Warren Buffett: Sell All Airline Stocks Now!

Value investors are taking a hard look at airline stocks like Air Canada (TSX:AC). Warren Buffett, the king of investing, believes you should stay away.

| More on:
An airplane on a runway

Image source: Getty Images.

Everyone knows Warren Buffett. He’s one of the greatest investors in history. When he talks, markets listen. If you’re invested in airline stocks, pay attention.

Buffett’s relationship with the airline industry stretches back decades. Everything culminated in 2017 when he started buying shares. Last year, he was a major shareholder of four different airlines.

Then the coronavirus hit. The airline industry experienced the sharpest decline in passenger traffic ever. Uncertainty remains rampant.

What does Buffett have to say about the current situation? Let’s find out.

History is revealing

If you want to understand how Buffett thinks about the airline industry, it’s critical that you review his past statements.

“If a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down,” he claimed over a decade ago, later adding that “there have been almost 100 airline bankruptcies” since the industry first began. “I mean, that is a lot. It’s been a disaster for capital.”

People change. In 2017, Buffett explained his new airline bets, saying that this time actually was different.

“It’s true that the airlines had a bad twentieth century,” he said. “They’re like the Chicago Cubs. And they got that bad century out of the way. The hope is they will keep orders in reasonable relationship to potential demand.”

Perhaps he should have listened to his previous statement on the matter: “I now have an 800 number I call every time I think about buying a stock in an airline. I say, ‘I’m Warren and I am an air-aholic.’”

Once the COVID-19 pandemic hit, Buffett’s airline profits were completely erased.

What does Buffett think now?

In March, when the pandemic first began, Buffett was steadfast in his support for the industry.

“I won’t be selling airline stocks,” he told Yahoo! Finance. “Well, it’s going to be terrible. I’ve always felt a pandemic would happen at some time,” he added, clarifying that it “won’t stop the progress of the country or the world.”

Buffett was wrong. Airline stocks tanked, and eventually, the Oracle of Omaha sold all of his airline stocks. What changed?

Investing is all about probabilities. Value investors like Buffett understand this better than anyone. If there’s zero visibility, it’s hard to calculate the odds. Just consider the following statement from Air Canada (TSX:AC) CEO Calin Rovinescu.

“No adjectives can adequately describe the pandemic’s cataclysmic effects upon our industry, nor can numbers fully quantify the extent of financial devastation,” he warned. “We’re now living through the darkest period ever in the history of commercial aviation, significantly worse than the aftermath of 9/11, SARS, and the 2008 financial crisis.”

No one knows when this will end. Air Canada thinks it will persist for at least three years. Plane manufacturers are bracing for five years. One CEO recently said the industry will be “permanently” smaller.

It’s hard to figure out how much airline stocks are worth. The odds are unquantifiable. Money may be made, but for prudent investors like Buffett, the best move is to step aside.

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 Ryan Vanzo has no position in any stocks mentioned.

More on Coronavirus

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft
Coronavirus

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »

Senior housing
Stocks for Beginners

Home Improvement Stocks Are Set to Fall (When They Do, Buy These Like Crazy!)

Home improvement stocks are due to drop further in the coming months. But with solid underpinnings for the sector, it…

Read more »

An airplane on a runway
Coronavirus

Forget Boeing: Buy This Magnificent Airline Stock Instead

Boeing (NYSE:BA) stock is looking risky right now, but Air Canada (TSX:AC) stock? Much less so.

Read more »

Man considering whether to sell or buy
Stocks for Beginners

Goeasy Stock: Buy, Sell, or Hold?

When it comes to smart buys, goeasy stock (TSX:GSY) is up there as one of the smartest money can buy.…

Read more »

Woman has an idea
Stocks for Beginners

Here’s Why Magna International Is a No-Brainer Value Stock

Magna stock (TSX:MG) has been climbing back once more, but still offers huge value for long-term minded investors.

Read more »

Aircraft wing plane
Coronavirus

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »