Economics

ilg30/7

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Sep 12, 2002
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Just a few observations, for whatever they are worth....
Dave and his management team have continually beat the drum over the past few weeks about airline industry revenue 'falling off a cliff' and the need for employees, a few scant months after signing the largest group of concessionary contracts in the history of aviation, to give even more. We have heard much talk about 'double dip recessions' and unprecedented revenue shortfalls.
Interesting. A quick look at my AOL business page shows the following: Consumer confidence rebounding from 79.6 in October to 84.1 in November (the 'disappointing' result is that it missed analysts forcast of 85.1 which was built into stock prices, thus the 173 point fall in the Dow: however, improvement is improvement). The GDP surged ahead in the 3rd quarter by approximately 4%, better than earlier estimates. Corporate profits are expected to rise 15% in the fourth quarter compared with a year ago. This compares with a 7% improvement in the 3rd quarter. Finally, air travel over the Thanksgiving holiday is expected to rise 6% over the same period last year.
Now Chip! Before you go telling me I am in denial and that the crisis in aviation is real and burying my head in the sand will do me no good, let me say this: I believe you. I see the load factors. I see the yield numbers. No reasonable person can deny this company, and commercial aviation in general, is in a crisis.
But given the above numbers, no reasonable person can argue that the US economy is plunging into a douple dip recession, either. So it begs the question: Why is the aviation industry faltering while the economy in general rebounds?
I certainly do not have all the answers. Some speculation, at least in the case of USAirways: Poor decisions by management. I'm sorry, but 9/11 does not excuse or explain everything w/ regards to the demise of this airline. Could it be that management viewed the attacks as a one time opportunity to hammer labor into submission, thus condemning them to a perpetual cycle of contraction? Think about it. You are a consumer, deciding where to spend your holiday travel dollar. USAirways? You read about bankruptcy and massive layoffs and hangars being shut down in the middle of the night. What would you do? United? You read about service cuts and government bailouts and possible Chapter 11 filings. Then you read about SWA, growing and prospering even in the midst of all this chaos. You know they will be around when you are ready to travel. For the same price, who are you going to travel on?
My point is this is becoming a never ending cycle. With each announcement of massive layoffs, facilities closing, and employee concessions consumer confidence in our airline ebbs a little more. Advance bookings get softer, the 'new' business model fails to meet projections, and a new round of pain becomes necessary. I do not believe that this will be the last time.
The one constant in all of this is that USAirways' prospects in the medium to long term are believed to be bright, if we can only get through the short term. This is, after all, a cyclical business, right? But here is the thing: if you are waiting for the economy to get better in order for our fortunes to turn around.... THE ECONOMY IS GETTING BETTER NOW. But USAirways' fortunes are not.
This management team had tried exactly one strategy to fix USAirways' problems: cutbacks, layoffs, severe cost control. While some of this was, of course, necessary, I believe we are well beyond the point where this can be called an effective strategy. Like I said, I do not have all the answers. Why no fare structure overhall? Why not do something to entice demand? Why not advertise our industry leading performance numbers? Good Lord, it couldn't hurt.
For me, the closing of the TPA MTC hangar in the middle of the night was the final straw. USAirways has proven itself to be morally and ethically bankrupt as well as financially bankrupt. I have zero faith that out current management team will be able to pull us out of this. They simply are not able to look beyond anything but severe cost control. And that is simply not going to work anymore.
 

Boomer

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Aug 20, 2002
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A little more fuel to the fire?

UPDATE 1-Cheap jet fuel gives battered airlines a break
November 26, 2002 3:44:00 PM ET

(Recasts)

By Richard Valdmanis and Khaled Yacoub Oweis

NEW YORK/LONDON, Nov 26 (Reuters) - Sluggish demand for air travel since last year's Sept. 11 attacks has kept a lid on jet fuel prices, lowering costs for airlines during a time of financial crisis.

Weakness in commercial air travel, which accounts for the majority of jet fuel demand, has helped ease concerns that increased military consumption in the event of a U.S. attack on Iraq would lead to a sharp increase in prices, market experts said. The softness in the jet fuel market stands in stark contrast to price strength traditionally seen in times of looming war.

There is still a war premium incorporated in the price of jet, but the market is fundamentally weak and is likely to remain so for months, an analyst at a leading trading company in Geneva said.

Fear of flying since the air attacks in New York and Washington last September has sharply reduced air passenger numbers and imposed steep financial losses on airlines such as US Airways (UAWGQ), UAL Corp.'s (UAL) United Airlines, Northwest Airlines (NWAC) and Continental Airlines .

Demand for jet fuel has further suffered as struggling airlines dump older, less fuel-efficient aircraft and cut flight routes to try and stay afloat.

Even if passenger numbers go up, demand for jet (fuel) in Europe would be tempered by airlines becoming more efficient. The old clunkers we used to see are mostly gone and there are less seats empty, the analyst added.

Wholesale jet fuel prices in the U.S. Gulf Coast have fallen 10 cents, or 12 percent, to roughly 72 cents a gallon since mid-September. The price for jet fuel in Europe has dropped to around $250 per tonne compared with $283 per tonne two months ago, traders said.

Demand for flights still hasn't fully recovered from 9-11, said a jet fuel trader at a major U.S. airline. These lower prices are very good for the airline industry.

Jet fuel and crude oil prices spiked up in 1999 during U.S.-led air attacks against Serbia, as the Department of Defense made emergency fuel buys to continue the bombing raids.

The DOD has already bought up jet fuel for its bases in the Middle East at a pace not seen since the first Gulf War more than a decade ago, but the buying spree has had little impact due to the low demand from commercial airlines.

The International Energy Agency said demand for jet fuel and kerosene in the 24 countries comprising the Organization for Economic Cooperation and Development fell 5.9 percent in the second quarter this year to 3.6 million barrels per day from the same period of 2001 .

According to the Association of European Airlines, passenger traffic on European airlines fell almost 3 percent in the first nine months of 2002. Traffic on the main route to the North Atlantic dropped nine percent.

The figures (for September) show that AEA member airlines have stabilized at a level of business somewhat lower than where we would normally have expected to be -- in the case of the North Atlantic market, substantially lower, said Ulrich Schulte-Strathaus, the AEA's secretary general.

In the United States, the picture is not much better. Jet fuel demand has been running about 5 percent below last year's level in recent weeks, extending a period of sharp year-on-year softness, according to the government's Energy Information Administration.

Lower jet fuel costs have provided one bright spot.

It certainly helps to have lower fuel prices, said one jet fuel trader at a U.S.-based airline. With the troubles in the Mideast, there has always been the chance we'd get saddled with high fuel costs on top of low travel demand. REUTERS

© 2002 Reuters

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usfliboi

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Aug 20, 2002
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Dave didnt even have the marbles to say anything in person or on phone! The last we heard from him was HAPPY HOLIDAYS WHERE ARE U DAVE?
 

ExUAW

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