Buffett Pulls Back on Airline Stocks, But Don't Fret ... Yet

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Buffett Pulls Back on Airline Stocks, But Don't Fret ... Yet

The Oracle said he wouldn't sell airline stocks getting crushed by coronavirus, but then he did. What does it mean?

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Berkshire Hathaway (BRK.B) chief Warren Buffett embraced airline stocks in a big way back in 2016, added to his holdings in February and said in March that he "won't be selling airline stocks" even as the industry reeled under the coronavirus-led collapse in air travel.

And then Warren Buffett up and sold some airline stocks.

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On Friday, April 3, investors learned through regulatory disclosures that Berkshire had ditched 13 million shares of Delta Air Lines (DAL, $22.48) and 2.3 million shares of Southwest Airlines (LUV, $30.54). This revelation came earlier than the mid-May release of Berkshire's Form 13F because the firm held 10%-plus stakes in Delta and Southwest, mandating Buffett's holding company immediately disclose any material changes to those positions.

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Berkshire also owns stakes in United Airlines (UAL, $22.89) and American Airlines (AAL, $9.39), but because those stakes are less than 10%, we likely won't find out about any moves in those holdings until the May 13F release.

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Berkshire's Smaller Airline Stakes

Berkshire cut its DAL holdings by 18%. That's a substantial pullback but hardly a full-scale dumping. Berkshire's remaining stake of almost 59 million shares was worth about $1.3 billion as of April 3. And, importantly, BRK.B remains Delta's largest shareholder with 9.2% of the company's shares outstanding.

It's possible that Buffett pared the DAL stake only to get below the 10% ownership threshold that would trigger regulatory headaches, but neither he nor anyone else from Berkshire has commented on the sale.

As for LUV, Berkshire pared its stake by just 4%. The holding company still owns more than 51 million shares worth about $1.6 billion. And BRK.B remains Southwest's largest shareholder with 9.9% of the airline's shares outstanding. Again, it's possible Berkshire trimmed its LUV stake to stay on the right side of the 10% ownership threshold.

It's understandable if the Delta divestiture in particular left some investors scratching their heads. As recently as late February, Berkshire bought another 976,507 Delta shares. And then in an interview with Yahoo Finance on March 13, Buffett stated categorically, "I won't be selling airline stocks."

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But then he did.

Buffett made no comment as to why he sold, which is typical, as he rarely comments on changes to Berkshire's portfolio.

Why Did Buffett Make the About-Face?

It's true that much has changed in the weeks since Buffett said he was standing pat. DAL stock has tumbled 41% since March 13 and is down 62% since the bull market top of Feb. 19. LUV has lost 26% since March 13 and cratered 47% since Feb. 19. The S&P 500 is off 26% since its mid-February peak.

It's also the case that elite investors admit when they're wrong and act accordingly. Perhaps Buffett is just taking his own advice: "The most important thing to do if you find yourself in a hole is to stop digging."

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But a little perspective is in order, too.

Berkshire remains the No. 1 and No. 2 shareholder in DAL and LUV, respectively. The two airlines combined represent about 1.7% of Berkshire Hathaway's equity portfolio.

And, for good measure, Buffett's fund still has 82% of the Delta stake it reported in February, and 96% of the Southwest stake.

It goes without saying that the market will be following Buffett's moves in the airline sector even more closely than usual. But as disheartening as it might be to see Buffett sell these shares, it tells us nothing conclusive. Berkshire Hathaway remains very much involved in the air carrier industry.

Uncle Warren hasn't pulled the ripcord. At least not yet.

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