Oh, man. Big news came out Saturday during Berkshire's annual meeting for shareholders, where Buffett says he is "wrong about that business" and proceeded to sell-off all of his airline holdings, comprised of Delta, Southwest, United Airlines, and American Airlines, which had represented a combined 4.2% of Berkshire's portfolio.
This news comes at a time when lockdown and pandemic have practically shut down the entire world economy. With this new airline move, Buffett clearly believes the near future looks bleak for the entire airline sector, "and I don't know whether it's two or three years from now that as many people will fly as many passenger miles as they did last year".
With each of the four companies borrowing $10-12 billion and eventually having to pay that back through earnings, Buffett isn't too clear about the future of airlines anymore. At a time where laws prevent people from traveling and certain countries have even prohibited foreign visitors, passenger volumes have decreased a dramatic 90% since last year.
However, there is clearly no "beef" between Buffett and the airlines, as both parties holding high respect for each other, with Delta even releasing a statement that said they had "tremendous respect for Mr. Buffett and the Berkshire team".
Buffett's view of the airline's future is shared among others, even within the airline community. Former Continental Airlines CEO, Gordon Bethune, believes that "I think he's probably understating the problem".
With no clear plan for airlines to rebound back to their past consumer volumes, many other investors share the same sentiment as Buffett and have also decided to sell their shares of airline stocks, as represented by the absolute beating that shares took today, the Monday right after Buffett announced Berkshire's plans. American Airlines dropped 7.71%, Delta did 6.43%, United went down 5.11%, and of course Southwest which was down 5.71%. These are movements for just one day.
So, what does that mean for you?
Well, as an investor, you were probably watching in amazement today as the ripple of effect of Buffett's decision was clearly seen, with airline stocks tanking for the day. The bailouts, drastically reduced revenue, low consumer optimism, and no future plan make this industry sector one that is not exactly the most appealing. Will there be cultural changes where people would want to be further away from each other? Who knows. Will people feel unsafe being in confined spaces with strangers even after the pandemic? Again, who knows. It's too early to place a bet on whether or not airlines can truly recover from this, and exactly how long that will take. On the opportunist side, it is a time where major airlines are going for heavily discounted prices, and if the companies do bounce back, you could see a tremendous return on investment. On the pessimistic side, this could be the end of airlines as we know it.
Any thoughts? Feel free to comment below