Showing posts with label Delta airlines. Show all posts
Showing posts with label Delta airlines. Show all posts

Monday 4 May 2020

Warren Buffett says Berkshire is reversing course on airlines – again

Mon, 4 May 2020

Berkshire Hathaway's 2020 Shareholder Meeting


The billionaire investor said Berkshire Hathaway Inc completely exited its stakes in the four major US airlines. The sales of shares of Delta Air Lines Inc, Southwest Airlines Co, American Airlines Group Inc and United Airlines Holdings Inc made up most of the company’s US$6.5bil in equity sales in April.

During his live-streamed annual meeting, Buffett said the business has fundamentally changed following the economic fallout from the coronavirus pandemic. He declined to blame the performance of the airline executives, saying they’ve done a good job of raising money to get through the crisis.

“The world changed for airlines and I wish them well, ” Buffett said Saturday. He clarified that he made the decision and that he lost money on his investments. “That was my mistake.

Buffett’s had a complicated relationship with the airline industry over the years. After a troublesome investment in USAir, Buffett joked that he would call an 800 number to declare he was an “air-o-holic” if he ever got the urge to invest in airlines again.

Then in 2016, Berkshire dove into the industry again, amassing stakes in the four largest US airlines. At the end of 2019, those stakes amounted to almost US$10bil. Buffett’s renewed faith in the industry prompted speculation that he might one day own one of the carriers.

But now, he’s cut those investments again. Berkshire disclosed in April that it had at least trimmed its Delta and Southwest stakes, both of which had previously been above a 10% ownership level.

“The airline business - and I may be wrong and I hope I’m wrong - but I think it’s changed in a very major way, ” Buffett said. “The future is much less clear to me.”

The disclosure was among the most significant at the annual meeting, which was notable for its different feel this year as the event that usually draws tens of thousands was done was hosted virtually.

Buffett, 89, shared the stage with a top deputy, Greg Abel, who runs Berkshire’s non-insurance operating units. Vice-chairman Charlie Munger, 96, didn’t join, though Buffett said his long-time business partner was in good health.

Buffett said he didn’t know how consumer travel habits will change after the pandemic subsides, but any reduction in travel could leave airlines with higher-than-necessary fixed costs. Any impact could filter down to suppliers like Boeing Co.

- Bloomberg

Buffett admits a mistake with airline stocks

There's been a lot of speculation about the moves that Berkshire Hathaway has recently made with its airline stock holdings. In early April, Berkshire sold substantial amounts of its holdings in Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), with disclosures necessary because of Berkshire's having held more than 10% of the two airlines' outstanding shares. At the time, it seemed as though Buffett might simply be reducing its positions below 10% to avoid future complications.

However, Buffett reported selling a total of $6.5 billion in stock during April, far more than the Delta and Southwest sales that had been reported and also including shares of United Airlines Holdings (NASDAQ:UAL) and American Airlines Group (NASDAQ:AAL) as well. Questioned later, the Berkshire CEO said that the company sold off its entire positions in the four airlines. As he explained it, he "just decided I made a mistake." He had initially figured that investing $7 billion to $8 billion to buy 10% stakes in the four biggest U.S. airlines would give him about $1 billion in underlying earnings, which seemed like a reasonable value. However, Buffett said, "It turned out I was wrong about the business."

Buffett didn't blame airline CEOs, who managed their companies well and did a lot of things right. However, the Berkshire leader no longer feels comfortable that airlines will ever recover to their pre-coronavirus levels, and even two to three years from now, it's possible that not nearly as many people will be flying. Unfortunately, even if airlines recover 70% to 80% of their pre-crisis passenger loads, they'll still have far too many planes. With airlines selling stock to raise capital, upside is limited. Buffett concluded, "The world changed for airlines, and we wish them well."

https://www.fool.com/investing/2020/05/02/what-warren-buffett-said-at-berkshires-2020-shareh.aspx





Related article:


Warren Buffett Adds to Delta Investment as Airlines Plunge to Value Territory

https://myinvestingnotes.blogspot.com/2020/03/warren-buffett-adds-to-delta-investment.html



Berkshire's Top Equity Holdings

Berkshire still holds3 over $180 billion in the common stock of many publicly-traded companies. Approximately 69% of the aggregate fair value was concentrated in these five companies:
  • American Express Co. (AXP): $13.0 billion
  • Apple Inc. (AAPL): $63.8 billion
  • Bank of America Corp. (BAC): $20.2 billion
  • The Coca-Cola Company (KO): $17.7 billion
  • Wells Fargo & Co. (WFC): $9.9 billion

Wednesday 4 March 2020

Warren Buffett Adds to Delta Investment as Airlines Plunge to Value Territory

Coronavirus fears have taken their toll, providing an opportunity for investors

March 03, 2020



As fears of the new coronavirus mount, the share prices of airlines have taken a hit. Taking advantage of this dip into value territory, famous value investor Warren Buffett (Trades, Portfolio) recently disclosed that Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has invested an additional $45.3 million in Delta Air Lines Inc. (NYSE:DAL).



According to GuruFocus Real-Time Picks, a Premium feature, Buffett bought 976,507 more shares of the airline on Feb. 27, increasing his stake by 1.38% to a total of 71,886,963 shares. The stock was trading around $46.40 at the time.

DAL 30-Year Financial Data
The intrinsic value of DAL
Peter Lynch Chart of DAL



9aefb0b82f1329864d9138ad393531bc.png


Buffett added to the Delta position toward the end of a week-long U.S. market selloff, which was brought on by fears that the new coronavirus would slow economic growth worldwide. In a whiplash correction, the S&P 500 dropped 13.9% in one week, and the biggest stock fund in the world, the SPDR S&P 500 ETF Trust (SPY), saw over $13 billion in outflows.


94a03d4fd8d465d204fce6dfa4908df1.png


The last time Delta traded at such a low price was in early January of 2019. While the stock price is around the same as what it was a year ago, the company’s earnings have increased since then, making it undervalued according to the Peter Lynch chart.

5fb67ff1dd658cdf23811dd8718f14b1.png

Beginning in January, the U.S. posed travel restrictions on entry from China, which mainly consisted of rerouting airline passengers to certain airports to be screened for the virus. In February, additional travel restrictions were implemented on passengers travelling to the U.S. from Italy, South Korea and Iran, which have also seen significant coronavirus outbreaks.

Aside from government-imposed travel restrictions, there has also been a general drop in demand for international flights as people seek to reduce their exposure to foreign countries and crowded spaces. On Saturday, American Airlines (NASDAQ:AAL) announced it would be suspending flights to and from Milan, Italy from some of its airports, a decision that is due purely to lack of consumer demand.

Decline in demand for luxury services such as airline flights are nothing new during a market downturn. While it’s true that in this particular case, the problem is greatly exacerbated by the fact the recession is the result of an epidemic, demand will pick back up again at some point. Once panic over the new coronavirus recedes, the profits and stock prices of airline companies will rise again.

At a price-earnings ratio of 6.48 as of March 3, Delta is trading at a three-year low point in its valuation. Even if its revenue falls over the next few quarters, the current price is still more attractive than it was a few months ago in regard to the company’s future prospects.

Year to date, Delta shares are down 18.67%, while American Airlines shares are down 33.86%, Southwest Airlines (NYSE:LUV) shares are down 13.02% and United Airlines (NASDAQ:UAL) shares are down 30.46%. However, Buffett also owns shares of all four airlines, indicating a confident long-term bet in the profitability of the industry.


Margaret Moran

https://www.gurufocus.com/news/1064213/warren-buffett-adds-to-delta-investment-as-airlines-plunge-to-value-territory