United 2nd Quarter 2004 Financial Results

[Cosmo]

United just issued this press release with its 2nd quarter 2004 financial results. It was somewhat better than I expected, with a $7 million quarterly operating profit and a net loss of $247 million (a net loss of $103 million before reorganization items).

The real eye-opener was United's 2nd quarter fuel cost of $1.18 per gallon, with a projection of $1.23 per gallon for the 3rd quarter. Ouch!

 

[WorldTraveler]

These results certainly reflect the sacrifices that so many at UA have endured and you should be proud of the progress that has been made. It is apparent that all of the airlines that have obtained labor concessions are all about in the same ballpark. However, $40/bbl oil is likely here to stay which adds about $1B/yr to the costs of an airline the size of UA; more cuts clearly have to come elsewhere. The comparability of UAL's results to AMR's, CO's, and US' indicate that UA will have to make even bigger cuts in order to become viable for the long-term; the legacy industry has still not figured out how to become profitable and, in order to attract permanent financing, UAL has to demonstrate results that not only show a consistent operating profit but also goes a long ways to repairing the tattered balance sheet. All of the legacy carriers will succed in permanently reducing some costs but many debts will simply be pushed further out into the future.

 

[iflyjetz]

However, $40/bbl oil is likely here to stay

Not according to forecasts.
You remind me of a coworker back in the mid/late 90s who locked in a 30 yr fixed for ~8%. He said that rates would never go lower. I pointed out to him that in the 60s, rates were much lower, and would most likely return to lower rates as baby boomers save more money than they consume.
There is a lot of oil out there; the resources just haven't been exploited fully due to transportation issues.
I won't be surprised to see oil in the mid-20s within the next 3 years.

 

[The Gopher]

There is a lot of oil out there; the resources just haven't been exploited fully due to transportation issues. I won't be surprised to see oil in the mid-20s within the next 3 years.

Don't forget there is a "terror premium" to oil prices in the neighborhood of $5 - $10/bbl. If/when the security situation gets better, so should the price of oil under Ceterus Paribus conditions.

 

[ual777fan]

Oil prices are probably going to stay high. China and India are experiencing huge booms in their ecomies, the world economy itself is recovering. Demand for oil is up, supply of oil is down because the planet is simply running out of oil. The places where untapped oil fields still exist are difficult to get to (Siberia), usually have a nasty climate (Sahara Desert anyone), and are usually extremely unstable (especially in Africa which is where most of the new production is).

There is ANWAR, but that is a political albatrose that will never pass. I think the best bet to bringing down oil prices is conservation, making sure all SUV; and non farm pick-ups get semi-decent gas mileage.

 

[WorldTraveler]

IFly,
The Dept. of Energy as well as private analysts expect energy prices to remain at current levels for the forseeable future. Yes, there are plenty of supplies for current demand but energy usage in developing countries is happening faster than expected. It would be nice to see $25 oil but it is probably more prudent for all energy users to count on current levels and bag the windfall if it happens.

UAL's results also show that airlines will probably take different approaches in developing new business plans. UAL will have to deal with pension issues because that is probably the biggest threat they face while CO may focus on something else. I think you'll see the historical similarities of the legacy carrier business models begin to diverge over the next year.

 

[iflyjetz]

IFly,
The Dept. of Energy as well as private analysts expect energy prices to remain at current levels for the forseeable future. Yes, there are plenty of supplies for current demand but energy usage in developing countries is happening faster than expected. It would be nice to see $25 oil but it is probably more prudent for all energy users to count on current levels and bag the windfall if it happens.

Really? How about this report? http://www.rbs.co.uk/Group_Information/RBS...ds/oilprice.pdf
It was written March '04. While there have been negative events that have caused a spike in prices since then, I think that they're correct in the long term.
While it may be hard for you to believe, the current production capacity exceeds demand.

You are using short term blips (Yukos, terrorism premiums) and taking that as a long term trend. I heard the same stuff during the Arab oil embargo. (When will people stop misinterpreting a statistical blip as a trend?)

