Legendary investor Warren Buffett has said his holding company Berkshire Hathaway has sold all shares in four large American airlines. Buffett also issued a dire warning to the global airline industry, which has been reeling under losses in the wake of the coronavirus epidemic. The billionaire investor was also quite blunt about the future outlook for the airline industry.
Buffett made the stunning announcement in a conference call with investors after Berkshire Hathaway reported a record $50 billion net loss in the first quarter. The world's most celebrated investor had 11 percent stake in Delta Air Lines, 10 percent in American Airlines, 10 percent in Southwest Airlines and 9 percent in United Airlines.
After selling off such massive holding in the premier US carriers Buffett all but predicted the demise of the airline industry. "We will not fund a company that... where we think that it is going to chew up money in the future," Buffett said, adding that "the world has changed" owing to the pandemic.
Buffett's spectacular exit from the airline stocks did not come without heartburns and losses. He said he suffered losses even as he sold off the airline shares. "We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss," he said, according to BBC.
Thousands of aircraft have been grounded across the world, with airline companies even finding it hard to maintain the planes in the hangars. The demand for flying has completely dried up, and even in the post-pandemic world the demand growth is not expected to be healthy. Experts have predicted that the coronavirus scare will be present in the medium term, making it necessary for the airlines to prepare for special requirements such as social distancing on flights. This, coupled with dull business growth, will cause continued financial pressure on the industry.
"I don't know whether two or three years from now that as many people will fly as many passenger miles as they did last year ... They may and they may not, but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves," Buffett added.
Analysts say the airline companies will have to depend on huge amounts of debt to stay alive, even after taking into account massive job losses and other cost trimming. According to Yahoo Finance, the four US airlines from which Buffett exited - Delta, American, Southwest and United -- will need to borrow $10 to 12 billion each and may even go for stock sales.
The International Air Transport Association (IATA) has predicted that the global airline industry may lose as much as $314 billion in passenger revenues due to the Covid-19 crisis. The IATA had predicted a revenu hit of only $130 billion in March, but raised the estimated losses multifold a month later. Citing global numbers, Statista reported that scheduled flights dropped by 66 percent in the week of April 20, 2020, compared with the same week a year ago.