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Warren Buffett has removed Berkshire Hathaway (BRK-A, BRK-B) from the airline business.
During a virtual address to shareholders for the company’s annual shareholders meeting on Saturday, the president and CEO rated Berkshire’s recent purchase of approximately 10% of four of the world’s largest airlines, including American (AAL), United (UAL), Delta (DAL) and Southwest (LUV): an “understandable mistake.”
But the company has sold its entire interest in the airlines, worth at least $ 4 billion. In doing so, the Omaha Oracle admitted a strange step in investment, one he attributed to the coronavirus crisis affecting the global economy.
“The world changed for airlines,” said the influential investor at the meeting.
“It turned out he was wrong about that business because of something that was not in any way the fault of four excellent CEOs,” Buffett said of the COVID-19 shock to air travel, adding that “there was no joy” in managing those companies right now.
“But the companies we bought were well managed. They did many things well. It is a very, very difficult business because you are dealing with millions of people every day and if something goes wrong for the 1% of them, they are very unhappy, “added Buffett.
To date, more than 1.1 million are infected with the virus and more than 65,000 have died.
Before staying home, orders placed in the US USA On March 1, the Transportation Security Administration reported that it scanned nearly 2.3 million passengers, a number consistent with the approximately 2 million passengers from the previous year, per day.
However, until April 3, the agency scanned 129,763 passengers, and that number continues to decline. Buffett said he doubts whether the flying public, or even himself, will be willing to travel as often as they did by plane before the virus outbreak.
“People have been told not to fly. I have been told not to fly for a while. I really want to fly. It may not fly commercial but that’s another question, “said Buffett.
While expressing the hope that he could be wrong, Bufftett said the airline business changed dramatically, most obviously in the level of debt that companies will have to carry to stay alive.
Each of the four companies will need to borrow between $ 10-12 billion, and in some cases will have to rely on share sales, which will take away their advantage, he said.
“I don’t know if in two to three years as many people will fly as many miles of passengers as they did last year,” Buffett said. “They can and may not, but the future is much less clear to me about how the business will turn out absolutely without fault of the airlines themselves.”
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