Warren Buffett’s Berkshire Hathaway is the second largest owner of Southwest Airlines with 47.8 million shares (an 8.7% stake) as of the end of 2018.
Now the airline is acknowledging the rumor that Buffett may take over the airline.
There has been speculation circulating that Warren Buffet might be looking to acquire an airline for some time, and that Southwest might be a good fit As a policy, we do not comment on speculations but appreciate Berkshire’s continued support of Southwest Airlines.
Southwest Airlines shares jumped 4% amidst this speculation.
Buffett started re-investing in airlines a couple of years ago and quickly lost a billion dollars on his trades.
If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money.
But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in.
You’ve got huge fixed costs, you’ve got strong labor unions and you’ve got commodity pricing. That is not a great recipe for success.
However if there’s a US airline that is a high quality business, it’s Southwest Airlines which has been profitable for 46 consecutive years. It’s also beginning to show signs of struggle with labor unrest harming the airline’s operation. However the largest carrier of domestic passengers still has significant growth opportunities as their international and overwater route network is highly limited.
Buffett has previously said he prefers to keep his ownership stake in United, Delta, American and Southwest below 10% each.