Is Warren Buffett Going to Buy Southwest Airlines?

In this segment of the MarketFoolery podcast, host Mac Greer, Jason Moser of Million Dollar Portfolio, and David Kretzmann of Hidden Gems Canada speculate about what Warren Buffett might have been hinting at when he said recently that he wouldn't rule out owning a whole airline.

Berkshire Hathaway (BRK.A -0.47%) (BRK.B -0.41%) already owns 8% of Southwest Airlines (LUV -0.07%), and it's a good fit for their style of managing assets. Another possibility that Moser proposes: JetBlue. They also ponder some more out-there Berkshire acquisition options.

A full transcript follows the video.

This video was recorded on April 4, 2018.

Mac Greer: Guys, for our final story here, I what to do some speculating. It's a bit reckless, it's a bit wild, but it is grounded in a story about Warren Buffett.

Jason Moser: Grounded.

Greer: Grounded is appropriate, because it's about an airline. Southwest Airlines CEO Gary Kelly has come out and said that he has not talked with Warren Buffett about a possible sale. This comes after Buffett sparked speculation with a comment that he wouldn't rule out owning an entire airline. And I should probably mention that Berkshire owns around 8% of Southwest Airlines, and Berkshire has around $116 billion in cash. So, is Buffett going to buy Southwest? And if not, where's he going with that?

David Kretzmann: If he was going to buy an airline, I would hope it would be Southwest. Since Berkshire tends to have a hands-off approach, they could continue to let Southwest to be awesome. It takes away the likelihood of someone else, an activist investor, coming in and saying, "If you just take away some of those perks, you'll raise your margins." As far as airlines right now that I want their business model and practices to be preserved, I would love Southwest to continue to have that kind of flexibility. And maybe operating under Berkshire is a nice way to do that while still having independence over the culture, which has been a huge contributor to their success.

Moser: I'll go in a little bit of a different direction here. I think this is going to be potentially an easier one for Berkshire to swallow. For all of my life, I've sworn no loyalty to any airline whatsoever because I never really cared. Just give me a reasonably priced ticket and get me there safely.

Greer: No Delta, given your Atlanta roots?

Moser: Whatever. I go to Priceline, I buy a ticket, just get me there. You know what I mean?

Greer: Pretty sentimental there.

Moser: Well, I'm a sentimental guy. Old and grumpy. But, we were in the Bahamas last week --

Greer: Quit bragging.

Moser: Well, let me give you my mango banana analogy. We were on the way back, and we just worked out our airfare, we flew different airlines here and there. But, JetBlue was the airline that we flew back. I think it may have been the first time I'd ever flown JetBlue. But, I was thoroughly impressed not only with the customer service that we received from them in the airports, but also with the planes. The seats are big.

Greer: Comfortable.

Moser: Yeah! I was really amazed. And from what I could gather, we were on two different sized planes, it doesn't appear that they have first class, either. So, from what I can gather, it seems like it's just one class, make the plane a little bit bigger for everybody. I was impressed. I left that thinking -- and I bet David Gardner would like this, because I think JetBlue is in his universe in Stock Advisor. This is the one airline where I thought, I would actually make an effort to fly them again because it was just such an enjoyable, comfortable trip on the way home. And comparing it to the trip going there, there was a noticeable difference. JetBlue, considerably smaller than Southwest. It's only about a $6.5 billion market cap company today. Why not just buy both?

Kretzmann: Sure.

Moser: Southwest and JetBlue. Then you really corner the market on good airlines, they're comfy, no frills, getting people back and forth. You could probably build up some pretty good loyalty there, I bet.

Greer: I need to know if I need to give up my dream of Warren Buffett buying Costco. Costco has a market cap of around $81 billion. And let me mention, as you may know, Charlie Munger is on Costco's board. So, it's not completely crazy talk, but that's a pretty hefty price tag.

Kretzmann: Yeah, that would be a large pill to swallow. The biggest acquisition Berkshire has made I think was around $40 billion.

Moser: Was it Burlington Northern?

Kretzmann: No, it was the Castparts one.

Moser: Precision Castparts.

Kretzmann: Yeah. I think that was around $40 billion. So, $80 billion or higher, I wouldn't bet on it, no.

Greer: OK. Campbell Soup, $13 billion.

Moser: I stand by McCormick. I just stand by McCormick. I've said this ever since I started working here. This is the kind of nerd I am. I'm going to go back to the Bahamas again, Mac. My wife was even looking at the pictures I took when we were there, and she was like, "Jason, why do you have a picture of the spice rack from the grocery store?"

Greer: That sounds like a cry for help.

Moser: [laughs] Well, I was in the grocery store, just a local grocery store, looking at the spice rack, and I'm thinking, there's a bunch of McCormick stuff, and then there's some other generic brands and local brands, and I'm taking a picture so I don't forget the names of them because when I get home I want to look them up and start researching to see what names McCormick is responsible for on that spice rack. So, I think McCormick could still be a cool acquisition for them to make, particularly after the RB Foods deal that brings French's mustard and Frank's RedHot Sauce under their umbrella. Man, McCormick is just a Berkshire company through and through.

Greer: I will confess, I don't know if I heard any of that last part, because I can't stop thinking about you taking a picture of a spice rack, and someone in the front of the store feeling the need to call authorities.

Moser: Yeah, I'm sure.

Greer: It's a little ...

Moser: It's a little weird.

Greer: ... I don't want to say "creepy," but it's not usual.

Moser: I can't turn my mind off.

Kretzmann: It's unique.

Greer: It's unique. It's not ordinary behavior.

Moser: I'm just hardwired a certain way, man. I can't get past it.

Greer: It's not against the law.

Moser: I can't get past it. I mean, I'm the cook of the house. Maybe that has something to do with it. I mean, I think I can at least play that angle.

Greer: I think that's good, I would lead with that next time. "I'm the cook of the house and I took a picture of the spice rack." Otherwise it feels like a cry for help.

Kretzmann: Well, here's a contrarian thought for Berkshire: I think they need some more restaurants in their portfolio to compliment Dairy Queen. Why not? A lot of restaurants are cheap right now.

Greer: Nice.

Kretzmann: I don't know if you go after Domino's, which is basically printing money.

Moser: Chick-fil-A.

Kretzmann: Chick-fil-A, there you go. So, I don't know, why not branch out that restaurant portfolio? A lot of cheap concepts out there right now.

Greer: But not Dave & Buster's.

Kretzmann: Not Dave & Buster's, not at all. Anything but Dave & Buster's, you'll have a better bet.

Greer: OK, I suspect I know where you're going with this one, but, my desert island question. You're on a desert island, you can only own one of these stocks for the next five years. We have Dave & Buster's, we have Amazon, or we have Berkshire. Where are you going?

Kretzmann: From here, I'll go with Berkshire. Why not?

Moser: I'm just Amazon through and through. To me, there's such a big market opportunity in so many different ways. I'm a big fan of the business and intend on owning those shares for a very long time to come.