Oil at $80/barrell

[tlax25]

I was wondering what everybody thought might happen to the industry should oil hit $80 a barrell this summer. I have read about this possibility in several different newspapers over the last couple of weeks. If this should occur, what would the effect be on the airline industry...particularly on the price of airfare? I know it will continue to curtail the little amount of actual flying I do now in the 172 I rent every once in a while. Do you think this might lead to re-regulation in some form? For some reason I do not think the government is going to let any of the big legacy carriers go away.

 

[labbats]

I'm far from educated on these matters, but here's my opinion....

Those airlines in bankruptcy will, believe it or not, finally fold.

I'm almost hoping it goes up more. It will most likely just hurry along this laborious process and force some issues to be resolved, for better or worse.

 

[Captain Overs]

I don't think you'll see ticket prices rise. The airlines have never passed that cost along to people. Continental tried it a few years back with a "fuel surcharge" of $10 per trip and Northwest didn't follow suit so they pulled it back.

 

[ivauir]

For some reason I do not think the government is going to let any of the big legacy carriers go away.

You are wrong about this one. Unfortunatly, I think the gvt is doing a poor job or refereeing the game, but there is going to be at least one loser this round. My guess is that we'll lose two.

 

[Dizel8]

"I don't think you'll see ticket prices rise"

Well, they will have to eventually, if the price of oil does not soon stabilize and or decrease, even a great company like SWA with their great hedging program will have to increase fares to cover cost. SWA is doing well now and will for a long time to come, believe they are hedged until '08 or "09, however, at some point, no one will sell these low hedges, unless oil goes down, and price for SWA will increase. At that point, they will have to raise fares.

As for the rest of the airline, at best they will continue to see SWA grow and prosper while being unable to compete, at worst, more Ch.11s and maybe even Ch.7s.

 

[skykid]

Besides the obvious oversupply of seats, the reason airlines aren't raising prices to cover the higher fuel costs is the industry is in a giant game of chicken. Prices are controlled by those with enough cash reserves to wait for others to fold. I would argue that even though a few of the so called LCCs had a moral victory with modest profits, nobody is making money. If U has to liquidate (which I believe is a matter of time since they have essentially the same poor route structure they had 6 years ago), I think we will see prices go up. You could double the prices on airline tickets and this would still be a cheap era to travel. LCCs are going to keep dominating domestic pricing, so relatively low prices are here to stay. So are low wages.

 

[Boeingman]

Besides the obvious oversupply of seats, the reason airlines aren't raising prices to cover the higher fuel costs is the industry is in a giant game of chicken. Prices are controlled by those with enough cash reserves to wait for others to fold. I would argue that even though a few of the so called LCCs had a moral victory with modest profits, nobody is making money. If U has to liquidate (which I believe is a matter of time since they have essentially the same poor route structure they had 6 years ago), I think we will see prices go up. You could double the prices on airline tickets and this would still be a cheap era to travel. LCCs are going to keep dominating domestic pricing, so relatively low prices are here to stay. So are low wages.

Good analysis, except that it is not only cash reserves alowing some carriers time to wait for others to fold. The continued pumping of money by lenders (as well as the relaxation of covenants) into failing carriers extends the process and time line. I also think dare I say that the bankruptcy process is in desperate need of reform.

It simply amazes me that U has found more money from outside investors. I read recently the recent cash infusion from Air Wisconsin has already been burned through with February's losses alone.

 

[jamesslally]

I just read in USA Today on Monday that UAL has 30% of its fuel hedged (I believe it said for the year) Now I don't pretend to understand the economics of the airline industry, but it seems pretty ridiculous that UAL is able to default on a $300+ million payment to the city of Chicago / Ohare, but be allowed to spend money on fuel hedges. WTF is up with this??

 

[Dizel8]

At what price were the hedges though, that is the big question?

As for ridiculous, as the lessors how they feel about being unable to repo the planes!

 

[Ted Striker]

I just read in USA Today on Monday that UAL has 30% of its fuel hedged (I believe it said for the year) Now I don't pretend to understand the economics of the airline industry, but it seems pretty ridiculous that UAL is able to default on a $300+ million payment to the city of Chicago / Ohare, but be allowed to spend money on fuel hedges. WTF is up with this??

I was under the impression that they couldn't do that due to being in bankruptcy. Wouldn't be the first time I was wrong!

 

[Dizel8]

According to one source, UAL is hedged 30% first quarter at 1.38 Gallon.

 

[TriStar_drvr]

I'm hopeful that if oil continues to climb, airline management will finally have the sense to raise fares. There is talk of gasoline going to $3 a gallon this summer. So for those that travel, even increased air fares may be a bargain compared to driving.

 

[skykid]

I also think dare I say that the bankruptcy process is in desperate need of reform.

That's a valid arguement. However, a lot of the folks down on the process right now are going to be singing a different tune in the future. I don't believe any airline is going to have traditional pensions in 10 years. Hope I'm wrong. If you have a way to dump that benefit without Ch11, I'd love to see it.

 

[Boeingman]

That's a valid arguement. However, a lot of the folks down on the process right now are going to be singing a different tune in the future. I don't believe any airline is going to have traditional pensions in 10 years. Hope I'm wrong. If you have a way to dump that benefit without Ch11, I'd love to see it.

Valid statements, but the DB pensions will be gone much sooner than 10 years. I am going to say within 3 -5.

Bankruptcy reforms could start with more accountability required from management teams in place. The 1113 process is a joke as well. Labor should not be forced by some judge acting as a management santa claus to relinquish years of collective bargaining because management has no other business plan but to cut employees wages.

One of my dreams is to have legislation that would require companies to fund pension obligations before some level of defined and excessive management compensation programs.

 

[Lear70]

I also think dare I say that the bankruptcy process is in desperate need of reform.

What I find especially interesting is that congress just passed a bankruptcy reform bill for INDIVIDUAL CITIZENS that LIMITS what you can file on and REQUIRES you to pay certain debts EVEN IF YOU FILE CH. 7!

From what I understand, the law will make it essentially NO better to file a 7 than a 13. Because of the high number of people who got into more house, car, boat, and credit card debt because of then-lower interest rates, we're seeing the beginning of the forcing of a HIGH number of defaults on those debts. Car and Home reposessions in the TN area are up 100% over this time last year and it's expected to climb nation-wide which is fueling bankruptcy fears which is behind this move by large lending companies to reform the BR laws.

What does all of this have to do with this thread? I find it VERY interesting that the bill that is expected to overwhelmingly pass in the Senate then be signed into law in the next 30-45 days limits CITIZEN'S rights, but NOTHING is being done about a CORPORATION'S ability to again and again file for BR protection just to come out with lower costs, renegotiatioted deals, and releases from unprofitable equipment leases with no penalties.

More big business at work. I think you can kiss any chance of government regulation of corporate bankruptcies goodbye. Ditto that on re-regulation of the airline industry - too much money to be made on the operation and stock end of the deal by those with a direct line of contact to their congressman, senator, or President.

 

[Boeingman]

, but NOTHING is being done about a CORPORATION'S ability to again and again file for BR protection just to come out with lower costs, renegotiatioted deals, and releases from unprofitable equipment leases with no penalties.

And the voiding of labor contracts with no recourse by the rank and file.

Interesting observation you have made....I tend to agree.

 

[surplus1]

Why are you all compllaining? Didn't the overwhelming majority of you vote for GWB and company? Well, you got what you voted for.

It's normal to expect that they would change to BK rules for individuals but not for businesses. Whose side do you think this government is on, the people's?

Dream on. We're stuck with this for at least another 4 years. By that time there won't be a single pension left and every labor contract will have been trashed on the altar of "conservatism".

You all (you know who you are) got what you wanted, now deal with it. It's just too bad you also screwed the rest of us.

 

[80drvr]

Why are you all compllaining? Didn't the overwhelming majority of you vote for GWB and company? Well, you got what you voted for.

It's normal to expect that they would change to BK rules for individuals but not for businesses. Whose side do you think this government is on, the people's?

Dream on. We're stuck with this for at least another 4 years. By that time there won't be a single pension left and every labor contract will have been trashed on the altar of "conservatism".

You all (you know who you are) got what you wanted, now deal with it. It's just too bad you also screwed the rest of us.

Completely agree. This administration has really opened the eyes of this former republican.

 

[Boeingman]

Why are you all compllaining? Didn't the overwhelming majority of you vote for GWB and company? Well, you got what you voted for.

Considering the choice for the alternative? Everytime I thought of voting for Kerry, my stomach churned.

 

[surplus1]

Like I said, you got what you wanted. Deal with it.

What's more you've only tasted a small part of what's in store. There's plenty more coming.

 

[Boeingman]

Like I said, you got what you wanted. Deal with it.

What's more you've only tasted a small part of what's in store. There's plenty more coming.

Deal with it? I wrote off long ago the airline funding my retirement and true source of income. How is that?

 

[rvsm410]

BY the way the bankruptcy reform bill was shot down yesterday by the senate...its dead.......

 

[SWA GUY]

I completely disagree. But then again I think of economics as a supply side system and not a welfare driven system.

Capitalism works, socialism doesn't.

Further, GWB doesn't have the power to line item veto commerce laws in regards to pension plans. That Sir, lies with the Congress. If you think it lies with the POTUS, then you must think we elected a king. If I were you I'd bone up on Government 101.

In order for some airlines to survive mismanagement, rising fuel costs, lowered yeilds, increased competition, etc, one of the ways was to reduce or discontinue payments to pension plans. This is a way for some airlines to continue paying workers rather than liquidating under the burden of funding pension plans. Yeah it sucks to lose a pension, but would you rather continue to get a paycheck, or would you rather force an airline to make pension payments to the point the airline has to liquidate?

 

[skykid]

Dream on. We're stuck with this for at least another 4 years. By that time there won't be a single pension left and every labor contract will have been trashed on the altar of "conservatism".

Does that mean Frontier, JetBlue, Airtran, and VirginUSA are going to lose their pensions? You say pensions are trashed on the alter of conservatism, I say the airlines are in the middle of a fundemental model change where less pay and benefits are the new standard.

 

[surplus1]

It's not really the airlines or the pensions that I'm worried about, it's our country at large.

The people have been foolish enough to give the corporate and religious interests total control of their beings and their future by failing to recognize that that is who the Republicans represent. They will now have an opportunity to reap the rewards associated with that folly.

I can only hope that the damage won't be too great and enough will see the light by the next opportunity to extract us from the morass.

The contest was never between George Bush and John Kerry. It was and remains between the dark side, masquerading under the mantle of conservatism and the simple folk that were, alas, too simple to distinguish between the spin doctors of the Republican party and their own long term welfare.

Unfortunately the people allowed their phobias and their values make them vulnerable to the snake oil vendors and the tent revivals. With luck, and if there's anything left, they won't make the same mistake again.