DAL Delta Air Lines Inc

By Doug Cameron and Nicole Friedman 

Warren Buffett's Berkshire Hathaway Inc. slashed its investment in the world's biggest retailer and placed fresh bets on three big US airlines.

Berkshire Hathaway said in a regulatory filing that it had taken stakes in American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc., with the latter scheduled to hold its investor day on Tuesday. Two of the Berkshire stakes each totaled less than $500 million while that in American was almost $800 million. Meanwhile, Berkshire cut its holdings in Wal-Mart Stores Inc. by nearly 70%, leaving it with 13 million shares in the retail giant at the end of the third quarter.

Mr. Buffett told CNBC that Berkshire had also taken a stake in Southwest Airlines Co. A Southwest spokesman Monday declined to confirm any investment by Berkshire.

The airlines' shares rose in after-hours trading. American gained more than 3% while Delta and Southwest both added more than 2%. United was 1.7% higher.

It wasn't clear if the decision to invest in airlines came from Mr. Buffett or one of his stock-picking lieutenants. Mr. Buffett famously derided investing in airline stocks after suffering initial losses from a foray into what was then known as USAir back in 1989.

Shares of airlines fell in the first half of the year before recovering from lows in the summer. For the year, the Dow Jones U.S. Airlines index is up 0.7%

Investor sentiment toward U.S. airline stocks has improved as carriers indicated that a prolonged slide in fares, which had hit profits, was set to ease early next year.

Cheap jet fuel has encouraged airlines to add more flights. That, combined with a series of fare wars, has left the closely watched measure of revenue per available seat mile in negative territory for more than a year. Delta and other carriers expect this to turn positive early in 2017.

Berkshire owns other aviation-related businesses, including NetJets Inc., which sells fractional ownership in private jets, and training company FlightSafety International Inc. The company acquired aerospace-parts manufacturer Precision Castparts Corp. earlier this year for $32.7 billion, its largest acquisition ever.

However, Mr. Buffett has long criticized airline investments.

Berkshire bought $358 million of preferred stock in USAir Group Inc. in 1989. The investment lost value in subsequent years. "I plunged into the business at almost the exact moment that it ran into severe problems," Mr. Buffett wrote in his 1990 letter to shareholders.

Berkshire sold its stake "for a hefty gain" in 1998, Mr. Buffett wrote in his 2007 letter, but he still regretted the purchase.

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines," he wrote.

Given Mr. Buffett's antipathy toward airlines, the new investments were likely made by one of his lieutenants, Todd Combs or Ted Weschler, said Thomas Russo, managing member of Gardner Russo & Gardner, which manages $10 billion. Berkshire is Mr. Russo's largest holding.

Messrs. Weschler and Combs, who joined Berkshire in the past five years, have shown willingness to invest in sectors that Mr. Buffett has shied away from, such as technology.

Write to Doug Cameron at doug.cameron@wsj.com and Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

November 14, 2016 20:54 ET (01:54 GMT)

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