Warren Buffett sells US airline shares in belief they'll 'chew up money'

American Airlines planes parked up
Berkshire Hathaway has offloaded all of its airline stocks due to the impact of COVID-19.

American business tycoon and investor Warren Buffett has sold his company's stocks in US airlines because he believes they'll chew up money.

Berkshire Hathway's airline stocks are reportedly spread across Delta Air Lines, American Airlines, Southwest Airlines and United Airlines. Speaking at an online annual meeting for his company in Omaha, Nebraska, The Guardian reported that despite recent market drops, Buffett said he hadn't found anything "attractive enough" to invest in. 

His comments are viewed as contrary to his actions during the Global Financial Crisis (GFC), when he put $10 billion into investment bank Goldman Sachs. Due to the prolonged impact of COVID-19, he's chosen to offload his company's entire holdings in the four major US airlines, warning that the “world has changed” for the aviation industry and indicating that markets hadn't bottomed out.

“We made that decision in terms of the airline business. We took money out of the business basically even at a substantial loss,” Buffett told The Guardian.

“We will not fund a company… where we think that it is going to chew up money in the future.”

Buffett's decision comes as the New York Times reports that an internal Trump administration report predicts COVID-19 daily cases to hit 200,000 by June and the US death toll could reach 100,000.  On April 14, the publication reported that the US airline industry would receive a $25 billion bailout, provided on a part-support, part-loan basis, with the Treasury receiving warrants to buy stock in the airline companies.

With borders expected to remain closed for some time, the New Zealand tourism industry, which is reportedly worth around $21 billion, faces similar challenges. But with zero COVID-19 cases for two consecutive days, 20 deaths with 1302 people recovered, and talks of a trans-Tasman bubble underway, prospects for local tourism look brighter.

Leighton Roberts, co-founder of online investment platform Sharesies, said that the company had seen an increase in trading across Air New Zealand, Auckland International Airport and Tourism New Zealand shares, with Air New Zealand shares tending to be the most volatile.

"For all three, there's higher selling behaviour than usually seen," Roberts said.

During the last few weeks, Air New Zealand ('AIR') had traded as low as 83c, up to $1.61,  closing at $1.25 on Tuesday. Within the same period, Tourism Holdings ('THL') shares had traded from 82c up to $1.59, closing at $1.35 and Auckland International Airport ('AIA') between $4.99 and $6.19, closing at $5.86.

Roberts said that the $200 million share purchase plan for Auckland Airport, announced on April 9 had been popular with investors on Sharesies, and retail investors.  Share prices of all three companies had recovered somewhat, but not to pre-COVID levels.

"We expect more volatility to come before we continue on any recovery," Roberts said. 

Jimmy Metahysa, a New Zealand investment strategist and educator, told Newshub that the world has entered into a deflationary situation, which he describes as a period of "generally falling prices", in which consumers delay purchases in the expectation of further falls.

COVID-19 has severely impacted global tourism, and aviation stocks won't see a short-term recovery.

"[Buffett] understands that there is no way back to 'normal': there's a new world being created because old standards and models don't apply any more," Metahysa said.  

Metahysa suggests that Kiwi investors adopt a similar approach to Buffett by looking at undervalued companies and playing the long-game. 

"It's useful to identify companies that have physical assets behind them - these stocks will retain value because they have tangible income-producing properties [for example] real estate investment trusts," Metahysa said. 

"It's [also] critical to keep at least part of your wealth in non-digital form: [for example], physical cash, gold, fine art or land."