Warren Buffett Sold His Airline Stocks: Should You Dump Air Canada?

Air Canada (TSX:AC) posted a hefty loss earlier this month as its financial statements started to feel the impact of COVID-19.

| More on:

It was a big surprise when Warren Buffett announced this month that Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) sold off all of its airline stocks. It was only a couple of months ago when the World Health Organization first labelled the coronavirus a pandemic. A

Buffett told Yahoo Finance that he wouldn’t be selling his airline stocks. However, a lot has changed in just a few months. Millions of COVID-19 cases have occurred since then and shutdowns around the world are crippling the demand for air travel down to a grinding halt.

Why did Buffett sell his airline stocks?

The long-term investor said, “The world has changed for airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way.” He went on to say he wasn’t sure what the future would hold and “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”

Uncertainty is the recurring theme that kept coming up for Buffett when talking about the future of airline stocks and is likely a key reason why he decided to give up on them.

Even the airlines don’t know how long it’ll be before things get back to normal. Earlier this month, Air Canada (TSX:AC) released its quarterly results where it posted a mammoth loss of more than $1 billion. The airline said it expects that it will take at least three years for traffic levels to get back to where they were in 2019.

However, it’s impossible to predict how things will play out given we’re in unchartered territory. CEO Calin Rovinescu said, “We’re now living through the darkest period ever in the history of commercial aviation, significantly worse than 9/11, SARS and the 2008 financial crisis.”

Should investors follow Buffett’s footsteps and dump airline stocks?

Although Buffett sold his airline stocks, he also said to “bet on America,” suggesting that like with every downturn or recession in history, the economy will recover. The problem is that we’re just at the beginning stages of the downturn, and a recovery could be years away from taking place.

However, investors shouldn’t necessarily rush out to sell their shares of Air Canada. There aren’t nearly as many airlines in Canada as there are in the U.S., making Air Canada’s role in the industry that much more important to the government and to the economy. There would also be fewer big companies to bailout should the government need to go that route.

I wouldn’t bet on Air Canada going out of business, even if we’re looking at multiple years of little to no travel taking place. The government and the industry will find a way to get through this pandemic. There’s simply too much at stake for an entire industry to just crumble down to ash.

While that doesn’t mean Air Canada’s going to soar in the next year or two, it does mean that odds of its survival through the pandemic are strong.

The airline could scrape by and when the economy’s finally ready to resume normal operations, Air Canada can get back to where it was before the pandemic. There’s little doubt the economy will recover, it’s just a matter of when.

The same goes for Air Canada.

It’ll be a long, tough road ahead. But for investors who are willing to stick with the stock for at least a few years, there’s potential for the stock to double or even triple in value.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. 

More on Investing

data analyze research
Dividend Stocks

3 Undervalued Stocks to Watch in November

Not all undervalued and discounted stocks are destined or poised to make a comeback soon, and a protracted timeline can…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

The Perfect TFSA Stocks for Long-Term Growth

Two industry heavyweights are perfect stock holdings in a TFSA for long-term money growth.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is POET Technologies a Top AI Stock for Canadian Investors?

Canada has relatively few AI stocks, and the ones it has are different from American AI stocks in terms of…

Read more »

hand stacking money coins
Investing

Ready to Invest With $2,000? 4 Stocks for November

Here’s a well-diversified basket of four top Canadian stocks to add to your watch list this month.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Thursday, November 7

After the rally driven by the U.S. presidential election results, TSX investors will shift their focus to the Fed’s interest…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Is Brookfield Stock a Buy, Sell, or Hold for 2025?

BAM stock recently jumped after beating earnings. But is it still a buy, or is it better to wait?

Read more »

Make a choice, path to success, sign
Dividend Stocks

Is Fortis Stock a Buy for its Dividend Yield?

Fortis has increased the dividend for 51 consecutive years.

Read more »

oil and gas pipeline
Energy Stocks

Is TC Energy Stock a Good Buy?

TC Energy stock has a lot going for it, but there are also a few red flags to consider before…

Read more »