Qantas Airways Limited (ASX: QAN) shares have seen their fair share of volatility in the last 12 months (and five years), as shown in the chart below. It's worth asking the question whether Warren Buffett, one of the world's best investors, would be interested.
As airlines are a global industry, we'll explore Buffett's views on US airlines and transfer them to our flagship Australian carrier.
In 2007, Buffett reportedly told investors that "if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favour by shooting Orville down."
Several years later, he softened his view on the industry and took up positions in some US airlines in 2016 as they were delivering much stronger and consistent profits amid reduced competition in the sector. Those investments were American Airlines, Delta Airlines, Southwest Airlines and United.
COVID-19 hits
When the global pandemic hit, it heavily impacted airlines across the globe, and Buffett was fairly quick to offload the Berkshire Hathaway stakes in those businesses.
Talking at the 2020 annual shareholder meeting, Buffett explained:
When we bought [airlines], we were getting an attractive amount for our money when investing across the airlines. It turned out I was wrong about that business because of something that was not in any way the fault of four excellent CEOs. Believe me. No joy of being a CEO of an airline.
I don't know that three, four years from now people will fly as many passenger miles as they did last year. You've got too many planes.
The world has changed for the airlines. And I don't know how it's changed and I hope it corrects itself in a reasonably prompt way.
I don't know if Americans have now changed their habits or will change their habits because of the extended period.
I think there are certain industries, and unfortunately, I think that the airline industry, among others, that are really hurt by a forced shutdown by events that are far beyond our control.
So, it wasn't that Buffett suddenly hated airlines, but the COVID-19 pandemic made him sell.
Would Buffett buy Qantas shares?
Warren Buffett appeared to be attracted to the US airlines because of their large profits and lower competition.
Qantas faces less competition now than it did before the global pandemic, and Virgin is not the competitor it was five years ago.
According to the broker UBS, Qantas is projected to make $1.44 billion in net profit after tax (NPAT) and pay a dividend per share of 20 cents.
This means the Qantas share price is valued at just 6.5x FY25's estimated earnings. I think Warren Buffett could be interested in Qantas shares today, though he may be hesitant about investing in the sector again after getting burned by the pandemic.
With Qantas investing in its fleet and the steady growth of profit from its loyalty division, it could be one to watch, given the high prices of many other stocks.
