The airline sector may be experiencing some turbulence now with COVID-19, but the industry has flown through storms before. After all, airlines stocks managed recoveries after the 9/11 attacks, the SARS outbreak in 2003 and the global financial crisis in 2008.
Investors are increasingly curious about airlines as stocks have seen bigger selloff than the wider market and could be an attractive buying opportunity. Our dedicated airline ETF has seen a massive increase in inflows since the coronavirus pandemic began, jumping from $52 million at the end of 2019 to $302 million as of March 31.
Earlier this week I participated in a webcast in partnership with ETF Trends to answer advisors’ questions about investing in airlines and the impact of COVID-19. The advisors on the webcast were extremely engaged and asked numerous questions. Below are the most frequently asked questions and my responses.
How long could it take for travel demand to return to pre-virus levels? Will the increase in remote work hurt business travel?
It’s hard to predict when travel demand will fully recover. However, we’ve already seen an increase in commercial air passengers as lockdown restrictions are eased. The number of people the Transportation Security Administration (TSA) screened bottomed at 87,500 on April 14 and since then it’s risen steadily. As of May 20, the TSA screened more than 230,000 people, a gain of about 163 percent from the low.
Remote work has always been a threat to business travel demand. More companies will likely transition to fully remote working post-lockdown, but I believe some travel will still be necessary for businesses. You can’t replace the human connection of meeting face-to-face with video chat.
Warren Buffett sold his stake in airlines. Do you think this will discourage other investors?
In early May, the “Oracle of Omaha” revealed that he recently dumped his entire stake in the big four U.S. airlines—Delta, American, United and Southwest. As of the end of December, the position collectively stood at around $10 billion. Buffett’s decision to exit airlines seems to have stemmed directly from the coronavirus lockdown and its impact on the travel industry. In other words, it had nothing to do with how the carriers were being managed.
While I agree with Buffett that the COVID-19 pandemic has been a challenge for airlines, I disagree with his decision to dump airline stocks for that reason. Few industries have escaped unscathed from the virus’ impact, after all. I don’t think Buffett’s exit will deter other investors from the space. Buying the dips in airlines has been profitable, as seen in this chart below.