Airline Stocks: Warren Buffett Deboards, Others Check-In

• Recently, Berkshire Hathaway’s chairman, Warren Buffett, revealed that he sold all of its airline stocks. Berkshire Hathaway held significant stakes in Southwest Airlines, Delta Air Lines, American Airlines, and United Airlines.
• While Buffett is bearish on airline companies, retail investors and some fund managers find value in the beaten-down sector.

On May 2, Berkshire Hathaway’s (NYSE:BRK.B) chairman, Warren Buffett, revealed that he sold all of its airline stocks. Berkshire Hathaway has incurred a loss since airline stocks have fallen sharply this year. The sector is among the worst affected amid the COVID-19 pandemic. Based on Thursday’s closing prices, Southwest Airlines (NYSE:LUV), Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL), and United Airlines (NYSE:UAL) have fallen by 53%, 63%, 67%, and 74%, respectively, in 2020. Berkshire Hathaway held stakes in all of the above-mentioned airline stocks.

Warren Buffett started adding airline stocks in 2016. Previously, he had a very pessimistic view of the sector. He even called the airline sector a “death trap.” Ironically, airline stocks ended up being a death trap for Warren Buffett and Berkshire Hathaway. Buffett sold the airline stocks early based on the standards that he has set. Berkshire Hathaway has held some companies like Coca-Cola and American Express for decades. According to Warren Buffett, the world has changed for airline companies. However, some fund managers have a positive view of the sector.

While Warren Buffett has exited airline stocks, retail investors were net buyers in the sector, according to TD Ameritrade. Orascom Investment Holding Chairman and CEO Naguib Sawiris is also bullish on airline stocks. Speaking with CNBC, Sawiris said, “With every crisis there is opportunity,” He also said, “You can go and buy an airline today for $1 if you are assuming the bulk of the debt.”

Meanwhile, Southwest Airlines CEO Gary Kelly disagrees with Warren Buffett’s view of airline stocks. Even though he’s also pessimistic about the sector, he isn’t as pessimistic as Buffett.

Warren Buffett doesn’t buy or sell companies for their short-term outlook. In my view, the airline sector could face long-term pain. Even when economies reopen, it could take a long time for the sector to get back to normal. Also, there’s always a risk that when the pandemic ends, businesses might replace some of their travel with online meetings. Consumers might not feel comfortable with air travel for a long time.

Buffett had plenty of advice for retail investors during Berkshire Hathaway’s annual shareholder meeting. Read Warren Buffett’s Advice during Berkshire Hathaway’s Meeting to learn more.