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May 3, 2020, 1:40 p.m. EDT

Buffett says he dumped entire stake in airline-sector stocks: ‘The world changed for airlines’ amid coronavirus

‘I was wrong about that business,’ Warren Buffett says of decision to unload stocks in United, American, Delta and Southwest Airlines

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By Mark DeCambre, MarketWatch


Bloomberg News/Landov

Warren Buffett says Berkshire Hathaway dumped all of its holdings in the airline sector, painting a grim picture of the industry that has been badly hurt by the COVID-19 pandemic.

“I was wrong about that business,” Buffett said, speaking on Saturday in Omaha, Neb., at Berkshire’s annual shareholder meeting, which was held virtually due to the deadly disease.

Back in April, Berkshire Hathaway /zigman2/quotes/208872451/composite BRK.A +0.58% /zigman2/quotes/200060694/composite BRK.B +0.60%  disclosed that it sold large blocks of stock in Delta Air Lines /zigman2/quotes/200327741/composite DAL -0.11% and Southwest Airlines /zigman2/quotes/201071949/composite LUV -0.15% .

Subsidiaries of Berkshire sold 13 million Delta shares for a total of $314.2 million and 2.3 million Southwest shares amounting to more than $74 million, as he looked to substantially scale back his ownership of the airlines sector which has been devastated by stay-at-home protocols that have been put in place since the coronavirus epidemic took hold of the world over the past three months.

Buffett, however, explained that his company and its subsidiaries have now unloaded their entire stake in airlines.

Buffett explained at the meeting that he thought he was getting roughly 10% of the four largest airlines for an attractive price. He also owned stakes in American Airlines Group Inc. /zigman2/quotes/209207041/composite AAL -1.11% and United Airlines Holdings Inc. /zigman2/quotes/205037281/composite UAL -0.33% . Collectively, those airlines, represent some 80% of the passenger miles flown in the U.S., Buffett said.

But he determined recently that his decision, in light of the emerging pathogen, was ill-advised and he sought to unload his position: “I just decided that I’d made a mistake.”

As of the most recent filings, Berkshire had held 70 million shares of Delta representing 1.7% of the conglomerate’s portfolio, according to data provider Whale Wisdom . Berkshire also had roughly 54 million shares of Southwest, representing 1.2% of its holdings, 22 million shares of United Airlines, representing 0.8% and 42.5 million shares of American Airlines, about 0.5% of Berkshire, according to the site.

“The airline business, and I may be wrong, and I hope I’m wrong, changed in a major way,” he explained, noting that it has been through no fault of the CEOs of the companies. “I’ve been basically told not to fly,” he added, noting that he may not fly commercial going forward.

“I wouldn’t normally talk about it, but I think it requires an explanation,” he said of his decision to discuss selling airline stocks.

“We like those airlines but the world has changed…and I don’t know how it’s changed,” he said.

Shares of Delta, the largest airline by market capitalization, were down 59% in the year to date, United Airlines were off nearly 70% so far this year, Southwest shares were down by about 46% thus far in 2020, and American Airlines was off 63% over the same period, as of Friday’s close. An exchange-traded fund that tracks the industry, U.S. Global Jets ETF /zigman2/quotes/207744796/composite JETS -0.42% , was down by more than 55% in the year to date.

By comparison, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.16% was off 17% so far this year, after recovering much of its March decline in April. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.0042% was looking at a year-to-date loss of 12.4% and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.04% was down 4.1% so far in 2020.

Airlines received a $25 billion U.S. government bailout back in mid April to prop up the industry

The Trump administration reached an agreement with major airlines over the terms of a $25 billion bailout to prop up an industry hobbled by the coronavirus pandemic.

Volumes for airlines are down substantially, according to industry groups, with the aircraft and passenger volume down more than 90%, compared with a year ago, according to industry group Airlines for America , and more than 3,000 planes have been idled, constituting about half of the active fleets.

On Sunday, Southwest CEO Gary Kelly said he thinks the first week of April was the worst period for his company of the coronavirus pandemic, and business should pick up from here.

Speaking in an interview on CBS News’ “Face the Nation,” he said, “I don’t think June will be a good month, but hopefully it will be a bit better than May.”

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/zigman2/quotes/209207041/composite
US : U.S.: Nasdaq
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/zigman2/quotes/205037281/composite
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N/A
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$10.01 billion
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$448,946
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$ 16.57
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Aug. 7, 2020 11:06a
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27,342.37
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Volume: 88.82M
Aug. 7, 2020 11:06a
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Mark DeCambre is MarketWatch's markets editor. He is based in New York. Follow him on Twitter @mdecambre.

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