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Buffett's Two Airline Investments and Their Outcomes

  • Investing
  • Buffett
  • Case Studies
  • Investment Failures

Buffett invested in U.S. airlines on two separate occasions. The first was in 1989, when he bought convertible preferred stock in USAir, later renamed US Airways. The second began in 2016, when he bought common shares in the four largest U.S. airlines.

Source dates and applicability

This article separates USAir in 1989–1998, four airline holdings in 2016–2020, and the cited Delta disclosures through June 30, 2026. Annual letters generally follow their reporting years; holdings dates differ from filing dates. As of October 30, 2026, this review has rechecked the dates and share counts in both 13G filings, without freshly checking every 13F or establishing more recent changes. Exact 2020 exit losses and 2026 decision attribution retain the source limitations stated below.

Investment Outcome

When Buffett first invested in USAir, he misjudged the company’s operating risks, and the investment suffered a substantial unrealized loss. USAir later returned to profitability, and Berkshire ultimately exited at a profit. On his second venture into airline stocks, he judged that the industry’s structure had improved, and the holdings had accumulated substantial unrealized gains by 2019. The pandemic hit the airline industry in 2020, and Berkshire subsequently sold its entire position at a loss.

1. Why He Bought USAir in 1989

In 1989, Berkshire invested $358 million in USAir convertible preferred stock. The preferred shares paid a 9.25% dividend and could also be converted into common shares. Buffett mentioned the transaction in his 1989 shareholder letter.

Buffett considered the airline industry difficult to assess. What appealed to him was the protection offered by preferred stock.

Preferred stock has an agreed fixed dividend rate, with dividends paid before those on common stock. In a liquidation, preferred shareholders also rank ahead of common shareholders, although they remain behind creditors. If the business improved, Berkshire could convert the preferred shares into common stock and benefit from a rising share price.

Under the security’s terms, the investment offered both a fixed dividend and a conversion right. It could collect dividends when the business performed moderately well and participate in share-price gains if performance improved substantially.

Buffett later discovered that he had underestimated the airline’s operating risks.

After deregulation of the U.S. airline industry, fare competition intensified, while USAir’s labor and other costs remained high. According to the 1996 shareholder letter, USAir lost approximately $2.4 billion in total from 1990 through 1994. In 1994, it stopped paying preferred dividends.

Berkshire subsequently wrote the $358 million investment down to $89.5 million, an impairment of approximately 75%. Buffett later acknowledged that his analysis of USAir had been superficial and mistaken. His exact words were “my analysis of USAir’s business was both superficial and wrong.”

He had overlooked a crucial issue. Following deregulation, USAir’s revenue would face increasingly fierce competition, while its cost structure still reflected the old regulated era. To reduce costs, the company first needed to renegotiate labor contracts, and airline labor contracts are usually difficult to change.

2. Why the USAir Investment Ultimately Made Money

USAir later returned to profitability, resumed preferred dividends, and paid some of the dividends in arrears. In the 1996 shareholder letter, Buffett reported approximately $240.5 million in cumulative USAir dividends, explicitly including $30 million received in 1997; the entire amount therefore cannot be assigned to year-end 1996. The originally linked 1996 consolidated financial statements separately report dividends received during the year and the following year.

Meanwhile, USAir’s common share price rose sharply, restoring value to Berkshire’s conversion rights. In 1998, Berkshire converted its preferred stock into common shares and sold them for approximately $574 million. The investment therefore ended at a profit.

Buffett did not revise his assessment of the original decision simply because it eventually made money. In his 1997 shareholder letter, he described USAir’s recovery as almost miraculous. His initial purchase had been a mistake, and he had later tried several times to sell the investment at half price, but no deal went through.

3. Why He Bought Airline Stocks Again in 2016

After more than twenty years of bankruptcies, restructurings, and mergers, the U.S. airline industry had changed considerably.

