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Warren Buffets too many planes hits a nerve with easyJet investors

Article By: ,  Senior Market Analyst
May 5, 2020 10:19 AM
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.



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