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March 6, 2020, 8:29 a.m. EST

Warren Buffett’s big bet on airlines could have lost $3 billion in 3 weeks

Coronavirus takes a bite out of Berkshire Hathaway’s investments in four airlines, as Jets ETF has dropped in 14 of past 15 sessions

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By Tomi Kilgore, MarketWatch


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The selloff in airline stocks resulting from the coronavirus outbreak could be costing Warren Buffett nearly $3 billion over the past few weeks.

Buffett’s investment arm Berkshire Hathaway Inc. /zigman2/quotes/200060694/composite BRK.B -0.94%   /zigman2/quotes/208872451/composite BRK.A -1.09%  , of which he’s chairman and chief executive office, was Delta Air Lines Inc.’s largest shareholder with a stake of 70.91 million shares as of Dec. 31, according to Berkshire’s latest 13F filing with the Securities and Exchange Commission.

Berkshire also owned 42.50 million shares of American Airlines Group Inc., 53.65 million shares of Southwest Airlines Co. and 21.94 million shares of United Airlines Holdings Inc., making him the second-largest shareholder in each of those airlines, according to FactSet.

The U.S. Global Jets exchange-traded fund /zigman2/quotes/207744796/composite JETS +3.84%  plummeted 9.0% on Thursday,. Since Feb. 12, when the ETF started a 15-session stretch, in which it has declined 14 times, that ETF has tumbled 32.1%. That compares with an 18.1% drop in the Dow Jones Transportation Average /zigman2/quotes/210598063/realtime DJT -0.04%  and the Dow Jones Industrial Average’s /zigman2/quotes/210598065/realtime DJIA +0.36%  11.6% selloff over the same time, amid growing fears of the global economic impact of the coronavirus outbreak, which was first detected in China.

Over the same time, shares of American /zigman2/quotes/209207041/composite AAL +5.81%  have lost 14.4%, Delta /zigman2/quotes/200327741/composite DAL +3.81% have shed 14.5%, Southwest /zigman2/quotes/201071949/composite LUV +4.74%  have dropped 13.2% and United /zigman2/quotes/205037281/composite UAL +5.06%  have given up 30.6%.

Don’t miss : United, Delta and seven other airlines are waiving flight change fees because of the coronavirus outbreak.

On Thursday, shares of Southwest slumped 3.6% after the company cut its first-quarter unit revenue guidance, while United’s stock tumbled 13.3% after the carrier said it was reducing U.S. flights and asking worker to take unpaid leave. Separately, the U.K.’s largest domestic airline Flybe collapsed Thursday, with all flights being grounded.

/zigman2/quotes/207744796/composite JETS 15.67, +0.58, +3.84%

If Berkshire’s holdings remain the same as of Dec. 31, the value of its investments in those carriers could have declined by a total of about $3.02 billion since Feb. 12.

Keep in mind that Buffett is in it for the long haul, as he started nibbling on airlines during the third quarter of 2016, by buying 21.77 million shares of American and 4.53 million shares of United. He then loaded up on the sector during the following quarter, as filings show he owned 45.54 million shares of American, 60.03 million shares of Delta, 43.20 million shares of Southwest and 28.95 million shares of United, as of the end of 2016.

From the end of 2016 through Feb. 12, 2020, American’s stock had lost 34.7%, while shares of Delta had gained 20.9%, Southwest had advanced 17.3% and United had rallied 12.8%. Over the same time, the Dow transports had slipped 0.4% and the Dow industrials had run up 32.2%.

Some Wall Street analysts suggested negative effects of COVID-19 on airlines could be short lived, as sooner-than-expected cuts in seat supply, like those announced by United, could help soften the effects of reduced demand.

“We continue to believe the U.S. airlines under coverage are well positioned to weather demand headwinds and these proactive steps [re: capacity] are likely to help investor sentiment, albeit with headline risk (related to revenue/demand weakness) still elevated over the next few weeks,” Analyst Savanthi Syth wrote in a note to clients.

Meanwhile, Stifel Nicolaus’s Joseph DeNardi wrote: “First, we see the fact that the virus is novel, easily transmissible and likely under-reported (due to insufficient diagnostics) as leading to continued disruptions to domestic demand. Whether these disruptions will be short-term in nature will depend primarily on the asymptomatic nature of the virus.”

/zigman2/quotes/200060694/composite
US : U.S.: NYSE
$ 183.84
-1.74 -0.94%
Volume: 5.72M
June 1, 2020 4:00p
P/E Ratio
46.03
Dividend Yield
N/A
Market Cap
$450.97 billion
Rev. per Employee
$637,113
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/zigman2/quotes/208872451/composite
US : U.S.: NYSE
$ 275,600
-3,040 -1.09%
Volume: 303.00
June 1, 2020 4:00p
P/E Ratio
46.06
Dividend Yield
N/A
Market Cap
$451.40 billion
Rev. per Employee
$637,113
loading...
/zigman2/quotes/207744796/composite
US : U.S.: NYSE Arca
$ 15.67
+0.58 +3.84%
Volume: 6.19M
June 1, 2020 4:00p
loading...
/zigman2/quotes/210598063/realtime
US : Dow Jones Indices
8,965.91
-3.88 -0.04%
Volume: 220.61M
June 1, 2020 5:27p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
25,475.02
+91.91 +0.36%
Volume: 341.22M
June 1, 2020 5:27p
loading...
/zigman2/quotes/209207041/composite
US : U.S.: Nasdaq
$ 11.11
+0.61 +5.81%
Volume: 50.33M
June 1, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$4.44 billion
Rev. per Employee
$345,547
loading...
/zigman2/quotes/200327741/composite
US : U.S.: NYSE
$ 26.17
+0.96 +3.81%
Volume: 46.52M
June 1, 2020 4:00p
P/E Ratio
4.86
Dividend Yield
0.00%
Market Cap
$16.08 billion
Rev. per Employee
$499,337
loading...
/zigman2/quotes/201071949/composite
US : U.S.: NYSE
$ 33.62
+1.52 +4.74%
Volume: 20.82M
June 1, 2020 4:00p
P/E Ratio
9.91
Dividend Yield
0.00%
Market Cap
$18.92 billion
Rev. per Employee
$373,554
loading...
/zigman2/quotes/205037281/composite
US : U.S.: Nasdaq
$ 29.46
+1.42 +5.06%
Volume: 57.30M
June 1, 2020 4:00p
P/E Ratio
7.99
Dividend Yield
N/A
Market Cap
$8.14 billion
Rev. per Employee
$448,946
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Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.

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