Warren Buffett said on Monday United Airlines made a “terrible mistake” in handling the fallout of a recent incident when a man was forcibly dragged off a United flight, which drew widespread outrage and sparked Congressional hearings.
But the billionaire, whose Berkshire Hathaway Inc is the largest investor in the carrier’s parent United Continental Holdings (UAL), acknowledged on CNBC television that flying has become less comfortable for passengers packed in tighter seats and on fuller flights.
The April 9 episode caught on video showed David Dao, a doctor, being forcibly pulled off his seat on the aircraft to make way for United staff, and left him with a broken nose and concussion.
It brought wide criticism to the airline and its Chief Executive Oscar Munoz, who initially defended the carrier’s employees and was later called to testify in Congress.
“Obviously it was a terrible mistake,” Buffett said. Munoz has since “apologized many times, but your first reaction is going to get a lot of attention.”
Berkshire is also one of the largest investors in United rivals American Airlines Group (AAL), Delta Air Lines (DAL) and Southwest Airlines (LUV).
Buffett said this reflects his belief that the industry has become much more efficient, even if it makes passengers grumble. He said the Dao incident wouldn’t change that.
“One of the things they found is that a very high percentage of people are very price conscious,” he said. “They may become like cattle cars, … but a significant percentage would rather be treated that way and fly for X than have far more leg room (and other benefits) and fly for X plus 25%.”
“High load factors mean a fair amount of discomfort,” he added, referring to the percentage of seats filled. “It’s a job I don’t want, running an airline.”
Down on Bonds
Berkshire ended March with more than $96 billion of cash, equivalents and Treasuries, and Buffett addressed their low yields.
He said the stock market looked “dirt cheap” for anyone who believed interest rates will stay low for 10 to 20 years, and that Treasuries were a “big, big, big drag” on returns.
“It is ridiculous in my view for people to buy 30-year bonds … at these rates, in preference to buy stocks,” he said. “Bonds are a terrible choice against stocks…. It’s just dictated by mathematics.”
Buffett also mounted a fresh defense of 3G Capital, its controversial partner on multiple transactions, saying the firm follows a “standard capitalist formula” in slashing thousands of jobs and cutting costs in the companies it buys to make them more efficient.
Buffett said “it’s a defect of mine” that he doesn’t focus as closely on the efficiency of business units at Berkshire Hathaway, which with 3G controls Kraft Heinz (KHC) and recently tried to merge it with Unilever (UL).
“They have followed the standard capitalist formula … of trying to do the same business with fewer people,” Buffett said. “People live better when there is more output per capita.”
Nonetheless, he said cutting jobs can be a “painful process.”
Separately, Buffett said he was more comfortable buying shares of Apple (AAPL), in which Berkshire has disclosed a 133 million share stake, worth close to $20 billion on Friday, saying he could “very easily determine the competitive position of Apple now and who is trying to chase them.”
Asked if he had stopped buying Apple, Buffett said: “Maybe, maybe not.”
