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Warren Buffett made the announcement during the Berkshire Hathaway annual shareholders meeting.
For “the Omaha Oracle,” Warren Buffett, one thing is clear: the aviation industry is no longer a good investment because of the covid-19 pandemic.
The billionaire American investor announced this weekend that his Berkshire Hathaway company had divested itself of all the shares it held in the four major US airlines.
“ANDhe world has changed (due to coronavirus), “Buffett explained during the annual shareholders meeting.
Then he admitted that he had been wrong to invest in the aviation industry.
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Buffett’s comments came just hours after Berkshire Hathaway announced a record loss in the first quarter of the year of $ 50 billion, according to reports from the Reuters news agency.
The conglomerate had an 11% interest in Delta Air Lines, 10% in American Airlines, 10% in Southwest Airlines, and 9% in United Airlines, according to the annual report and its tax returns.
The “Buffett effect”
Buffett’s company has had a complicated relationship with the aviation industry.
After a complicated investment in USAir, Buffett joked that the next time he felt like investing in another airline he would call a special “air addiction” line, Fortune magazine reported.
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The aviation industry in the United States is practically collapsed.
However, he started investing again in four airlines in 2016 with renewed faith in the industry, until today, when he acknowledged that he had been “wrong”.
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Warren Buffett is considered the most successful investor in the world. So much so that many analysts speak of the “Buffett effect”.
Due to the phenomenal success of their company, many investors seek to copy any trading activity they do.
If Berkshire Hathaway announces that it is going to buy or sell shares, many investors will go out to do exactly the same.
These actions naturally have a significant impact on the value of the shares that rise or fall according to their popularity among investors.
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What did Warren Buffett say?
Buffett told the board, which was held by teleconference: “We made that decision in terms of the airline business. Basically, we take the money out of that industry even holding a substantial loss. “
“We will not finance any company where … we think that will gobble down the money in the future”.
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The pandemic has emptied airports.
The US Transportation Industry it is on the verge of collapse as a result of the coronavirus pandemic, with airlines canceling hundreds of thousands of flights and taking thousands of planes out of service.
Buffett said he had considered investing in other airlines. before the pandemic started.
“It is a shock to see, essentially, that your lawsuit dry up,” he said. “That’s basically that we shut down air travel in this country.”
In a statement, Delta stated that it is aware of the sale of the shares and that it has a “tremendous respect for Mr. Buffett and the Berkshire team. ”
The airline added that it remains “confident” in its strength.
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Serious changes in the industry
However, in Buffett’s words at his shareholders’ meeting, “the airline industry has changed seriously” and pointed to the fact that the four big companies in the sector are each lending an average of up to $ 12 billion.
President Trump’s government and major US airlines reached an agreement last month to a rescue of US $ 25,000 million to compensate for the sudden loss of income and help pay your staff as the crisis passes.
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The airlines’ problems are global.
Although Buffett added that he hopes he is wrong in his analysis, he expressed concern that the airline industry would have the ability to recover to pre-pandemic levels.
BBC economic affairs correspondent Theo Leggett says that with ltraditional sources of dry income, sees it difficult to avoid massive layoffs on all airlines.
On the other hand, there are many logistical problems to overcome before somehow restoring commercial flights.
No one is quite sure where the planes can fly or what conditions will be imposed on passengers and staff by each national authority.
Currently there are some 17,000 aircraft parked at airports around the world. Still stationary, these ships have to undergo regular maintenance. If those ships were needed, putting them to flight would be a great challenge, says the correspondent.
The human resources factor
Another significant issue is the amount of human skills that are needed to enable the industry to function.
Pilots, for example, require flight hours either on the air or in simulators to maintain their “ratings” and licenses. Other personnel, such as flight controllers and engineers, also need to authenticate their credentials.
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Much of the airport’s income comes from trade in its free zones.
Solutions are being sought for all of these challenges, but what really keeps airline executives awake is the number of countries that have implemented flight restrictions and the uncertainty of when they will lift them.
“We are trying to have a global plan for a global restart,” Alexandre de Juniac, director general of IATA, the international association for air transport, told the BBC. “The biggest challenge is how and when different states will lift their travel restrictions. “
Another uncertainty is how social distancing will be maintained on planes, waiting rooms, security lines and at the airports themselves.
Much of an airport’s revenue they depend on trade in free zones, restaurants and bars. That allows them to lower what they charge the airlines and that in turn is reflected in the prices of flight tickets.
Finally there is the passenger capacity with which a flight can be carried out with the prevention of distancing. It has been plated to leave the intermediate seat empty, which would imply 65% of capacity. The strategy would be fatal for budget airlines, which often need more than 90% of seats occupied to achieve a margin.
Things would not end there for the passengers. There are plans, such as those being considered by the British government, to force all arriving passengers to quarantine for two weeks.
The UK industry association stated that this plan “indeed would eliminate international travel to and from the UK and would cause immeasurable harm to the aviation industry. “
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