Warren Buffett’s risk appetite for airline stocks has waned.
As Buffett expands his Berkshire Hathaway portfolio into mid-cap stocks, Berkshire Hathaway’s investments in American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc. and Southwest Airlines Co. have fallen by one-fifth in the past year.
Warren Buffett Airline Stocks Drop into Midcaps Berkshire Hathaway’s investments in American Airlines Group Inc., Delta Air Lines Inc., United Continental Holdings Inc. and Southwest Airlines Co. have fallen by one-fifth in the past year. Source: Bloomberg
While Buffett’s closest investment adviser Todd Combs oversees an airline portfolio of 26 stocks, Buffett himself has abandoned his airline companies. The billionaire remained “agnostic” on the sector as recently as last summer, saying in an interview that he would buy airlines if he thought that load factors and yields were moving in the right direction. Since then, load factors have declined at American, Southwest and United while yields have stabilized.
Buffett’s optimism about the airline sector has waned as well. A year ago, the billionaire told the Wall Street Journal that the “vast majority” of the companies he owns would benefit from rising interest rates.
Berkshire Hathaway’s investment performance in the airline sector has been underwhelming: Buffett’s purchases of American Airlines and Delta each fell 13% this year through the end of April, down from his purchases of U.S. Airways Group, Southwest Airlines and British Airways owner International Consolidated Airlines Group SA all fell 4% or less.
Regional Airline Stocks Sink as Air Canada Disappoints
Airlines are heading into a challenging year. Margins have shrunk as demand slows, labor costs have risen and fuel prices have surged. American and United are trading with single-digit price-to-earnings ratios while Southwest has a P/E of 11.
On Wednesday, Air Canada declined the most since October after reporting that its operating profit fell in the first quarter as higher fuel costs outpaced a gain in revenue from passenger and cargo. The struggling airline carrier also said that fuel costs will climb more than 25% in the current quarter, compared with last year.