The coronavirus pandemic has put the airline industry in the toughest position its been in since perhaps the sector’s entire history. Major CEO’s are warning shareholders that things have never been worse for their businesses, with some chief executives warning that without government bailouts, their companies could go out of business. Well known billionaires, such as Richard Branson, has gone on to offer up their private properties as collateral to prop up their own airlines. Amidst this situation, one of the world’s top value-investors has decided to cut his losses in this industry.
Warren Buffet has gone on to confirm that Berkshire Hathaway has eliminated its entire stake in the airline industry, with the famous investor going on to say that he made a mistake while unloading shares of many top U.S. airlines. While value-investors such as him tend to regard crises as good buying opportunities due to how cheap stocks can become, this isn’t a normal crisis. With air travel unlikely to return to normal until 2021, at least, shareholders and investors alike are expecting things to stay as they are, if not get worse over the coming months.
During Berkshire’s annual shareholder meeting, which was held virtually due to this pandemic, Buffett went on to say that he was “wrong about that business” in reference to a number of airline companies, but most notable of which being his position in Delta. Berkshire ended up selling over 13 million shares of the American airline alongside an extra 2.3 million shares of Southwest. Buffett has confirmed that Berkshire has now completely eliminated all of its position in the airline industry at the moment.
“The airline business, and I may be wrong, and I hope I’m wrong, changed in a major way. “I’ve been basically told not to fly,” told Buffett at the meeting. “I wouldn’t normally talk about it, but I think it requires an explanation, we like those airlines but the world has changed…and I don’t know how it’s changed.”
With the future of the airline industry largely uncertain, and with many companies in dire financial straits, the Trump administration has recently decided to provide up to $25 billion as an industry-wide bailout to prop up airline companies. According to the data that’s been released so far, volumes for airline travel are down at least 90% in comparison to last year’s figures, around half of all commercial airplanes around the world being grounded due to there being no use for them.
Shares of Delta had understandably fallen in light of the news. The stock had already dipped 7% during Friday’s trading session, with the company falling another 8.9% in after-hours trading.
Delta Airlines Company Profile
Atlanta-based Delta Air Lines is one of the world’s largest airlines, flying to more than 325 destinations in 60 countries. Delta operates a hub-and-spoke system, where it gathers and distributes passengers across the globe through key locations in Atlanta, New York, Salt Lake City, Detroit, Seattle, and Minneapolis-St. Paul. Delta generated just over $41 billion in revenue during 2018 and operated a mainline fleet of more than 850 aircraft. – Warrior Trading News