Warren Buffet's "too many planes" hits a nerve with easyJet investors

When Warren Buffet talks it’s good to listen.

Stocks (1)

When Warren Buffet talks its good to listen. 

In the first online AGM Warren Buffet, the chairman and chief executive of Berkshire Hathaway stated simply that “there are too many planes” given the current coronvirus climate.
Berkshire Hathaway has sold out of its entire US airline holding. Despite paying between $7 - $8 billion to buy around 10% of 4 US airlines across the years the trades were closed recouping just $6.5 billion. Warren Buffet admitted that he was wrong about that trade after the coronvirus outbreak created new dynamics in the industry.

Warren Buffet pointed out that even if demand returned to 80% - 90% of its pre-coronavirus level over time, there are still too many planes.

Following Warren Buffet’s comments airline stocks tanked on both sides of the Atlantic, as did airplane makers Boeing and Airbus.

easyJet Airbus order
In London, the hardest hit was EasyJet which plunged 9% on Monday almost double the losses realised by British Airways owner International Consolidated Airlines (-5%) and Ryanair (-5%).  

The low-cost airline was particularly hard hit because Warren Buffet’s argument is aligned with easyJet founder and major share-holder Stelios Haji-Ioannou who is heading for a showdown with easyJet bosses later this month.

Stelios is currently pushing for the cancellation of a $4.5 billion airplane order from Airbus. Stelios believes the deal puts easyJet at risk of running out of money. Given that easyJet has borrowed £600 million from the government and is spending £30 -£40 million a week whilst its entire fleet is grounded, he may not be that wrong. 

When airplanes do take to the sky again, should they do so with social distancing measures, planes will only be flying at 65% capacity. Costs would need to be slashed and or prices raised.

22nd May shareholders meeting
Stelios (34% shareholder) has called for a shareholders meeting, which has been agreed to and is due to go ahead on 22nd May. Stelios could attempt to oust the board of 11 directors including the CEO and the chairman at the meeting. In the meantime, easyJet shares are likely to remain under pressure with any gains capped.

Chart thoughts
Despite advancing over 2% today, the stock is 60% down from its pre-covid-19 price. The stock has under-performed the FTSE from its March 19th low. 
easyJet dropped through its 50 sma on 4 hr chart, as it trades with a negative bias. 
Immediate support can be seen at 509 (yesterday’s low ) 464p (low 3rd April) and 410p low 19th March.
Immediate resistance can be seen at 597p (50 sma). A move over strong resistance at 700p could indicate the start of a more bullish run.

More from Equities

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account