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CNBC: Buffett's Bet on Airlines Lost More Than $700 Million in Sector Sell-Off

CNBC: Buffett's Bet on Airlines Lost More Than $700 Million in Sector Sell-Off
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By    |   Thursday, 25 January 2018 03:49 PM

A bet on airline stocks by Warren Buffett's Berkshire Hathaway reportedly lost more than $700 million in value in a sector-wide rout, fueled by worries of an upcoming fare war between carriers.

The value of the Berkshire's stakes in United, Delta, Southwest and American was worth more than $11 billion as of Tuesday's close, but fell by about $727 million in Wednesday's sharp selloff, based on Berkshire's latest disclosure of its holdings in November, CNBC explained.

Airline stocks went into a nosedive Wednesday on investor fears that a plan by United Airlines to grow rapidly will undercut prices and profits, the Associated Press explained.

Shares of United Continental Holdings Inc. plunged 11.4 percent to $69.05. American, Delta and Southwest also fell sharply.

The largest six U.S. airlines lost more than $9 billion in stock-market value.

United was the nation's biggest airline a decade ago but has slipped behind American and Delta. United executives say they have to rebuild service on routes that the airline abandoned to regain high-paying connecting passengers.

Investors fear that United's plan — on top of growth by other airlines — will flood the market with too many flights and seats, triggering ruinous fare wars to keep planes full.

After the market closed on Tuesday, United reported solid financial results for the fourth quarter. Profit jumped 46 percent to $580 million, beating Wall Street's expectations. The airline indicated that average prices are heading higher, which cheered investors.

However, Buffett apparently is doing better when his businesses stay on the ground and hit the rails instead.

Union Pacific Corp. lost ground to Buffett’s BNSF Railway Co. for a third year as the nation’s two largest railroads battled for western U.S. cargo. Shares fell the most in more than a year, Bloomberg reported.

While Union Pacific reversed a two-year decline in carloads, its 1.7 percent growth rate in the fourth quarter trailed BNSF’s 5.5 percent. The pitched battle for freight has throttled Union Pacific’s ability to raise freight rates, a key lever for boosting revenue and improving efficiency.

Chief Executive Officer Lance Fritz said Thursday he won’t get into a pricing war with rival railroads. Decisions to pursue cargo are “based on whether or not we can generate an attractive return that allows us to reinvest in the railroad,” he said. “We don’t pursue volume for volume’s sake.”

(Newsmax wire services contributed to this report).

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A bet on airline stocks by Warren Buffett's Berkshire Hathaway reportedly lost more than $700 million in value in a sector-wide rout, fueled by worries of an upcoming fare war between carriers.
cnbc, buffett, bet, airlines, lost
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2018-49-25
Thursday, 25 January 2018 03:49 PM
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