Neatly summarized, David. - Bob Mann -- R.W. Mann & Company, Inc. >> Airline Industry Analysis Port Washington, NY 11050 >> tel 516-944-0900, fax -7280 mailto:info@xxxxxxxxxx >> URL http://www.RWMann.com/ This e-mail is for the designated recipient only and may contain privileged or confidential information. If you have received it in error, please notify the above sender immediately then delete the original e-mail. Any other use of this e-mail is prohibited. David W. levine wrote: > At the moment, pretty much nobody in the industry can make money with > current yields and the current cost of oil. Southwest's benefits from > hedging > were larger than their entire profit for the quarter. If WN had to pay > for > the non hedged cost of their fuel, they'd have lost 22 million in the > third > quarter. > > Hedging isn't a long term solution, in the face of persistent higher fuel > costs. > Hedges help you duck the risk of short term spikes (At the risk of > having to > pay more for fuel if prices drop far enough) But you can only hedge as > long as > people want to sell you hedges. If $40 oil becames the long term reality, > hedges > below $40 will go away. > > My impression is that, at the moment, at somewhere between $40 and > $50 a barrel, the industry as a whole, including the low cost carriers > can't make money at current yields. Even carriers with very low > seniority workforces, minimal pension costs and all sorts of > unsustainable > sources of lower costs start loosing money. That way lies madness. > > While there is no doubt that the legacy network carriers still have > some costs > they can wring out of their systems. (It takes a long time to squeeze out > things which took decades to happen) there are limit. When Southwest, > which has > pretty darn good practices only makes money with hedges, and companies > like > AirTran and JetBlue aren't able to make money or are barely making money, > you're hitting a point where the industry as a whole, is underpricing its > product. > > A sustainable industry has to spin enough profit to pay for ongoing > capital > investment. > A sustainable industry has to generate enough return that people want to > invest in it > and are willing to hold debt and stock. And finally, a sustainable > industry > needs to > be able to pay people a decent wage, offer them some benefits, > including a > pension, > or it won't be able to attract people with the skills and desire to do a > good job. > That's especially cogent for pilots and mechanics, but in terms of > customer > service > it matters across the board. Southwest manages this, but at the moment, > they're going > to have problems doing it, if oil stays where it is. > > - David > > At 10:54 AM 10/29/2004, you wrote: > >> Clay, >> Since the oil went from $19 to $55 in almost a year, the fares didn't >> raise >> the fares in a proportional way. This is hurting them big time. The >> airlines >> did everything they could, including outsourcing some work, >> increasing the >> utilization, laying off people and reducing the salaries of the >> people who >> are still ungainfully unemployed. >> There isn't enough room to squeeze any more. >> >> So, this fare increase is long overdue if you ask me. Low low yields >> with >> highest oil prices in the history is a combination of death for a lot of >> airlines. >> >> All the majors, to a certain extend are leaner and meaner compared to >> 3-4 >> years ago. It's the oil price that's killing them. >> >> I read United's quarterly press release yesterday. They are paying $1.5 >> BILLION ( that's $1,500,000,000)!!! More for oil this year .. That's an >> outrages number. If it wasn't for this they would be reporting pretty >> nice >> profits. >> >> BAHA >> Fan of Ua 747 upperdecks >> >> -----Original Message----- >> From: Clay Wardlow [mailto:clay.wardlow@xxxxxxxx] >> Sent: Thursday, October 28, 2004 9:28 AM >> To: Bahadir Acuner; AIRLINE@xxxxxxxxxxxxxxxxx >> Subject: RE: Everybody missed on this >> >> Fan of fare increases, are you crazy man? >> >> The airlines need to go through a much needed diet. There is so much fat >> and waste at the biggies especially. This has been a long time coming. >> >> There's lots of change that needs to happen, not just in the aviation >> industry, but world-wide. Oil is getting more expensive. Demand is going >> up, supply is going down. Now we know there are other sources of energy >> for cars (etc), and they are becoming more popular. Is there such a >> thing for airplanes? What happens to the industry if fuel prices never >> stop going up? Fares can only go up so much before the average person >> can't fly. That's not going to save the airlines. >> >> Clay - SEA >> Fan of the maglev train they talked about on the Discovery Channel the >> other day. >> >> >> -----Original Message----- >> From: Bahadir Acuner [mailto:bahadiracuner@xxxxxxxxx] >> Sent: Wednesday, October 27, 2004 7:08 AM >> Subject: Everybody missed on this >> >> WN has increased some of the fares by 50% few days ago. In the day and >> age >> of $55/barrel oil prices I am hoping that this will take care of yield >> problems in the industry. There will be less of $99 one way special >> fares. >> >> BAHA >> Fan of fare increases so that airlines can stay afloat. >