4.12.2017

Investing in the Airlines: Still a "death trap for investors"?




So far I have eschewed investing in the airlines. I've followed the sage advice, since changed, of Warren Buffett who famously said (2002):
"It's been a death trap for investors ... If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You've got huge fixed costs, you've got strong labor unions and you've got commodity pricing. That is not a great recipe for success. I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: 'My name is Warren and I'm an aeroholic.' And then they talk me down.”
He since has changed his mind ... at least a bit (2017):
These aren't last century's airline companies, and that's why legendary investor Warren Buffett is spending money on them. "It's true that the airlines had a bad 20th century. They're like the Chicago Cubs. And they got that bad century out of the way, I hope," Buffett said Monday on CNBC's "Squawk Box." "The hope is they will keep orders in reasonable relationship to potential demand." Buffett's Berkshire Hathaway revealed late last year in an SEC filing it had taken a stake in American Airlines, United Continental Holdings and Delta Air Lines. CNBC also reported that Berkshire had taken another stake in Southwest Airlines. Ironically, Buffett implied he had not taken a commercial flight in several years. "We'll save that (conversation) for after the show," he said. The Oracle of Omaha also revealed why his holding firm previously hesitated to take significant positions in the industry. "I think there have been almost 100 airline bankruptcies. I mean, that is a lot," he said. "It's been a disaster for capital."
So I am thinking of dipping my toe into the airlines ... just 10 shares of each. Thoughts? Advice?

Top image: Biplane crash, East Boston Airport, 1928-05-31


Updated: Passengers may hate airlines, but investors love them (even United)

No comments:

Post a Comment

Any anonymous comments with links will be rejected. Please do not comment off-topic