Berkshire bought the Big Four airlines against Buffett's own advice — and sold at a loss

In the second half of 2016 Warren Buffett bought shares in American, Delta, Southwest and United, reversing a lifetime of steering clear of airlines. His case, laid out at Berkshire's 2017 meeting: planes would fly at higher capacity rates than the ones that bankrupted the industry, and carriers would keep retiring stock at low multiples — so even flat equity value would earn 'a pretty reasonable rate of return.' Airline economics were still 'terrible', he conceded; a positive return would be 'no cinch, by a long shot.'

Buffett had preached this sermon for decades. His $358 million US Air investment of 1989 'soured before the ink dried on the check.' His 1992 letter called airline growth a 'bottomless pit' investors should have been 'repelled' by; his 2007 letter crowned airlines the 'worst sort of business' and joked that a farsighted capitalist should have shot Orville Wright down at Kitty Hawk. He admitted he had 'participated in this foolishness' himself, and credited his eventual US Air exit to 'one of the recurrent, but always misguided, bursts of optimism for airlines.'

Then the pandemic arrived. Travel restrictions and fear of flying crushed bookings, airline stocks tanked, and the carriers took government bailouts that restricted buybacks, demanded billions in loan repayments and handed the government stock, while two pursued dilutive equity raises. Every leg of Buffett's thesis — stable value, continued buybacks, growing demand — broke at once. In April 2020 Berkshire sold its entire stakes in all four airlines for a fraction of what it paid, and at Berkshire's annual meeting that month Buffett called the bet a 'mistake'.

Buffett's own letters called airlines a 'bottomless pit' that grows while earning little — a warning he articulated from 1992 to 2007.

He re-entered in 2016 on a thesis of fuller planes and buybacks at low multiples, acknowledging the return would be 'no cinch'.

COVID broke every leg of the thesis at once: demand collapsed, buybacks were barred by bailout terms, and dilutive equity raises changed the value math.

He had taken this exact ride before — his $358 million US Air investment of 1989 'soured before the ink dried on the check.'

Even the investor who spent 25 years warning about airline economics joined the next optimism cycle. His own 'bottomless pit' memo is the checklist to run before ignoring it.

By Berkshire's annual meeting on May 2, 2020, the exit was complete and the confession public: 'The world has changed for the airlines,' Buffett said. 'The future is much less clear to me.' The carriers' bailout terms — buyback bans, government equity, required loan repayments — meant the industry he returned to in 2016 no longer existed in the form his thesis required. It was the second time Buffett had been burnt by the same industry he described more precisely than anyone else investing in it.