Airlines flying high on Buffett’s big bet

U.S. airlines climbed to a record Wednesday after Warren Buffett’s

revealed it had increased its stakes in the four biggest U.S. carriers, adding to a bet that industry consolidation will end the boomand-bust cycles the billionaire long shunned.

Berkshire’s latest purchases made it the largest shareholder in

and No. 2 in and and The holdings represent one of the biggest common-stock investments in years for the company controlled by Buffett, who once called airlines “a death trap for investors.”

The six biggest U.S. carriers — bolstered by lower jetfuel prices and years of deal making that left fewer major competitors — posted their fifth straight year of profits in 2016, earning about US$14 billion on an adjusted basis, according to data compiled by Bloomberg. That helped soften memories of the previous decade, in which losses surpassed US$50 billion.

“While some longer-term investors have recognized the positive structural and behavioural industry changes for years now, these investments provide further validation,” Evercore ISI analyst Duane Pfennigwerth said in a note Wednesday. He called Berkshire’s change of heart “one of the biggest pivots in the history of investing.”

The Bloomberg U.S. Airlines Index was up two per cent at 1:20 p.m. in New York after advancing as much as 3.4 per cent to the highest level on record. Southwest led major carriers, rising 3.1 per cent to $57.06. All 11 members of the index posted gains.

Berkshire’s stakes in American, Delta and United increased to more than US$2 billion each, according to a U.S. regulatory filing Tuesday. Buffett’s Omaha, Nebraskabased investment company also disclosed a holding in Southwest valued at about US$2.2 billion as of Dec. 31.

American’s chief executive officer, Doug Parker, helped win over Buffett lieutenant Ted Weschler last year with his argument that a transformed airline industry was poised for returns, Bloomberg reported this month.

By controlling expansion and better matching the supply of seats and flights with demand, airlines “are behaving in a way that is positive for shareholders,” said Jim Corridore, a CFRA Research analyst.