Showing posts with label airlines. Show all posts
Showing posts with label airlines. Show all posts
Thursday, November 21, 2013
Monday, April 22, 2013
Financial Sarcasm Roundup for 04/22/13
Whether good news or bad news, the news stream in business never ends. That is why my sarcasm will never end.
The grand poobahs of world finance have anointed the global economy as just fine, except for weak growth and not enough jobs. That kind of logic is so tortured it might as well reside in Torquemada's dungeon. If GDP growth is weak and job growth is scarce, then there is no real global recovery. The top dogs don't keep their jobs by generating spooky headlines but it's high time someone called them out. I have no idea what these fools are smoking but I'm glad I've never smoked anything (except a couple of perfectly legal cigars on special occasions). Oh, they're also giving moral cover to Japan's debt-fueled stimulus and currency devaluation because they can't think of anything better to do. Lots of policymakers are backing away from austerity now that economists are questioning the Reinhart-Rogoff 90% debt/GDP formulation. Austerity is on the ropes and Krugmanite stimulus is ascendant, with no brakes. The die is cast for hyperinflation and currency collapse in most of the developed world.
Fitch is flushing the UK's credit rating down the tubes. This is going to happen more frequently as the G-20 consensus referenced above endorses more mad Krugmanite spending and inflating. The UK's finance minister still pushes austerity but the IMF gave him a polite reminder that the global consensus is shifting to super-stimulus. Do they have any real sterling left to back the pound? Or will they pledge the Crown Jewels and the Queen's silver flatware as collateral to stem a run on the pound? When the dust settles they'll have to find a hard asset pool to back the value of Pound 2.0, or neo-pound, or whatever. I'd suggest pledging North Sea oil reserves but production may have peaked.
Budget pressure on the air traffic controller workforce is forcing flight cancellations. This is why I don't invest in airline stocks. Too much union influence and too much debt hurt profitability. Now a ceiling on human infrastructure is limiting the daily revenue passenger miles of the industry. I suspect the USDOT directed the furlough to a sector that would immediately cause the public an inconvenience, in the hope that travelers would whine loudly to elected officials about restoring full budgets. That's a cute trick. It will last until dollar devaluation forces a bond market exodus that denies deficit spending. The hyperinflation that follows will drive fuel costs through the roof and make airline travel unaffordable for anyone except Donald Trump.
I've got other material to write about so I'll finish with some sarcasm about my worthless alma mater, Notre Dame. Their star football player from these last few seasons is now getting mentioned as an active prospect for the NFL. The pro teams don't seem to care that this player had an imaginary girlfriend and that the school lied to cover up his friend's deception. It just goes to show that you don't have to be smart or honest to succeed at Notre Dame.
The grand poobahs of world finance have anointed the global economy as just fine, except for weak growth and not enough jobs. That kind of logic is so tortured it might as well reside in Torquemada's dungeon. If GDP growth is weak and job growth is scarce, then there is no real global recovery. The top dogs don't keep their jobs by generating spooky headlines but it's high time someone called them out. I have no idea what these fools are smoking but I'm glad I've never smoked anything (except a couple of perfectly legal cigars on special occasions). Oh, they're also giving moral cover to Japan's debt-fueled stimulus and currency devaluation because they can't think of anything better to do. Lots of policymakers are backing away from austerity now that economists are questioning the Reinhart-Rogoff 90% debt/GDP formulation. Austerity is on the ropes and Krugmanite stimulus is ascendant, with no brakes. The die is cast for hyperinflation and currency collapse in most of the developed world.
Fitch is flushing the UK's credit rating down the tubes. This is going to happen more frequently as the G-20 consensus referenced above endorses more mad Krugmanite spending and inflating. The UK's finance minister still pushes austerity but the IMF gave him a polite reminder that the global consensus is shifting to super-stimulus. Do they have any real sterling left to back the pound? Or will they pledge the Crown Jewels and the Queen's silver flatware as collateral to stem a run on the pound? When the dust settles they'll have to find a hard asset pool to back the value of Pound 2.0, or neo-pound, or whatever. I'd suggest pledging North Sea oil reserves but production may have peaked.
Budget pressure on the air traffic controller workforce is forcing flight cancellations. This is why I don't invest in airline stocks. Too much union influence and too much debt hurt profitability. Now a ceiling on human infrastructure is limiting the daily revenue passenger miles of the industry. I suspect the USDOT directed the furlough to a sector that would immediately cause the public an inconvenience, in the hope that travelers would whine loudly to elected officials about restoring full budgets. That's a cute trick. It will last until dollar devaluation forces a bond market exodus that denies deficit spending. The hyperinflation that follows will drive fuel costs through the roof and make airline travel unaffordable for anyone except Donald Trump.
I've got other material to write about so I'll finish with some sarcasm about my worthless alma mater, Notre Dame. Their star football player from these last few seasons is now getting mentioned as an active prospect for the NFL. The pro teams don't seem to care that this player had an imaginary girlfriend and that the school lied to cover up his friend's deception. It just goes to show that you don't have to be smart or honest to succeed at Notre Dame.
Tuesday, August 30, 2011
New Boeing 737 Engine Benefits Weigh Against Fleet Age And Route Profitability
Kudos to Boeing (BA) for trying to do right by its customers and the environment. Airlines are sensitive to fuel costs and Boeing wants to stay in their good graces by putting new engines into their 737s that are 12% more fuel efficient. A quick anecdotal study of one of the industry's biggest customers gives us a glimpse into how far this benefit carries.
United Continental Holdings' (UAL) 2010 annual report named fuel costs as 31% of its total operating expenses. Theoretically, if UAL replaced every single plane in its fleet with a new Boeing 737, they'd shave exactly 3.72% off their operating expenses by applying that 12% fuel cost savings. Reality is more complicated. Not all of UAL's planes are 737s (obviously) and other planes in the fleet may be even more fuel efficient. Maybe that's why United retired its last 737 in 2009 when fuel costs made them less attractive; any 737s in its existing fleet are probably inherited from last year's merger with Continental (like one unfortunate plane with Continental markings stuck in a sinkhole this past June). Airlines factor in the age of existing airframes and the need to maintain seat capacity on their most profitable routes when they make replacement decisions. Fuel efficiency is therefore one of several considerations.
Perhaps airlines like United are better off with whole engine replacements targeted at their oldest aircraft as a partial solution to their fuel cost headaches. Hedging with forward contracts can smooth out those fuel costs that can't be minimized cost-effectively with new airframe buys. Decisions like this are the provenance of CFOs. Those CFOs who ignore them contribute to the old financial folk tale that the airline industry has not generated one dollar of net income in its history, adjusting for bankruptcies.
Full disclosure: No positions in UAL or BA.
United Continental Holdings' (UAL) 2010 annual report named fuel costs as 31% of its total operating expenses. Theoretically, if UAL replaced every single plane in its fleet with a new Boeing 737, they'd shave exactly 3.72% off their operating expenses by applying that 12% fuel cost savings. Reality is more complicated. Not all of UAL's planes are 737s (obviously) and other planes in the fleet may be even more fuel efficient. Maybe that's why United retired its last 737 in 2009 when fuel costs made them less attractive; any 737s in its existing fleet are probably inherited from last year's merger with Continental (like one unfortunate plane with Continental markings stuck in a sinkhole this past June). Airlines factor in the age of existing airframes and the need to maintain seat capacity on their most profitable routes when they make replacement decisions. Fuel efficiency is therefore one of several considerations.
Perhaps airlines like United are better off with whole engine replacements targeted at their oldest aircraft as a partial solution to their fuel cost headaches. Hedging with forward contracts can smooth out those fuel costs that can't be minimized cost-effectively with new airframe buys. Decisions like this are the provenance of CFOs. Those CFOs who ignore them contribute to the old financial folk tale that the airline industry has not generated one dollar of net income in its history, adjusting for bankruptcies.
Full disclosure: No positions in UAL or BA.
Wednesday, August 03, 2011
FAA Shutdown Leaves Hidden Blessings For Energy-Constrained U.S.
One early casualty of the federal budget battles is continued funding for air transit programs. The FAA has partially shut down until Congress can re-authorize its budget. I've had the displeasure of listening to coverage of this episode on NPR, where it's portrayed as some kind of disaster. I prefer to look on the bright side.
The Essential Air Service bears the hallmarks of a useless government handout. Rural air routes that were discontinued for being uneconomical should not be kept alive with government subsidies. Ending the program will lead to no more than an inconvenience as rural travelers either switch to trains and buses or stay where they are.
Loss of tax revenue will hurt in the short term but restoring this particular function is the easiest fix of all. Loss of airport construction is the biggest hidden blessing possible in this situation. We should put aside our envy of gleaming new airports in China long enough to realize that air travel is the single most expensive (and least fuel efficient) way to move people and cargo. Letting go of nonviable airports that don't serve major metropolitan hubs opens growth opportunities for rail service. Peak Oil will demand this transition anyway.
The coming months will bring us plenty of sob stories about government programs that were once affordable at the height of our civilization's power. Rural air transit and construction at low-traffic airports are inappropriate uses of capital for an empire in decline.
Full disclosure: No positions in airline stocks at this time.
The Essential Air Service bears the hallmarks of a useless government handout. Rural air routes that were discontinued for being uneconomical should not be kept alive with government subsidies. Ending the program will lead to no more than an inconvenience as rural travelers either switch to trains and buses or stay where they are.
Loss of tax revenue will hurt in the short term but restoring this particular function is the easiest fix of all. Loss of airport construction is the biggest hidden blessing possible in this situation. We should put aside our envy of gleaming new airports in China long enough to realize that air travel is the single most expensive (and least fuel efficient) way to move people and cargo. Letting go of nonviable airports that don't serve major metropolitan hubs opens growth opportunities for rail service. Peak Oil will demand this transition anyway.
