Legendary American investor Warren Buffett has sold his entire airline holdings, worth $4 billion, in American, United, Delta and Southwest.
In a virtual address to Berkshire Hathaway shareholders, he called his recent purchase in the businesses an “understandable mistake”.
“I don’t know whether two or three years from now that as many people will fly as many passenger miles as they did last year,” Buffett said. “They may and they may not, but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.”
Buffett is reportedly the world’s fourth-richest man, and his words are likely to cause significant damage to the airline business’ confidence.
Known as the “Oracle of Omaha”, the 89-year-old owns more than 60 companies, including battery maker Duracell, restaurant chain Dairy Queen and insurer Geico.
He bought his first stock aged just 11 and filed taxes at 13.
“The world changed for airlines,” Buffett said. “It turned out that I was wrong about that business because of something that was not in any way the fault of four excellent CEOs.
“But the companies we bought were well managed. They did a lot of things right. It’s a very, very, very difficult business because you’re dealing with millions of people every day and if something goes wrong for 1 per cent of them, they are very unhappy.
“We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss. We will not fund a company … where we think that it is going to chew up money in the future.
“People have been told not to fly. I’ve been told not to fly for a while. I’m looking forward to flying. I may not fly commercial but that’s another question.”
Last week, American Airlines announced a $2.2 billion loss for the first quarter of 2020, and United $1.7 billion.
“Never before has our airline, or our industry faced such a significant challenge,” American chief executive Doug Parker said. “We all expect that recovery will be slow and demand for air travel will be suppressed for quite some time.”
Marum
says:Warren Buffett once said, that it would pay him to employ someone to punch him in the head every time he considered buying shares in an airline. He then went on to explain in detail how hard it is ti make a profit in that business.
Well. He fulfilled his own prophecy.
Regards….Marum