This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Buffett: Planes, Trains and Investment Pains

OMAHA (TheStreet) -- Warren Buffett of Berkshire Hathaway (BRK.B) isn't ready to invest in airlines, even after a wave of consolidation that's led to jockeying between UnitedContinental (UAL), Delta Air Lines (DAL)and the proposed merger of American Airlines (AAMRQ) and U.S. Airways (LCC) for the title as the top carrier in the U.S.

In fact, after most major airlines in the U.S. spent some part of the first century of aviation negotiating bankruptcy courts, Buffett predicts another 100 years of investment pain.

"Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results," Buffett said at Berkshire Hathaway's annual shareholder meeting.

"It's been a death trap for investors," Buffett added, of airlines when asked by Bill Miller of Legg Mason whether consolidation has changed Berkshire's outlook on the industry. Specifically, Miller asked Buffett whether Berkshire-owned NetJets would consider buying an airline, amid a seeming revival in the industry's financial condition.

"No," Buffett responded.

In 2012, Berkshire Hathaway ordered nearly $10 billion worth of planes from Textron (TXT)-owned Cessna and Bombardier (BBD.A) to update its NetJets fleet, a deal that followed multi-billion dollar orders from the likes of Embraer in recent years.

Buffett, the proud owner of insurer Geico, took a stance on airlines similar to that of Gordon Gekko in the 1987 classic Wall Street.

"Men as smart as myself have got their asses handed to them on a sling with the airlines, fuel could go up, unions are killers...," said Gekko, played in the film by Michael Douglas.

Gekko's comments in Wall Street came before a bankruptcy wave in the early 2000s that included the dissolution of Trans World Airlines, then a large investment of activist Carl Icahn, in addition to filings by US Airways, United Airlines, Air Canada, Northwest, Delta, Frontier, Japan Airlines and, most recently, American Airlines.

While consolidation has revived airline stocks over the past 12 months amid expectations of newfound pricing power, Buffett ultimately made a Gekko-esque refrain when pressed on his outlook for the industry.

"The airline industry has this specific issue where they have very low incremental [profit] per seat and high fixed costs," Buffett said at Berkshire's shareholder meeting. In the 1990s, Buffett did poorly on a preferred share investment in US Airways, then called USAir.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs