Warren Buffett’s Berkshire Hathaway Inc. disclosed stakes in American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc., extending the company’s bets on transportation.
Berkshire held 21.8 million shares of American Airlines as of Sept. 30, according to a regulatory filing Monday from the billionaire’s Omaha, Nebraska-based business. Buffett’s company also reported 6.33 million shares of Delta and another 4.53 million of United Continental, according to the filing. The largest stake, in American, was valued at almost $800 million at the end of the third quarter. Berkshire also added an investment in Southwest Airlines Co. after Sept. 30, CNBC reported, citing Buffett.
“What this says is, ‘The run isn’t over for airlines,’” Stifel Nicolaus & Co. analyst Joe DeNardi said. “There’s still a lot of this story to play out.”
Airline shares surged in 2014 but failed to sustain their rally on concerns about rising fuel prices and labor expenses. By 2018, the spike in employee costs may be behind the industry, DeNardi said.
The Bloomberg U.S. Airlines Index has gained about 1.8 percent this year through Monday’s close. That trails the 5.9 percent advance of the S&P 500 Index.
Buffett has long bet on the growth of the U.S. economy by investing in transportation. Berkshire owns the BNSF railway, the McLane trucking operation and a network of car dealerships. And while the holdings also include the NetJets luxury plane unit and Precision Castparts, the maker of products for the aviation industry, Buffett has previously cited the risks of airlines.
The billionaire said in 2001 that he’d sworn off investing in airline stocks after earlier lamenting the “mistake” of betting on US Airways Group Inc. He added that the industry had been unprofitable from the time of Wilbur and Orville Wright through 1991.
“Now if I get the urge to invest in airlines, I call an 800 number, and I say: Hello, my name is Warren, and I’m an air-o-holic,” he said. “Sometimes, it takes them 10 minutes to talk me out of it, sometimes more.”
The latest picks may have involved one of his investing deputies, Todd Combs or Ted Weschler. Buffett often limits himself to purchasing bigger stakes, such as holdings in Wells Fargo & Co. or Coca-Cola Co.
American jumped 4 percent to $45.15 at 5:01 p.m. in extended trading in New York. Delta climbed 2.6 percent to $48.70. United Continental rose 0.3 percent to $63.15. Southwest advanced 3.3 percent.
The move evokes Berkshire’s disclosure in 2007 that it invested in several railroads, David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said in an interview. Buffett decided later to buy BNSF and exit holdings in its rivals.
Similar to Railroads
The airline industry “has pretty much rationalized itself, similar to railroads,” Kass said, citing consolidation that reduced competition. “They have their sort of monopoly routes, they can price as they choose to maximize profits, and there are huge barriers to entry.”
Berkshire also cut its stake in Wal-Mart Stores Inc. in the third quarter by about two-thirds to 13 million shares. Buffett’s company exited a holding in Suncor Energy Inc.
Delta “welcomes new investors as we continue to build a model for sustainable, long-term success as a high-quality global company,” the Atlanta-based airline said in a statement.
American also was pleased with the news, saying that, “This investment further reinforces our view that our industry has fundamentally changed in a profound and lasting way.” Berkshire didn’t return a message seeking comment.
–With assistance from Jordyn Holman, Julie Johnsson, Michael Sasso and Mary Schlangenstein.
©2016 Bloomberg L.P.
This article was written by Katherine Chiglinsky and Sonali Basak from Bloomberg and was legally licensed through the NewsCred publisher network.