The coming months will bring us plenty of sob stories about government programs that were once affordable at the height of our civilization's power. Rural air transit and construction at low-traffic airports are inappropriate uses of capital for an empire in decline.
Full disclosure: No positions in airline stocks at this time.
Friday, March 25, 2011
Wednesday, March 09, 2011
Boeing Bonanza From China
Boeing got some big news. Hong Kong Airlines is buying $10B worth of 777s and 787s. That figure is a list value before discounts, so the real gross is closer to about $6B (including another order from Air China for some 747s). The deals add up to almost 10% of Boeing's gross revenue given the company's performance for the last three years.
China's air travel sector is banking on continued growth. One of the biggest problems facing any airline is the cost of fuel. China's additional hurdle is the mere availability of fuel; it must seek oil exploration deals abroad. Middle East unrest is getting worse and will make oil prices very unpredictable for months. Libya's production is increasingly at risk of destruction and its eventual resumption is very much in jeopardy.
Blanket bets on ever-expanding air travel are no sure thing in this kind of environment. Boeing should hope that rising fuel costs don't price its airline customers out of future sales.
Full disclosure: No position in BA at this time.
China's air travel sector is banking on continued growth. One of the biggest problems facing any airline is the cost of fuel. China's additional hurdle is the mere availability of fuel; it must seek oil exploration deals abroad. Middle East unrest is getting worse and will make oil prices very unpredictable for months. Libya's production is increasingly at risk of destruction and its eventual resumption is very much in jeopardy.
Blanket bets on ever-expanding air travel are no sure thing in this kind of environment. Boeing should hope that rising fuel costs don't price its airline customers out of future sales.
Full disclosure: No position in BA at this time.
Friday, August 06, 2010
Monday, June 07, 2010
Airlines: The Unreliable Investment
I like the transportation sector, but I don't think I could ever buy stock in an airline. Their earnings are just too unpredictable:
The recent drop in fuel costs is probably another factor in this turnaround. Still, I would never commit my own money to an industry with such wild swings in fortune. Note that European airlines are still having trouble even after the skies have cleared of volcanic ash. That second leg down in the Sovereignty Crunch will send more airlines into a tailspin. I like that metaphor. Hey, I like all of my metaphors.
The world’s airlines will book net profits of $2.5 billion in 2010, the International Air Transportation Association said, just three months after it forecast a $2.8 billion loss.
The $5.3 billion turn round since the group’s March forecast is driven by a faster-than-expected recovery in the global economy, IATA said in its latest market forecast today, June 7.
The recent drop in fuel costs is probably another factor in this turnaround. Still, I would never commit my own money to an industry with such wild swings in fortune. Note that European airlines are still having trouble even after the skies have cleared of volcanic ash. That second leg down in the Sovereignty Crunch will send more airlines into a tailspin. I like that metaphor. Hey, I like all of my metaphors.
Monday, May 03, 2010
United And Continental Will Face Peak Oil Together
Peak Oil theorists allege that airlines are like a canary in a coal mine. Their health provides early warning of energy shortages as they must pay a premium for fuel. The merger of United Airlines and Continental will put this proposition to the test:
The good news for investors is that an airline with global reach and over $7B in cash can withstand plenty of economic turbulence. The bad news is their focus on business travelers. I still believe the global economy will experience a second phase of its Great Recession. Businesses facing declining earnings will cut back on nonessential expenses like business travel. Furthermore, the declining availability of cheap petroleum (Peak Cheap Oil) will put a permanent floor under fuel prices this decade, permanently raising variable costs across the entire transportation sector.
Don't forget that United has already been through a bankruptcy this decade in the aftermath of 9-11. This industry isn't exactly immune to shocks whether they're endogenous (crashes, hijackings) or exogenous (fuel costs).
Feel free to take a chance on playing this merger if you understand the airline industry. I'll pass and wait for clearer skies.
Full disclosure: No position in UAUA or CAL.
United Airlines has agreed to buy Continental in a $3 billion-plus deal that would create the world's largest carrier with a commanding position in several top U.S. cities.
The new United would surpass Delta Air Lines in size, which should help it attract more high-fare business travelers. It will fly to 370 destinations in 59 countries.
The good news for investors is that an airline with global reach and over $7B in cash can withstand plenty of economic turbulence. The bad news is their focus on business travelers. I still believe the global economy will experience a second phase of its Great Recession. Businesses facing declining earnings will cut back on nonessential expenses like business travel. Furthermore, the declining availability of cheap petroleum (Peak Cheap Oil) will put a permanent floor under fuel prices this decade, permanently raising variable costs across the entire transportation sector.
Don't forget that United has already been through a bankruptcy this decade in the aftermath of 9-11. This industry isn't exactly immune to shocks whether they're endogenous (crashes, hijackings) or exogenous (fuel costs).
Feel free to take a chance on playing this merger if you understand the airline industry. I'll pass and wait for clearer skies.
Full disclosure: No position in UAUA or CAL.
Subscribe to:
Posts (Atom)