Some four years ago, American billionaire investor and Berkshire Hathaway CEO Warren Buffett thrilled the US major airlines when he bought stakes in each. This was a massive endorsement by a financial icon that underscored the carriers’ own beliefs that they were now part of a restructured, sane and investment-worthy industry.
Buffett’s announcement at the weekend that he had sold off all his airline stocks—a 10.1% stake in Southwest Airlines, 10% in American Airlines, 9.2% in Delta Air Lines and 7.6% in United Airlines—was not surprising. But the negative impact will be at least as seismic on the industry as the positive effects of his original investments.
For an all-too-brief time, the CEOs at American, Delta, Southwest and United could bathe in the warm glow that Buffett’s name lent to their companies and to potential new investors. The COVID-19 pandemic shattered the illusion that US airline management had found the magic keys to sustained profitability and growth and could be treated, from an investor perspective, as a good bet. But airline CEOs have always tended towards confidence and optimism. What’s disconcerting to the traveler and the investor is that Buffett—the Oracle of Omaha—didn’t see this crisis coming either.
Like any responsible businessman, Buffett must make decisions in the best interests of his company and its shareholders. In explaining his selling of all airline stocks, he tried to cushion the blow, saying the future of the airline business was now much less clear “through absolutely no fault of the airlines themselves.” He also expressed hope that air travel would be restored “in a reasonably prompt way.” But Buffett and Berkshire have walked away from the recovery process.
Strangely, however, Buffett also called on investors to still “bet on America.” Following his own advice, he could have maintained at least some of his stock in those airlines, all of which are American companies that employ thousands of Americans and, critically, will be essential to restarting the American economy. Even much smaller shares in the airlines would have shown support for the role of the airlines and maybe convinced others not to sell up as well.
The direct correlation between good airline connectivity, strong airport hubs, jobs and economic growth is well established. The US cities with the best hubs and where service restores more quickly will have an economic advantage over those that cannot. The countries that best support their airlines while their fleets are grounded so they can be the first to reconnect trade and people will have a competitive and economic advantage over those countries that do not.
Betting on America right now means investing in those companies that will help repair its economy.
Karen Walker, ATW Editor-in-Chief, [email protected]
