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The airline industry is already heading into a tumultuous 2024, with mid-air emergencies, disappointing profit forecasts and grounding of planes in just two weeks. This just proves that Warren Buffett was right when he sold $4 billion worth of airline stocks during the pandemic, and probably never will. Please give the industry another chance. Buffett, CEO of Berkshire Hathaway and known as the “Oracle of Omaha,” said the airline business is a low-margin, capital-intensive model, and is subject to factors beyond the company’s control, such as price fluctuations. have long said that they are plagued by additional risks posed by Jet fuel and geopolitical uncertainty. “This is a labor-intensive, capital-intensive, primarily commodity-based business,” Buffett said at the Berkshire shareholder meeting in 2013. “It was a death trap for investors.” Buffett said being an airline leader can also be a thankless and demanding job because so many things can go wrong. “Trust me, there is no joy in being the CEO of an airline,” he said in 2020. “You deal with millions of people every day, so if something goes wrong with one person, it’s a very, very, very difficult business.” % of them are very unhappy. . ” Buffett, one of the world’s biggest dealmakers with mountains of cash, said he has been approached many times by investors who want to start an airline business. But this plea only deterred Mr. Buffett. Buffett said in 2013, “Over the last 25 or 30 years, I’ve probably gotten a dozen offers from people who want to get into the airline industry…and a number of them have done so. It’s kind of fascinating,” he said. Charlie Munger, Buffett’s late business partner, once quipped: “You can’t really build another railroad, but you can build another airline. And that’s what we don’t like.” Selling an Airline In 2020, Buffett said Berkshire would He announced that he had sold all of his holdings in the airline industry. This included a total of $4 billion worth of stock in all four legacy airlines: United Airlines, American Airlines, Southwest Airlines, and Delta Air Lines. Buffett said at the time that the pandemic may have fundamentally changed the industry. “The world has changed for airlines, and I don’t know how it has changed, but I hope the situation can be rectified as soon as reasonably possible,” Buffett said at the time. “We don’t know whether Americans are changing their habits now or whether they will change their habits in the future,” due to government shutdowns, prolonged coronavirus infections, and canceled travel plans. At the time, many Buffett watchers were left disappointed as the stocks of these airlines quickly rebounded dramatically, more than doubling from their 2020 lows. Even former President Donald Trump weighed in on the deal, saying Buffett was right “all his life” but was wrong to sell the airline. But Buffett may have the last laugh, as airlines have not fully recovered from the damage caused by the pandemic, despite rebounding from their lows. In fact, the U.S. Global Jets ETF (JETS), which tracks 50 U.S. and foreign airlines, is still about 40% below its 2019 pre-pandemic level. ‘The bad century is over’ When Buffett returned to the industry in 2019, he shocked many. In 2016, he acquired 10% of four major US airlines. By then, he had avoided the industry for a decade and was so opposed to investing in the sector that he told shareholders in a 2007 letter, “If there had been a visionary capitalist at Kitty Hawk, I would have been able to replace him.” It would have been of great benefit to the people.” By shooting Orville down. ” One exception in the past decade was when Berkshire acquired NetJets, which sells fractional shares in private business jets, in 1998 for $725 million. When Buffett broke his own rules and bought airline stock in 2016, he chose to believe that his industry had finally come to an end. After being plagued by bankruptcies throughout the 20th century, it became even stronger. “It’s true that airlines had a bad 20th century. They’re like the Chicago Cubs. And I hope they get through that bad century,” Buffett said in an interview with CNBC at the time. “There is,” he said. “The hope is that they will maintain [aircraft] We place orders in a reasonable relationship with potential demand. “A very eventful journey The legendary investor’s first investment experience in this industry was in 1989 when he purchased over $350 million in his USAir convertible preferred stock. Initially Berkshire was owned by USAir Holdings, but in the end it was just an investment. “It could have been worse, but it was a mistake,” Buffett said at the 1995 Berkshire Annual Meeting. He was reprimanded for repeating an old joke. Airlines: “When Richard Branson, the wealthy owner of Virgin Atlantic, was asked how he became a billionaire, he immediately replied, ‘Nothing, really.'” , then buy the airline.”
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