I got this blurb from Stratfor.com:
"Russia: An Empty Threat From Yukos?
29-JUL-04
Russian oil giant Yukos said July 28 that it could halt oil production within days. The company's justification for the announcement -- which sent oil prices to an all-time high -- was that the Russian government is not allowing Yukos to sell any of its assets, including oil. However, sources in the Russian energy sector say the government has not ordered Yukos to halt oil production, and several factors indicate that Yukos has little reason to shut down its wells and is unlikely to stop production."

There is a large untapped supply of oil in the Azerbaijan, Turkmenistan, and Kazakstan that has not been brought to market due to the lack of pipelines to the sea. I don't know if you recall this, but when Cheney was CEO of Halliburton, he was negotiating with the Taliban to build a pipeline across Afghanistan.
Here's a link to current proposed pipelines in that region:
http://www.eia.doe.gov/emeu/cabs/caspgrph.html

I expect Chinese consumption to remain flat; from what I've read, they are going to experience a significant slowdown in their economy.

The dollar is pretty weak right now, but as interest rates rise in the US, it will strengthen. That alone will allow oil prices to move downward.

If you've got links to anyone forecasting oil to be $40+/barrel for the foreseeable future, please post them. However, I'd discount anyone who used the current (statistically abnormal) situation upon which to base their forecast.

 

[ual777fan]

I was watching Ron Insana on CNBC... Oil is at $43.82 per barrel for August contracts, and trading on October contracts has just opened at about $60.00 per barrel. If it stays like that jet fuel could be a 1.50 a gallon before the end of the year

 

[iflyjetz]

I was watching Ron Insana on CNBC... Oil is at $43.82 per barrel for August contracts, and trading on October contracts has just opened at about $60.00 per barrel. If it stays like that jet fuel could be a 1.50 a gallon before the end of the year

Strange. This link http://pcquote.money.net/futures/contracts.php?symbol=/CL shows Oct crude currently trading at $42.49/bbl.

 

[WorldTraveler]

IFly,
You are right that there is alot of oil in the world that simply cannot get to market. There is also more than enough food in the world so that no one goes hungry; nonetheless, nearly one quarter of the world's population will not have received enough nourishment to survive by the time they go to bed tonite. Structural problems exist in the world and will continue to exist; placing hopes on ending those structural and political problems may be risky at best.
Regardless of what the actual amount is, airlines that are looking for fuel to go down are probably headed for a rude awakening. Given that airlines have been dealt shock after shock during the past three years, planning as if fuel is not coming down is certainly more prudent than assuming it will and find out otherwise. While that may dramatically increase the size of cuts that airlines have to make in order to return to viability, let's keep in mind that the hole the industry is currently digging out of is huge and there are not very many upsides predicted. I don't realistically think that any prudent airline management team will not take the opportunity now to reduce costs.

 

[Borescope]

Not according to forecasts.
You remind me of a coworker back in the mid/late 90s who locked in a 30 yr fixed for ~8%. He said that rates would never go lower.

Yea, I'm waiting to buy a house. The prices should come back down to 20K some day, right?

 

[iflyjetz]

Yea, I'm waiting to buy a house. The prices should come back down to 20K some day, right?

Borescope, I'm assuming that you're being TIC. Inflation is one of the measurements that factors into home prices (although interest rates play a part). Since we haven't seen negative inflation (IIRC) since the great depression, I don't see why anyone would forecast it at this time. That was definitely an anomoly.

 

[Borescope]

I'm assuming that you're being TIC.

Exactly

 

[fix_airplanes]

T. Boon Pickens was on CBS news and thinks $50/barrel oil is ahead. Will never see $20 oil again.

 

[a320av8r]

Do you find it interesting that Chevron made a $74B profit in 2Q?
Yes good ole GW is keeping his buddies protected while the airline employees subsidize big oil with more pay cuts!

Remember in November.