It was April 15, 2020, and Berkshire Hathaway CEO Warren Buffett, colloquially known as the “Oracle of Omaha,” was sitting in his office in downtown Omaha, Nebraska. He had been discussing with his Berkshire partner Charlie Munger the status of his investment in Southwest Airlines. 1 Berkshire Hathaway currently owned a 10.3% stake in Southwest (Isidore, 2020), the world’s largest low-cost airline carrier. The coronavirus pandemic sweeping the world was decimating the revenues for airlines on a global basis, and Buffett was concerned about the aviation industry’s future. Since the pandemic began, people had been avoiding air travel vigorously due to guidance from health authorities amid virus fears, and the last week of March had seen a 55% decline in commercial flights compared to the same week in 2019 (Weber, 2020). Buffett was virtually hosting the annual shareholders meeting for Berkshire Hathaway in a couple of weeks, and the airline industry was sure to be a topic of conversation due to its recent financial troubles.
Should Buffett hang on to his stake in Southwest, and perhaps buy even more shares due to the heavily decreased stock price?
Or should he divest his stake in Southwest and cut his losses?
He had a big decision to make, and it was surely one that Berkshire’s investors would be keenly listening to.
https://sk-sagepub-com.ezproxy.umgc.edu/cases/the-oracle-of-omaha-liftoff-or-crash-landing
First, read the case The Oracle of Omaha: Liftoff or Crash Landing?
Second, answer the questions below. In your initial response to the topic you have to answer all questions:
1. How long would this coronavirus pandemic last? Would the general public be eager to resume traveling once the shutdowns were eased, or would consumer demand for commercial travel return slowly?
2. Have Southwest’s management team done a good enough job navigating the crisis so far, or have they led investors astray?
3. What is the long-term outlook for the airline industry, and how will its financial metrics look post-shutdown? Some metrics to focus on include total passengers, total revenue, and stock price.
4. In April 2020, should Buffett sell his shares in Southwest Airlines or buy further stock at the new reduced price?
