Warren Buffett Quotes on Airlines. Why does Warren Buffett shuns airlines? Quotes from Warren Buffett on the airline industry.
Warren Buffett Investment in US Air
In 1989, Buffett purchased $358 million of US Air preferred with 9.25% dividend, mandatory redemption in 10 years, and right to convert into common at $60 a share.
Although Buffett eventually made money on this investment, he almost lost all of it as US Air neared bankruptcy in the interim. Buffett would not have invested in retrospect. As he says, ‘Stay away from the airline industry’. He shuns the airline industry in general, as it is a high fixed cost and highly competitive industry that has on the whole made negative returns for its investors.
Nonetheless, it is true that his timing also played a factor – during that time period, Midway, Pan Am, and America West all entered bankruptcy. This made 1991 a disastrous year for the airline industry.
Warren Buffett Investment in NetJets
Buffett acquired NetJets for $725 million in 1998, with 50% in cash and 50% in stock. The company pioneered the notion of ‘time sharing’ of corporate jets, allowing customers to own fractions of business jets. This lowers the cost of the plane by reducing the opportunity cost of idle time. Under this scheme, NetJets profits in two ways: first, it purchases steeply-discounted planes from manufacturers and sells them to customers at retail price; second, its customers pay NetJets fees to manage the time sharing.
NetJets has been an excellent investment for Buffett, who has also been a fervent unpaid salesman for the company. NetJets has a strong international presence and counts among its customers such public figures as Roger Federer, Carrie Underwood, Wayne Gretzky, Arnold Schwarzenegger and Sylvester Stallone.
Prior to purchasing the company, Buffett had been a satisfied customer for three years. He thus could testify to how well-managed and well-run the company was. NetJets had also built a strong brand name with its promise of quality service, safety and security.