Warren Buffet's Cautions About Airlines Stocks

Warren Buffet just recently held Birkeshire's Annual Shareholer meeting where he warned investors about Airline stocks. In this vidoe I wanted to discuss this topic and give my thoughts on how the travel sector is going to fair.

Consumer Behaviour

Consumer behaviour post corona is going to change drastically, just think about any sector that’s been affected by it currently and then how they’ll adapt coming out on the other side. Now this is an interesting one because this is all just a guestimation right. There hasn’t been any particular trends because no flights have been permitted as of yet for recreational purposes that might suggest that either people are going to start flying again much like it was prior to covid. But I highly doubt it’s going to be the case because people fly when there’s discretionary income and with the job loss rate I doubt people have the same amount of discretionary income to travel just as much. With no money to spend and the scare of possibly being infected during travel, I really doubt people are going to be travelling again.

If anything all this covid situation with job loss and health concerns exacerbates the low and slowing rate of the Australian leisure market. In 2019 it was reported by Australian airlines and travel agencies that they all were facing the issue of the slowing leisure market in Australia. These are aspects of the travel sector that have been mentioned in many of the bi-annual and annual reports of the travel companies and prior to Ronnie rona, we had companies such as flight centre shedding many of their staff members due to the slowing market.

International Regulations affecting the flow of travel

Now if you’ve watched my other videos on QANTAS and Virgin you’ll know that international flights make up the smallest amount of revenue for airlines in comparison to domestic travel. So given that’s the case already and we have certain countries still on lockdown, again I want to question whether the airlines are going to make a return like everyone else thinks they are going to make. Like when you’re looking to go to countries in Europe… well that’s not happening, what about South America… maybe some other time bud.. Oh how about New York for some of that delicious pizza… Nah fam maybe skip that one too.

So now I’ve got all that out of the way, let’s look at how the shares are performing in Australia.

Qantas has come from it’s low of $2.14 up to the $3.50 mark, which is a move of 61%. So it’s recovering but we’re no where close, not even close to the highs of $7. They’ve also taken on in total of $5.58 B in debt which is secured against their dreamliners. This type of capital raising is no different than other airlines in the US, which is what Warren was not a fan of, to be investing billions of dollars into companies that constantly lose money.

The flight agencies haven’t faired too well when we look at flight centre and web jet, there’s really nothing happening there in terms of price move. Now out of the two I’m liking web jet the most due to their webbed business, of which was taking off prior to Ronnie rona and flight centre needs to become more online centric and reduce it’s overhead cost which it was looking at doing anyways by removing more of their brick and mortar store fronts. But it doesn’t help when their brand is associated with the store fronts.

Anywho so are they a buy for me? I’m going to have to say no, can you swing trade and make some monies on them? Absolutely, but can you do it wth other stocks? For sure. The main reason is I don’t want to put money on a company that has very little metrics of growth, there can’t be more demand for travel than there was before just due to the current health risks people are taking on when they travel and the legal restrictions that countries have placed on domestic residents and travellers.

What is a bullish case for travel to commence is that many countries rely on tourism, including Australia as a large source of revenue and have no doubt that many countries will go out of their own way. Think of countries in South East Asia or any country that doesn’t have high exports, they’ll largely rely on tourism as a source of revenue.

[extracurricular]

Just thought I'd share some context in what Warren had to say about his sales in Airlines. I think he was wanting to sound more calm and without Charlie there who can be quite frank, Warren seemed to be wanting to provide some sound long term advice with his usual analogies.

What are your thoughts on travel stocks? ✈️
Afterpay walk through coming up this Friday, stay tuned! 😎

[Silverfox_]

Thanks Lee !!. Currently riding the Webjet wave after watching your video.. :) Planning to short it soon

[DatTran-tbgr]

Great insight, keep up the good work Lee

[ebez]

In consideration to Air NZ and Qantas probably having protection from NZ and Aust government, the fact that Qantas will pick up a lot of the domestic and rural business in the interim and the lack of competition ... doesn't this make them considerable and/ or at least attractive and hyped for short term gains?

[AntoninusPius]

Haha i know but it’s tempting. Have you seen all the stocks in February. It’s crazy to think in just a few months. However long term yes we don’t know if people are in a rush to travel. You don’t want to get left behind in another country.