your lane, don't buy on margin and buy when things are 30%-50% below tangible book, and the business is doing good, you should do more than fine.
Remember what you pay is almost always the most important factor for your risk-reward and returns, but also so you don't get shaken out if you buy too high and it gets hit, usually, you get shaken out. You must stick to what you know and buy heavily when the time is right which is usually once every 5 or ten years.
Right now the values are in the Smaller bank stocks and there are plenty, even Warren owns mostly banks, even thou they are the bigger ones, if he could he would be buying the smaller ones hand over fist today. Not all but just the select few names with the strong asset quality that have around been around 150 years like, AROW under $21 and OPY under $21. OPY is 33%
LavaTraction profile picture
True you can do well by outliving everyone, but you must have the genes.
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