UAUA closes over $40

[FWAAA]

Here we are almost a month later and oil is almost $73 dollars/bbl. I was under the impression United's financial plan on exiting was based on $50/bbl. Any word on what the numbers are expected to be?

Thanks

My WAG predictions for UAL first quarter results are a small operating profit (much like at CAL and AMR) and a small net loss (just like those other two) after interest payments.

Of course, uninformed people will see the paper net "profit" of about $5 - $7 billion for the first quarter (an artificial profit generated by the exit from Ch 11 and the corresponding huge writedowns in the last quarter) and go completely ape@*&%. Ignore their rantings, for they know not the GAAP principles involved that generate the paper "profit."

 

[767jetz]

Better hope Iran doesn't create any more trouble in the middle east, or we're going to see these stock prices drop a whole lot further. :down:

It is my understanding that we don't get any oil from Iran anyway. The only thing that could happen is that there might be a drop in exports to China, which could put more of a demand on other producers like Saudi Arabia.

On the other hand, if a conflict errupts, Iran will still need cash, and will unlikely cut exports to China.

I don't think Iranian geopolitical issues will have as big an effect as many believe. Some effect sure, but not catastrophic.

 

[767jetz]

I was under the impression United's financial plan on exiting was based on $50/bbl.
Thanks

The $50 assumption was a WAG, and also a long term AVERAGE. It was not a break even point nor was there any expectation that there would not be peaks as well.

Additionally, it was PRIOR to any fare increases. The business plan did not account fot significant fare increases. Therefore, the current upswing in fares across the industry offsets the increase in fuel prices quite a bit. As long as oil lingers at these highs, there will be more fare increases.

 

[Bear96]

Therefore, the current upswing in fares across the industry offsets the increase in fuel prices quite a bit. As long as oil lingers at these highs, there will be more fare increases.

I hope you aren't suggesting that the current oil prices are not anything other than a MAJORLY harmful -- and potentially fatal -- issue for UA and other airlines that can simply be solved by a few more fare increases? (And do you really think we will ever see $50 oil again even briefly, let alone as a long term average? Take the recent modest fare increases into the equation -- is even $60 realistic anymore as a long term average?)

At some point, more fare increases will trigger a reduction in the number of passengers, which will ultimately mean a reduction in the number of airlines (or at least in the number of airline employees). If oil stays at this price for any length of time, or goes any higher, we will be seeing some major changes at all the airlines in short order.

$75/bbl oil is truly a crisis for the airlines.

 

[767jetz]

I hope you aren't suggesting that the current oil prices are not anything other than a MAJORLY harmful -- and potentially fatal -- issue for UA and other airlines that can simply be solved by a few more fare increases? (And do you really think we will ever see $50 oil again even briefly, let alone as a long term average? Take the recent modest fare increases into the equation -- is even $60 realistic anymore as a long term average?)

Bear,

I do think $70 oil has the potential to be harmful. However I also believe that the modest price increases do make $60 or even $65 average realistic. Yes, at some point people will stop flying. But we haven't reached that point yet. Same goes for gasoline. People didn't stop driving even when it hit $3.50 or more.

The point is, if costs are passed on to consumers, we will survive spikes like this.

 

[SoftLanding]

....
$75/bbl oil is truly a crisis for the airlines.

I would like to offer a different point of view.

I actually believe (hope 😉 $75/bbl oil (or spike higher) is a blessing in disguise. This has nothing to do with LACK of oil, as that in itself could kill the industry.

What will most likely be the outcome of oil STAYING at $75/bbl? If the US consumer slows down, (2/3 of the economy), guess where the economy is headed? The economy will cool off, as will the need for oil.

Some will say China & India is growing etc. etc. So they are, however, if the US consumer slows down, those economies also slow down. We're the buyer of Chinese export, no ifs-ands-or-buts!

Ahh, finally, my point 😉 Airlines used to make their money in good times. We have now had a growing economy for 45 months+, and the airlines are still in the red. Mainly because of 9/11, but also because of higher oil prices...

The airlines have lowered their cost drastically over the last couple of years (CH11), and with a slowing economy comes a lower oil price. The airlines will, in this cycle, make money in a downturn/slowdown, because of these lower cost.

This is a price-spike in oil, short lived, few weeks/months at the most, will this be looked back at as a great buying opportunity of certain airline stock?

It's getting late. 🙂


SoftLanding

 

[Borescope]

The point is, if costs are passed on to consumers, we will survive spikes like this.

As history has shown, the costs aren't passed on to the consumer. The airlines try, but all it takes is one not to go along and everyone loses. Sure, there have been price increases, and that has helped everyone, but not enough. If you expect to see the average price of oil in the $60 / $65 price range, then we need to see oil right now down below $50 to get to that average. It's been above $65 since Jan.

Jetz,
With regard to Iran. They may not supply oil to the US, but if they cut the supply to others because of war, political, or otherwise, we will see a spike in oil prices. The "world market" (which to US is part of) will react to that slow down in productions and we will see the cost rise.
Most airlines are reporting LF in the 80's, surely cost increases would be in order. They may lose a few percentage points off the LF, but would most likely make up for that in increased revenue. This is one of the only industries that pass the costs to the employees and not the consumer.

 

[FWAAA]

All businesses TRY to pass along to consumers the increased prices for their inputs. Not all businesses are able to do so, especially those industries mired in overcapacity, like the domestic airline market.

If an airline or two fails as a result of these prices, the odds increase that the survivors will be able to charge enough money for tickets to recover their total costs.

 

[Borescope]

If an airline or two fails as a result of these prices, the odds increase that the survivors will be able to charge enough money for tickets to recover their total costs.

Not as long as GE is out there to keep us all limping along.

 

[Borescope]

Shouldn't this be UAUA "closes" under 30?