So, Warren Buffett has invested some $26 billion buying American freight operator BNSF, with news commentators hailing this as an ‘all-in’ bet on the future of the US economy. But there’s more to it than that – it is, of course, a huge leap of faith into the future of railways, even if lumping coal isn’t exactly as glamarous as swish new high speed train sets. But Buffett has never been about style over substance, and trains in Europe are usually associated with massive subsidies.
In typical long-term Buffett style, he has talked about growth potential of rail in the USA over the next 3 decades, and even if this investment is in freight railways, there is no doubt that passenger rail networks will also see substantial development over this period.
Compare this to Buffett’s attitudes towards airlines, after he lost 75% of his $385 million investment in US Airways back in 1995. He pointed out that the he didn’t think the US airline business had ever made money – and this was in an industry without the kind of state carrier subsidies which were common elsewhere in the world. Buffett is quoted as saying, in respect of the Wright brothers’ first flight:
“If there had been a capitalist down there, the guy would have shot down Wilbur. One small step for mankind, and one huge step for capitalism.”
Has anything changed in the airline industry since 1995? Well, there’s been plenty of deregulation across the pond, and plenty of former big names are no longer with us. In Europe, we have Ryanair’s Michael O’Leary echoing many of Buffett’s sentiments, describing the current situation facing European airlines as a ‘bloodbath’, and the ‘perfect storm’. Of course, Ryanair are one of the few airlines to buck the trend, whereas this morning’s announcement from Lufthansa that they can’t find a suitable bidder for bmi, and that consequently bmibaby are shedding jobs hardly comes as a surprise.
Despite all this, Warren hasn’t been put off from investing in flying alltogether, having ditched his own private jet, aka ‘The Indefensible’ back in 1998, in favour of buying private jet hire company NetJets.