Warren Buffett Dumps ALL of His Airline Stocks! Should You Sell Air Canada (TSX:AC)?

Warren Buffett recently sold ALL of his airline stocks. Should you sell Air Canada (TSX:AC)?

| More on:
Plane on runway, aircraft

Image source: Getty Images.

Recently, investors got a surprise when the “Oracle of Omaha” sold $300 million worth of Delta Airlines shares on the dip.

On Saturday, they got an even bigger shock, when Buffett announced he’d liquidated his entire airline portfolio.

At Berkshire Hathaway’s annual meeting, Buffett said that the future for airlines is bleak. Corroborating what I’ve written in past articles, he explained that passengers may never resume their previous travel habits. Sooner or later, travel restrictions will be lifted, but passengers may voluntarily opt out of air travel for years.

Speaking to that possibility, Buffett hinted that passenger miles could still be down “two or three years from now.” While not a specific forecast, the “uncertainty” he alluded to was enough for him to pull out of airlines.

That’s not great news for those airlines’ shareholders. And what’s true of the airlines Buffett owned is also true of Air Canada (TSX:AC). To understand why that’s the case, we need to explore Buffett’s recent selloff in more detail.

Why Buffett dumped airline stocks

The main reason Buffett sold airline stocks because they’re at risk of long-term passenger loss. That’s obvious enough from the airlines’ own figures. Recently, Air Canada stated that it had cancelled 90% of its flights. Other North American airlines have reported similar numbers. So, clearly, revenue is way down.

Such revenue loss is a concern as it is. For Buffett, however, the long-term financial impact is the real doozy. Airlines are capital-intensive businesses, and they can’t operate for long without revenue. In his shareholder meeting, Buffett said that U.S. airlines would have to borrow $10-$12 billion each. He also added that dilutive equity issues were a real possibility. Either of these outcomes would hurt current shareholders. And they’re both real risks for Air Canada.

Should you sell Air Canada?

Having established that Buffett has decisively soured on U.S. airlines, we can move on to the big question: Should you sell Air Canada stock?

The answer is probably yes.

Over the years, Air Canada has been a huge riser in the markets, going from $0.90 per share to $19. If you got in at $0.90, maybe you could still hold on in hopes of a recovery. Having acquired AC for next to nothing, you’ll be able to sell it at a gain for the foreseeable future. This gives you some room to hold out hope.

If you got in AC near its current price, though, it’s time to cut your losses. There’s just nothing happening to suggest that AC will get back to its pre-COVID levels. Flights will resume, but nobody knows when they’ll get back to their pre-crash levels. As mentioned earlier, Buffett thinks the airlines could still be hurting two or three years from now. It’s just not a great time for the industry, Air Canada included.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Delta Air Lines and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares).

More on Coronavirus

rail train
Coronavirus

Bull or Bear: Why Analysts Changed Their Tune on Aecon Stock

Analysts had been champing at the bit for the construction company, but the tides have turned.

Read more »

Biotech stocks
Coronavirus

Is Bellus Health Stock Still a Buy After 30% Earnings Jump?

The biotech continues to make progress on obtaining FDA approval for its chronic-cough therapy.

Read more »

grow dividends
Coronavirus

Goodfood Stock Likely to Double in 2022!

Goodfood (TSX:FOOD) stock has had a huge rise and fall in the last few years. But at $1.85 a share,…

Read more »

grow dividends
Coronavirus

Canfor Stock Pops 5% as Sales Climb 15% YOY

Canfor (TSX:CFP) stock remained positive about its future in the global lumber market after profits climb 15% year over year.

Read more »

edit Safety First illustration
Coronavirus

2 Crash-Proof TSX Stocks I’d Buy With $5,000

These two TSX stocks have proven they can handle this economic downturn and likely will continue to be safe far…

Read more »

TSX Today
Coronavirus

What to Watch on the TSX on Tuesday, April 26

Earnings continue to come out on the TSX today, including Air Canada (TSX:AC). Meanwhile, investors may want to continue watching…

Read more »

think thought consider
Coronavirus

Should Investors Buy Goodfood Stock Ahead of Earnings?

Goodfood (TSX:FOOD) stock dropped on Wednesday ahead of the company's earnings release. And it's unclear whether there will be anything…

Read more »

little girl in pilot costume playing and dreaming of flying over the sky
Coronavirus

Cargojet Stock Soars Higher, Is it Still a Buy?

Cargojet stock (TSX:CJT) jumped after its deal with DHL, but at today's prices is the airline company still a buy…

Read more »