Airline stocks often get a bad rap. Buffett once said a capitalist should have dispatched Orville Wright at Kitty Hawk, and Berkshire’s airlines displayed lackluster performance year to date.
But buying airline stocks five years ago would have paid off to an enormous degree. According to a backtest, a basket of U.S. airlines with revenue in the range of $5 billion to $200 billion, rebalanced once a year, returned 374.4% since August 2012. That compares to a 69.4% return in the S&P 500.
The backtested portfolio included United Continental Holdings (UAL, Financial), Delta Air Lines (DAL, Financial), Southwest Airlines (LUV, Financial), US Airways Group, JetBlue Airways Corp. (JBLU, Financial) and Alaska Air Group (ALK, Financial).
The lucrative results came because of a particularly positive three years from 2012 to 2014. During that period, some airline stocks more than doubled. Delta soared 124% from August 2012 to August 2013. Southwest gained 99.2% from August 2013 to August 2014. In both of those years, all of the other stocks rose by double digits. JetBlue posted the best year, up 112.6% from August 2013 to August 2014.
Then turbulence arrived. For August 2015 to 2016, all of the stocks declined by double digits save Southwest, which eked a 2.4% increase. The downturn did not last long, as the stocks again swung to double-digit returns for the same period of 2016-2017.
Like the golden age of travel, the portfolio’s momentum has disappeared again this year. To date, it slipped 0.9% versus 8.6% for the index. In the past month, it slid 9.2%, versus a 1.2% decline in the S&P 500.
Berkshire’s airlines, which were purchased around the end of 2016, have struggled. While Southwest stock increased 7.04%, United Continental dropped 11%, Delta declined 2.6% and American dipped 0.77%, though good timing on the portfolio manager’s part has led to estimated gains on each of the holdings.