Airlines Stocks Down after Warren Buffett Exited Stakes in Four of the Largest U.S. Airlines

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by Steve Muchoki · 3 min read
Airlines Stocks Down after Warren Buffett Exited Stakes in Four of the Largest U.S. Airlines
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Airlines stocks slid further on Monday after investor Warren Buffett said that Berkshire Hathaway exited its stakes in four of the largest U.S. air carriers American, United, Delta and Southwest airlines due to the coronavirus.

Airline stocks continue with the losing streak after Warren Buffett announced that he has exited the airlines market in four of the largest United States airlines, during Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) annual shareholder meeting held last Saturday.

Most of the airlines’ stocks closed the previous week at a loss, whereby American Airlines, Inc. (NASDAQ: AAL) dropped by 11.41%, United Airlines, Inc. (NASDAQ: UAL) dropped by 10.01%, as Delta Air Lines, Inc. (NYSE: DAL) and Southwest Airlines Co. (NYSE: LUV) dropped by 6.91% and 6.46% respectively. Today they are also in the red. AAL is 5.45% down, UAL is 5.03% down while DAL is falling 6.34% and LUV is decreasing by 4.55%. 

Reasons for Warren Buffett Backing Out of Airlines Stocks

According to Buffett, due to the level of uncertainty caused by the ongoing coronavirus, there is no market according to him indicating a potential of return. “As the pandemic overtook the world and halted nearly all global travel. Berkshire’s stake had totaled at least $4 billion in these airlines late last year,” he said.

He continued to say that in April his company sold $6 billion worth of securities from its massive stock portfolio. He, however, noted that the explanation given is essential according to him, whereby he said, “we were not disappointed at all in the businesses that were being run and the management, but we did come to a different opinion on it.”

With the coronavirus crisis grounding, almost all air travels except for the repatriation trips, airline industries are the worst hit. Whereby Buffett noted that it would be a tough decision to decide whether to sustain billions of dollars in operating losses when you do not know how long it’s going to happen or occur.”

According to him, due to coronavirus, the airline industry’s future is much less clear mostly after the pandemic. Therefore deluding that if the airline business comes back at 70% or 80%, there will still be ‘too many planes’ and oversupply of airline seats.

Airlines Business amid Coronavirus

Yahoo! Finance reported that the Transportation Safety Administration metrics showed nearly 2.3 million passengers, a figure which was consistent with the prior year’s approximate 2 million passengers per day. However, in April, the same agency reported that the number had drastically fallen to 129,763 passengers, with the figure continuing to decline by the day.

As a result, the four airline companies will be compelled to borrow approximately $11 billion, and in some cases, some will be forced to depend on stock sales, which might be a catalyst for sale pressure and more loss of value.

Whether Buffett made the right call in regards to the coronavirus future remains unknown and only time can tell.

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Steve Muchoki

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