In the past, Warren Buffett, Berkshire Hathaway’s (BRK-B) chairman, had a bearish view of the airline sector. In 2013, Buffett called the sector a “death trap.” Buffett famously said, “If a capitalist had been present at Kitty Hawk back in the early 1900s he should’ve shot Orville Wright; he would have saved his progeny money.”
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However, Buffett’s opinion on the sector has changed over the years. Berkshire Hathaway holds stakes in airline stocks including Delta Air Lines (DAL), United Continental (UAL), American Airlines (AAL), and Southwest Airlines (LUV). In 2016, Berkshire Hathaway acquired Precision Castparts, which supplies components to aircraft manufacturers (GE). The aerospace sector was in the news in the first quarter due to the fatal crash of Boeing’s (BA) 737 max model.
Airline stocks’ first-quarter performance lagged broader markets. Delta Air Lines and American Airlines lost 4.7% and 0.82%, respectively, in the first quarter. Delta Air Lines and Southwest Airlines rose 4.2% and 12.0%, respectively. Looking at the airline stocks in Berkshire Hathaway’s portfolio, only Southwest Airlines saw meaningful gains in the first quarter. However, even Southwest Airlines’ returns lagged the S&P 500 (SPY).
Delta Air Lines
Berkshire Hathaway disclosed that it brought more Delta Air Line stock in the first quarter. There were rumors that Berkshire Hathaway acquired Southwest Airlines. Berkshire Hathaway is sitting on a massive cash pile. In the annual letter, Buffett said that he and Charlie Munger, the vice chairman, are looking at a major acquisition. However, Buffett admitted that such opportunities haven’t been easy to come by especially from a valuation standpoint.