Airlines surged this week on news that Warren Buffett and Berkshire Hathaway (BRKB) made an investment in the sector stocks. The news signals that the stocks are cheap, but the stocks might actually be rallying due to the tax benefits of Republicans controlling the political system. Berkshire disclosed owning a combined $1.5 billion in American Airlines Group (AAL), Delta Air Lines (DAL) and United Airlines (UAL). The airlines trading at valuations far below the S&P 500 is a prime reason for buying the stocks. Another reason is the tax situation impacting future earnings. As an example, American Airlines has NOLs to eliminate the cash payments of taxes in 2016, but the airline has already suggested to investors that the future tax rate is around 38%. Both Delta and United are under similar situations of moving towards paying taxes after using up NOLs. As mostly domestic businesses, the airlines will clearly benefit significantly from reduced tax rates and is a prime reason that the stocks are extremely cheap. Disclosure: Long AAL, UAL