Warren Buffett’s Expensive Bet: Coronavirus Impact on Airlines Will Be Temporary

Warren Buffett had the worst day in years on Wednesday after the U.S. stock market plummeted into the bear market. Ankit Agrawal/Mint via Getty Images

Over the past few days, the rapidly spreading coronavirus Covid-19 has forced almost every major airline in the U.S. to slash flights and accommodate last-minute reservation changes as governments around the world impose travel restrictions to hard-hit regions and advise people to avoid nonessential travel.

These abrupt changes have sent airline stocks into free fall this week amid a market-wide slide triggered by the coronavirus. But Warren Buffett, veritably America’s smartest investor, is betting that the coronavirus impact on air travel will be only temporary.

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Last month, Buffett’s investment conglomerate, Berkshire Hathaway, bought a sizable stake of Delta Air Lines after its shares tumbled 20 percent amid the coronavirus selloff. The stake made Berkshire the largest shareholder in Delta. The firm is also the second largest shareholder in United Airlines, American Airlines and Southwest Airlines.

Those positions seem like an outright contradiction to Buffett’s famous saying that the aerospace sector has “proven elusive ever since the days of the Wright Brothers” and is therefore “a bottomless pit” for shareholder capital.

“Perhaps the legendary value investor just can’t resist scooping up cheap shares,” The Wall Street Journal commented. “U.S. airline stocks have traded at record-low valuations relative to the broader stock market for some months.”

Meanwhile, some investors speculate that the coronavirus outbreak could reduce business air travel for good and make work-from-home a permanent arrangement for some jobs. As tens of millions of people start working remotely to reduce Covid-19 risk, demand for virtual meeting and messaging softwares is skyrocketing.

Video conferencing startup Zoom, for example, has seen its share price jump 20 percent in the past month despite a market rout. Usage of similar tools made by Microsoft, Google, Uber and other companies has also surged since the coronavirus outbreak.

Warren Buffett’s Expensive Bet: Coronavirus Impact on Airlines Will Be Temporary