Why did Warren Buffett sell all his airline stocks? Does this contradict his 'buy and hold' principle?

Why Did Buffett Sell All His Airline Stocks? Does This Violate His "Long-Term Holding" Investment Principle?

Reasons for Selling Airline Stocks

At the 2020 Berkshire Hathaway shareholders' meeting, Warren Buffett announced the complete divestment of all airline holdings, including stakes in American Airlines, Delta Air Lines, Southwest Airlines, and United Continental. This decision was primarily driven by the devastating impact of the COVID-19 pandemic on the aviation industry. Key reasons include:

Industry Upheaval Due to the Pandemic: In early 2020, the global outbreak caused a sharp decline in air travel demand, with flight cancellations exceeding 90%. Airlines faced massive losses, surging debt, and cash flow crises. In his shareholder letter, Buffett acknowledged that the industry’s future had become highly uncertain, as the pandemic fundamentally altered its structure.
Self-Reflection on Investment Error: Buffett stated that his initial investment in airline stocks (starting in 2016) was based on optimism about the market concentration and profitability of the four major U.S. carriers. However, the pandemic exposed the sector’s vulnerabilities, such as high fixed costs, fuel price volatility, and sensitivity to external shocks. He admitted this was an "understandable mistake" and decided to cut losses promptly to avoid further damage. Berkshire incurred losses of several billion dollars upon selling, but this was far less risky than holding the stocks amid ongoing uncertainty.
Value Investing Perspective: As a value investor, Buffett emphasizes assessing a business’s intrinsic value. When an airline’s "moat" (competitive advantage) eroded, holding no longer aligned with his investment logic. In his shareholder letter, he wrote: "The airline business is capital-intensive, highly vulnerable to external events—a reality underscored by this pandemic."

Does This Violate the "Long-Term Holding" Principle?

No, this does not violate Buffett’s "long-term holding" principle but rather demonstrates its flexible application. The core of his investment philosophy is to "buy wonderful businesses and hold them long-term," but this comes with prerequisites:

Quality Over Rigid Commitment: Buffett stresses holding companies with enduring competitive advantages ("economic moats"), such as Coca-Cola or Apple. However, if a company’s fundamentals undergo permanent deterioration, he sells to protect capital. This aligns with his mentor Benjamin Graham’s "margin of safety" concept: Acknowledging mistakes and acting promptly is integral to rational investing.
Historical Precedents: Buffett is not dogmatic about long-term holds. He previously sold stocks like IBM and Walmart when their investment thesis no longer held. The 2020 airline divestment resembles his exit from the textile industry in the 1990s to pivot toward more promising sectors. This reflects his pragmatism: "When the facts change, I change my mind."
Lesson for Investors: This move reinforces the essence of value investing—it is not about blind long-term holding but continuous reassessment. In his shareholder letter, Buffett reminded investors that market volatility is normal, and avoiding permanent capital loss is paramount. Selling airline stocks freed capital for more stable opportunities, such as Berkshire share buybacks or tech investments.

In summary, Buffett’s decision was rooted in rational analysis, not emotion. It aligns with his overarching strategy: prioritizing long-term value while never ignoring risk management.