Buffett faults United, but sticks with airlines investments

Warren Buffett said Monday that United Airlines bungled the case of the passenger dragged off a plane last month, and he criticized the CEO's handling of the incident.

Buffett also said airplanes "may become like cattle cars," but that's because a significant number of passengers will put up with crowding in exchange for cheaper fares.

Buffett, whose Berkshire Hathaway Inc. is United's largest shareholder and has large stakes in other big U.S. airlines, said the recent spotlight on poor customer service in the airline industry doesn't change his investment strategy.

After the market closed Monday, United reported that passenger traffic in April rose 7.4 percent, compared with a year ago. That beat Delta's 1.6 percent gain but fell short of Southwest's 8.4 percent increase.

Most of those tickets were bought before the April 9 incident on a United Express plane in Chicago. United has not discussed whether the fallout has affected bookings since then.

According to FactSet, Berkshire Hathaway owns more than 9 percent of United Continental Holdings Inc., a stake worth nearly $2.2 billion at Monday's closing share price of $74.98. Berkshire is also the top shareholder at Delta, No. 2 at Southwest and No. 3 at American.

Buffett said on CNBC that the bloody removal of a 69-year-old passenger from a plane was obviously "a terrible mistake." He criticized CEO Oscar Munoz, who first gave a vague response, then defended his employees and blamed the passenger before giving a contrite apology.

"I kind of wonder whether Oscar had actually seen that (video) when he made the response," Buffett said. "If so, it was a bigger mistake by far."

Buffett said a CEO's natural tendency is to first defend his employees, but that should not have been the case if Munoz had seen the video. United declined to say when Munoz first saw the video. The CEO has said his early response was insensitive.

United issued a statement saying it appreciated Buffett's perspective and has announced policy changes to improve customer service.

Buffett said "it's bad" when airline executives get hauled before Congress, as Munoz and others were last week, but said the strategy behind his airline investments remains unchanged.

The financier said air travel has become "unbelievably safe" and that full planes are making the airlines profitable — even if that causes "a fair amount of discomfort."

"They may become like cattle cars, but ... a significant percentage would rather be treated that way and fly for X than have far more legroom, two abreast, all kinds of things, and travel for X plus 25 percent," he said.

High average occupancy has kept prices from rising, Buffett said. He also was skeptical about Congress imposing new regulations on the airlines, saying that would push fares higher.