Rumors of a Berkshire Hathaway Takeover of Southwest Airlines2.25.17
Having already acquired a US railroad giant, Warren Buffett’s Berkshire Hathaway now appears to have his sights set on the airline industry. Wall Street analysts think a takeover of Southwest Airlines is a possibility not to be ignored.
Warren Buffett, known as the Oracle of Omaha for his wisdom as a value investor who for decades has seen and capitalized on opportunities long before most others, built a large stake in four US airlines during the second half of 2016. Although he has long criticized the industry, Buffett became one of the two largest investors in American Airlines Group , the airline industry giant based in Fort Worth, as well as Southwest Airlines, a leading domestic airline headquartered in Dallas.
For a fund of its massive size, Berkshire Hathaway now limits its acquisitions to so-called “elephants”, or companies that are large enough to push the needle from an investment return perspective. On Wall Street, analysts believe a takeover of Southwest Airlines to be the most likely. The airline is largely focused on the domestic market, has been spitting off free cash flows consistently (a Buffett criteria), and has growth opportunities.
Just as consolidation of the railroad industry provided opportunities for Buffett’s acquisition of Forth-Worth based Burlington Northern Santa Fe in 2010, similar dynamics are playing out in the airline industry. Leading up to the outright acquisition of BNSF, Buffett had been acquiring stock in Norfolk Southern and Union Pacific. After the deal, he went on to sell the competitors’ stocks. The airline industry, which has had a tumultuous and wildly cyclical past, appears to have gone through a structural change.
Southwest Airlines has built a dedicated following of customers. Known for great service and competitive pricing, the airline also has built a reputation for giving back to the community of people in need. For 10 years now, the airline has been providing free round-trip air travel for patients seeking specialized treatment. This year, Southwest is giving away its largest give ever, with 10,000 tickets to be used for round-trip travel during 2017. The program is part of a partnership with 75 hospitals and medical organizations, including 10 hospitals based in Texas: M.D. Anderson Cancer Center, UT Southwestern Medical Center, and the Children’s Medical Center Dallas are among the list of partner hospitals. This program would appear to demonstrate that companies can do well while doing good.
The airline plays an important role in regional transportation in Texas both for business and leisure travelers. Southwest has major hubs in both the Dallas (Love Field) and Houston (Hobby) airports. For those coming to these two cities whether for business, medical tourism, or for leisure, you just might find yourself looking for a better alternative to a hotel. That is where Kozi Corporate Housing comes into play.
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