Warren Buffett Bets Big On Airlines

Warren Buffett Bets Big on Airlines

Ever on the hunt for a great bargain, billionaire investor Warren Buffett boosted his company’s stake in Delta Air Lines once again. Berkshire Hathaway acquired some 976,000 Delta shares in February for roughly $45.3 million, according to a filing last Monday, raising its total holdings to 17.9 million shares. This was enough to bring Buffett’s ownership of the U.S. long-haul carrier up to more than 11 percent.

Once a critic of airline stocks, Buffett has become one of their greatest champions, noting the industry’s strong fundamentals and the fact that it’s protected by an economic moat.

Accumulating shares now appears to be a strategic move to capitalize on lower fuel costs—Brent crude oil is in freefall so far this year—as well as coronavirus-impacted travel, which has depressed airline stock prices. Fuel is one of the biggest expenses for airlines, and those not already hedged to prices could see benefits from lower prices due to the Russia-Saudi Arabia production dispute.

Buffett isn’t alone in thinking airlines look like a steal right now. In a note to clients last week, Citigroup analyst Stephen Trent maintained his Buy ratings on Delta, United Airlines and Spirit Airlines, writing that “if coronavirus concerns fade in the coming weeks and the U.S. is able to avoid recession, this scenario could see a recovery in ex-Asia demand, which could lead airline stock prices and earnings streams to stabilize.”

What’s more, the domestic airline industry could soon receive a fiscal stimulus in the wake of the COVID-19 epidemic. Speaking to various business news networks on Friday, National Economic Council director Larry Kudlow hinted that the U.S. government is considering “timely and targeted micro-measures” for certain industries, including airlines, hospitality and agricultural. It’s unclear at the moment what those measures might look like.

Kudlow ruled out a large-scale economic stimulus package similar to the one passed in response to the global financial crisis, calling the idea a “budget buster.”

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Disclaimer: 

The NYSE Arca Global Airline Index is a modified equal- dollar weighted index designed to measure the performance of highly capitalized and ...

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