Posted on 05/03/2020 4:22:56 PM PDT by Capt. Tom
A 95% plunge in passengers. Billions in losses. A rush for new debt. A recovery that executives expect to take years. Coronavirus is roiling the airline industry and the Oracle of Omaha has seen enough.
Warren Buffett told investors Saturday that Berkshire Hathaway has sold its entire stakes in the four largest U.S. airlines — American, Delta, Southwest, United — as the pandemic upends another bet on the sector that the famed investor had shunned for years before a surprise return in 2016.
“And it turned out I was wrong about that business because of something that was not in any way the fault of 4 excellent CEOs,” Buffett said Saturday in Berkshire Hathaway’s annual meeting, which was webcast because of the pandemic and travel restrictions. Berkshire reported a net loss of close to $50 billion in the first three months of the year.
An embittered Buffett said in 2007 investor letter: “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down” and referred to a soured bet on US Air in the 1990s.
(Excerpt) Read more at cnbc.com ...
Apparently Buffet figures it will be many years for an airline comeback.
Just remember "Life is made up of the things that happen when you were expecting something else to happen."
Many other changes coming our way.- Tom
Airlines will come roaring back by Chinese New Year next year. Guaranteed.
Warren Buffett told investors Saturday that Berkshire Hathaway has sold its entire stakes in the four largest U.S. airlines -- American, Delta, Southwest, United -- as the pandemic upends another bet on the sector that the famed investor had shunned for years before a surprise return in 2016... An embittered Buffett said in 2007 investor letter: “If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down” and referred to a soured bet on US Air in the 1990s.
Airlines have always been a feast-famine business, moreso than other sectors (like hotels and petroleum products) with an entertainment angle and which rely on a good economy and stable costs (that's what made me want to include petroleum products in there).
Selling airlines when they're down is probably a dick move, uniless you take seriously Elon Musk's plan to fire passengers across the Pacific and everywhere else in a rocket (I don't).
Other sectors will probably bounce back first (including amusement parks, some other resorts, some hotels) but any airline that is currently trading at a multi-year low is worth analyzing. It's cheap now, if you have a reasonable guess that it won't be in a year, it's likely that fund managers and so forth who do this professionally won't wait until then.
It's worth pointing out that the Oracle of Omaha tends to bet big on companies which are analogous to buggy-whip manufacturers.
That said, I believe there are regions of lower populace that could re-open right now. Who knows, maybe the Dakotas, Wyoming, Utah, and certain mid-west States could experience huge growth, while NY, CA, NJ, Ill, sink into oblivion. This could be a complete economic restructuring of our nation.
This is an America and world changer on a macro-economic level.
Warren Buffett lost over $1billion trying to run up the price of oil while Bush was president in an election year
Those who have to travel will take planes. You might be able to do a vacation by car for 6 to 12 Hour drive but not for meetings or other personal appearances.
And you can’t drive overseas and even internationally is difficult.
“as the pandemic upends another bet on the sector that the famed investor had shunned for years before a surprise return in 2016. “
there’s no fool like an old fool: airlines have been losing money for at least 40 years, that’s why so many have gone bankrupt and/or merged and then gone bankrupt.
I guess Buffet with all his billions and political influence couldn’t figure out how to get government bailouts for the airlines.
Isn’t it the case that the collective long term performance of the Airlines is no return on investment?
Of course Boeing made lots of money selling the vehicles.
If the cruise ships recover that will help out the airlines.
But flying to meetings may be less, as they now are used to video conferencing. -Tom
I doubt that the Global Warming crowd is EVER going to video conference instead of staying at nice hotels, eating well, shaking hands, etc.
Air travel is not coming back to pre-Covid levels for an extremely long time. Maybe never if infectious disease and social distancing become part of normalcy.
That’s ok, he’s done pretty well following his own instincts.
Railroads may not be as sexy as airlines but you can’t haul the coal to make the power to charge electric cars with a jet.
“Other sectors will probably bounce back first (including amusement parks, some other resorts, some hotels) but any airline that is currently trading at a multi-year low is worth analyzing.”
Buying some January 2022 call options on an airline etf seems like a pretty good bet right about now. Your downside is limited and your upside could be huge.
Gotta love an optimist. I hope you are right.
Hang in there!
It appears the Federal money going to airlines is for payroll, to prevent massive layoffs thru Sept. 30.
After that:
From the article.- “We made a promise to our people and to American taxpayers to avoid involuntary furloughs or cuts to pay rates for U.S. employees until the end of September, and that’s a promise we’ll keep,” said United’s president, Scott Kirby, who takes the reins as CEO on May 20.
“But if demand remains significantly diminished on Oct. 1, we simply won’t be able to endure this crisis as a company without implementing some of the more difficult and painful actions.
These include decisions on involuntary furloughs, further reductions in hours, as well as other actions that will have an immediate impact on our people and their livelihood.”
Even in the best of times, the airlines’ profit margin is in the single digits, usually around 3% or so. It’s often said that on a full flight, the last passenger or two can represent the entire profit for that flight. This obviously varies depending upon the destination, aircraft type, etc., but you get the point.
And there has been no shortage of wealthy people over the years since deregulation who thought that starting an airline would be “really neat.” Almost all of these attempts ended in bankruptcy and liquidation. Airlines are the classic case of making a small fortune by starting out with a big fortune.
He doesn't generally do what he does by instincts, he only invests when he can figure out how to value the company, which is why it took him so long to invest in Apple. He got a call from Tim Cook, seeking advice, and then started to notice that nearly everyone he associated with (including all his grandchildren) used iPhones. [His railroad investment]
:^)
People with money will fly private jets... Unless there's a vaccine soon (and that's not likely) people people will fly less and less as time goes by...
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