I’ve seen a lot of posts wondering why Warren would sell Delta and Southwest when they are objectively undervalued. The reason is simple:
After the 2008 financial crisis, the federal government took control over the banks so that a situation like that would ideally never happen again. These “federal” shareholders do not care about profits rather they care about stability. That’s why a lot of people have stayed away from owning banks this past decade because they are essentially a federally distributed commodity. For instance, every year they go through a “stress test”, where every major bank’s balance sheet is put through various economic situations from slightly severe to extremely severe recession input variables. This causes the banks to need to have an insane amount of capital just on hand for a rainy day, instead of in the past, returning that strength of capital back to its shareholders.
(And before you bring up Warren owning banks this past decade, it’s because the banking business model is still objectively a very lucrative business and Warren knows their fat dividends are extremely safe.)
The same will now be the case for the airlines. If you remember a few weeks ago, there were many articles of airlines refusing the bailout money if it meant the federal government would now own equity. That’s because, as mentioned before, federal shareholders don’t care about profits. Therefore, these airline stocks will have no incentive to be a lucrative investment rather be a stable utility for citizens.
That’s why Warren sold, he knows the next decade or so will just be these airlines focusing on rebuilding their balance sheets and not focused on giving money to shareholders.
Here is a great article on this subject: www.wsj.com/amp/articles/flight-attendants-urge-government-not-to-take-airline-stakes-11585738923