Warren Buffett owned about 10% each of Delta, Southwest Airlines, American and a little bit less of United. He wound up with a bit over 10% of Delta – his biggest airline position – by accident when he was buying as Delta was buying back shares.
He bought more Delta stock as recently as two months ago, even though his airline positions never worked well and are investments he himself had warned against. Buffett has now unwinded them all and walked away from the industry.
The Berkshire Hathaway chairman once famously laid out just how bad a business the airline industry is for investors,
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.
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However Buffett got back into airline investing three years ago, not quite convinced that major carriers had become ‘high quality industrials’ just that the business had become better than it used to be. Berkshire Hathaway promptly lost over a billion dollars on these investments.
A year ago there were rumors he was going to buy Southwest Airlines in its entirety and that drove up the airline’s share price.
However Buffett now sees all of the airlines as ‘chewing up money’ in the future and that he doesn’t see demand recovering for several years, meaning that airlines are too large with too many planes. Even at today’s depressed share prices he didn’t see his positions as sound investments.