Delta Air Lines merged with Northwest Airlines, United Airlines merged with Continental Airlines, American Airlines merged with US Airways, and Southwest Airlines acquired AirTran Airways. The market gradually became concentrated among a small number of large airlines.

Around 2016, Buffett judged that the competitive environment had improved. In the past, airlines often added capacity and cut fares to expand market share, weakening profitability across the industry. After multiple rounds of consolidation, the major airlines’ load factors, profitability, and returns on capital had all improved significantly.

Their valuations were also low, and they were buying back large amounts of stock. Buffett believed that even if the industry’s overall value grew only modestly, long-term shareholders’ ownership per share would still increase as long as the companies continued repurchasing stock at low prices.

Drawing on the lessons of his earlier USAir investment, he bought Delta, Southwest, United, and American this time, spreading the operating risk across several companies. The investment schedule in the 2016 annual report shows that Berkshire already held shares in three of these airlines at year-end. The American Airlines position appeared in subsequent disclosures.

4. By 2019, the Investment Had Actually Performed Well

At the end of 2019, Berkshire’s holdings in Delta, Southwest, and United had a combined cost of approximately $6.26 billion and a market value of approximately $8.6 billion, for an unrealized gain of about $2.34 billion. These figures come from the holdings table in the 2019 annual report, adding together the costs and market values of the three companies.

Operating improvements and unrealized gains in 2016–2019 were consistent with Buffett’s judgment at the time. Interim gains alone do not establish a durable investment thesis. Industry concentration increased, profitability improved, and share repurchases also raised per-share value.

The problem came in 2020.

5. Why He Sold Everything After the Pandemic Hit

The pandemic caused a sudden decline in air travel demand. Airlines have high fixed costs: even when aircraft are grounded, they must continue paying for aircraft, employees, maintenance, and interest.

To survive the crisis, airlines needed to take on more debt and raise financing. Buffett’s concerns expanded from a short-term decline in earnings to the pandemic’s effects on airlines’ long-term capital structures and per-share value.

At the 2020 shareholder meeting, Buffett said that the airline industry had changed. His words were “the world has changed for the airlines.” Berkshire then sold all its holdings in American, Delta, Southwest, and United. He also made clear that this was his decision and his mistake.

6. How Much Did the Second Investment Lose?

Buffett said Berkshire had invested approximately $7 billion to $8 billion in total to acquire stakes of about 10% in each of the four major airlines.

Berkshire did not disclose its complete purchase costs and every sale price, so an exact final loss cannot be calculated. Based on public holdings disclosures and share prices at the time, third-party estimates put the loss at approximately $1.9 billion to $2.8 billion, roughly 30% to 44% of the invested cost. The calculation behind this estimate remains unverified; it should not be treated as an exact loss disclosed by Berkshire.

7. Yet Berkshire Bought Delta Again in 2026

In 2026, Greg Abel succeeded Buffett as Berkshire’s CEO. In the first quarter of that year, Berkshire disclosed a holding of approximately 39.8 million Delta shares, representing about 6.1% of the company and worth approximately $2.65 billion at quarter-end. This value can be checked against the first-quarter 13F table below. The corresponding SEC Schedule 13G disclosure showed this position.

In the second quarter, Berkshire increased its holding to approximately 57.3 million shares, or about 8.7% of Delta. The increase appears in the second-quarter SEC disclosure.

Wall Street Journal reporter Krystal Hur wrote in a public introduction to her reporting that Buffett had told her directly he was not involved in the Delta investment. This is the reporter’s account of her interview; the 13G itself does not identify the investment decision-maker. Greg Abel has not yet publicly provided a full explanation of the reasons for buying Delta either.

Of the four airlines, only Delta appears in Berkshire’s public 13F holdings tables for the first and second quarters of 2026; American, Southwest, and United are not listed. Whether Abel sees value in broader changes across the airline industry or in Delta’s own competitiveness and valuation remains a question for further information.

References

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