Columnists
Taking a flyer
Oh to be Warren Buffett! You essentially write off your $US8 billion investment in the airline industry— on top of showing a first quarter loss of about $50 billion—and everybody still calls you a genius.
Prior to this April, Mr. Buffet’s company Berkshire Hathaway Inc. held an approximately 10 per cent interest in four major US airlines, an investment of about $US8 billion. In April, Berkshire Hathaway sold all of its airline industry stock, in regard to which Mr. Buffett admitted it “did not take out anything like what it paid for it.” Mr. Buffett said he will not fund a company that “is going to chew up money for the future.”
If I had charge of Mr. Buffett’s investments, I’d have been out of a job—and out of a career—faster than you can deal me in to a bridge game. So will some of the poor sods who recently lost a cool $2.1 billion for the Alberta pension fund corporation AIMCl on derivative contracts for ‘safe’ short-term income.
So why is the 89-year-old Mr. Buffett, the “Oracle of Omaha”, still regarded as a hero? To start off, he has a long history of superior returns for his investors, so he went into the year with a haystack-sized amount of goodwill.
On top of that, he takes responsibility for his actions. He admitted that the airline investment— he had bet on the industry itself rather than a particular company by buying shares in multiple carriers—was “my mistake; I am the one who made the decision.” Contrast that with the usual amorphous “mistakes were made” executive level admission.
Further still, he made a cold-blooded decision not to stick with a dubious investment that was on its way to the gutter. That requires discipline, because it runs contrary to our natural proclivity to postpone the unpleasant feelings brought on by taking a loss. Of course, it softened the blow that at the same time his company was sitting on a balance sheet that included cash on hand of $US137.3 billion.
His modest lifestyle, plainspokenness and personal longevity also make Buffett an endearing character. He is known for his forthright and lengthy presentations to annual meetings of his company. He has pledged 99 per cent of his wealth to charity. He has encouraged the US government to substantially increase the taxes paid by the billionaire class to which he belongs. He says he is a long-term investor who believes in the American economy.
The wonder of the transaction is that Berkshire Hathaway was able to find a buyer for its shares at any price. Somebody out there—obviously a believer in magical thinking—was prepared to take a gamble that airline shares would go up in value. Demand for air travel has fallen by about 95 per cent in the pandemic. We may all be flying again soon, but the volatility of the airline industry makes the prospect of solid returns for investors a very dicey proposition. It is almost inevitable that the federal government is going to have to step forward in a bigger way than it has to date. The question is how far down the priority list air travel lies.
Onex Corporation must be wondering what it has bought for the $5 billion it paid for WestJet last year, before anyone had heard anything about the coronavirus. Let’s hope it is a long-term investor.
The thrill has gone out of air travel. Sure, it’s handy to think of being able to travel from Toronto to Vancouver in the course of a single day. But the hassles of lining up to process your ticket, pass security, board, deplane and get your luggage, combined with being confined to a wedged-in seat, make the experience unpleasant. And now everywhere you go in an airport or on a plane you are reminded you are running the risk of infection. The fact that not as many people will be travelling and therefore lineups shouldn’t be as long is offset by the requirement to wear a mask and submit to questioning about your health, with the chance that you won’t be allowed on the plane at all. In addition, if Greta Thunberg gets to run the world, air travel will acquire the same stigma as smoking or meat-eating —and the government will invest in fleets of trans-oceanic catamarans to replace fossil-fuel-guzzling aircraft. Good luck to the airline industry and all, including Onex, who invest in her. It just won’t be me—or Warren Buffett.
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