Warren Buffett (Trades, Portfolio)’s holdings in airlines nosedived approximately $1 billion in value from Jan. 23 to Jan. 25 amid fears of a potential price war among the carriers.
United Continental Holdings Inc. (UAL, Financial) tumbled over 15% over a two-day period on the announcement of the airline’s plan to increase annual capacity between 4% and 6% by 2020. Although the company said that such expansion could lead to strong earnings growth over the next three years, its growth plans also raised concerns about declining airfares, according to CNBC columnists F. Imbert and L. Josephs.
American Airlines Group Inc. (AAL, Financial), Delta Air Lines Inc. (DAL, Financial) and Southwest Airlines Co. (LUV, Financial) followed suit: each of the three airlines plunged at least 7% over the two-day period.
Buffett loses on airlines as of Jan. 25
Figure 1 shows the closing prices from the past three days and the two-day price change for each of the airlines. Figure 2 shows Buffett’s current holdings in each airline.
Figure 1
Figure 2
Although Buffett only holds 28.21 million shares of United, Berkshire Hathaway Inc.’s (BRK.A)(BRK.B) position in United declined $338.82 million over the two-day period, the largest decline among the four holdings. Figure 3 shows the change in Buffett’s market value for each airline holding while Figure 4 shows the net loss from each holding.
Figure 3
Figure 4
Conclusions
GuruFocus Forum users debated on why Buffett invested in airlines. While airlines can offer good long-term growth potential due to increasing air travel around the globe, the competition on price can keep airfare prices low.
Disclosure: I do not have positions in the stocks mentioned.
