Airlines on approach to recovery

[question everything]

Tuesday, January 3, 2006

Airlines on approach to recovery

Analysts are optimistic that 2006 finally will be the year for the industry to profit, barring another spike in fuel prices.

Cox News Service

For several years now, the airline industry's long-promised recovery has been just over the horizon.

The outlook for 2006 is shaping up no differently, but at least some industry experts say a recovery could actually materialize this time if fuel prices don't repeat 2005's devastating spike.

The Air Transport Association's chief economist, John Heimlich, says he is more upbeat about the airline business than he has been in years. He said rising fares and traffic, along with cost cuts at traditional hub-and-spoke carriers, are beginning to pay serious dividends.

(snip)

In 2005, hurricanes Katrina and Rita damaged much of the Gulf Coast's oil industry infrastructure, causing jet fuel prices to soar and doubling airlines' losses over earlier projections. Analysts believe the industry lost almost $5.9 billion before one-time charges, with Delta Air Lines accounting for more than 40 percent of that total. Wall Streeters predict that U.S. carriers will still lose about $2 billion before one-time items in 2006 – unless there's another fuel shock.

The outlook is bipolar in another respect: The industry's winners continue to pull away from the most battle-damaged carriers. Delta, Northwest and United – all in Chapter 11 – are expected to report more heavy losses in 2006. Meanwhile, analysts expect Southwest, Alaska Airlines and AirTran to report substantial profits, while American, Continental and US Airways are expected to show modest profits or at least break even.

(snip)

http://www.ocregister.com/ocregister/money/abox/article_926895.php

[YOY]

1. Independant Air didn't make it!

I couldn't care less about Delta. I was really rooting for the little guy...

[Jayhawk Lib]

2. Sound like right wing bs....nt

[JohnyCanuck]

3. Time still not right to invest in airline stock.

According to James Kunstler in his predictions for 2006 (seems he's speculating 2005 will prove to be the year of peak oil production).

The world oil allocation system is now so fragile that any disturbance in one producing region can send damaging shock waves around the planet. There is no more "swing producer." The US squeaked through the huge loss of oil production capacity this fall by taking oil from our own strategic petroleum reserves and from Europe's. These actions kept oil prices in the high fifty-dollar-range through the holidays, giving Americans a false sense of festive security. Those withdrawals are now over. Global demand for oil is still increasing. The strategic reserves will now have to be refilled (they're called strategic reserves for a reason). This will start oil prices moving upward again -- they already have moved above $61 as of this morning.

I can't predict whether some maniac will drive a Zodiac boat into a tanker in the straits of Hormuz, or fire a shoulder-launched missile at an Arabian refinery. If nothing like that happens, the first year of post-peak will express itself in turbulent oil markets. Fear of not getting enough will rule. Futures will be overbought and then dumped or shorted and then overbought again. This will at least increase the violence of the ratcheting effect in the markets. Overall I expect to see $100-a-barrel oil at some point this year. Last year I made a bet with a friend that oil would end 2005 at $75. I lost the bet. But it is a fact that the price of oil altogether ended the year 40 percent higher than 2004, so it is not as if the markets did not show extraordinary stress.

<snip>

High gasoline, heating oil, and methane gas prices will absolutely kill the housing bubble for reasons I've already outlined. The production home builders will be idle, stuck with huge inventories in places that never should have been suburbanized in the first place. A lot of Americans holding "creative" mortgages -- no money down, interest only, adjustable rate, what-have-you -- will be crushed by the expense of their obligations. Many of them will go bankrupt under new bankruptcy laws that leave no wiggle room for escaping partial repayment. Their houses will flood the real estate markets in an orgy of distress selling. "Greater fools" will snap up these "bargains," failing to realize that many of the logistical liabilities will remain -- namely remote locations and huge heating costs of enormous McHouses -- even if the ownership terms are less hazardous than the previous owner's. At some point in the future, after several flippings perhaps, all those 4000 square foot houses 44 miles outside Denver (or Cleveland, or Seattle) will be seen as the mistakes that they are, and their cash value will reflect that.

<snip>

The commercial airline industry is already whirling around the drain. 2006 will send it decisively down that drain. Since we cannot do without aviation in a nation as large as the US (with train service on the level with Bolivia) then the government may have to take over the crippled air routes. If that happens, then service will certainly be greatly diminished. Fewer people will be flying under the circumstances, anyway, but there is no reason to believe that this will all occur smoothly. Among other things, huge pension obligations would remain to be worked out.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2006/01/oh_six.html

Edited to fix link