Got a lot more on interest rates where they came from. FYI, Interest rate carnage is weeks away, or months at best. Look for a bonafide market crash summer or fall 2004. Macro forces are building....dollar is in deep kimsheee.
Though S&P and Dow stocks are inflated BUBBLES, no less different than NASDAQ stocks, we have yet to live through an era of deflation--when stocks go down several times the rate of deflation over long periods of time, making the HOME and CAR worth less than the loans outstanding. Safety, like being in cash or renting is paramount when markets are poised for shockwaves or debt-deflation. See how cash is being held on the Berkshire Hathaway (a) shares Balance Sheet: "Total Cash (mrq): 34.68 BILLION."
Though deflation sits on the back-burner, new laws are still being analyzed & debated at the behest of the pension fund industry to determine whether hedging their risks makes more sense using bonds versus stocks. As extreme volatility in the stock market crushed many pension fund portfolios between 2000-2002, few want to replay that disaster.
If the nation gets spooked by more orange and red alerts, that means more borrowing or, at the very least, less interest income as cash is taken out of corporate savings to make payroll and overhead expenses.
Along with Delta and SWA, the US gov't will pay more to service its own government operations and national debt as interests begin to balloon. Think of adjustable rate mortgages, ARM's, when those coupons balloon and easy financing at the front end turn to painfully higher interest payments after rates spike. How would they make up this WIDENING income gap between rising debt service costs, and/or losing more money, and making more money?
Then there is fear of another meltdown panic or crash coming from China or Japan like Thailand in '97 or Russia in '98, but this time worse. Back then no one heard of 9/11; no one heard of Homeland Security; interest rates were trending down and now the talk is all UP, UP, UP; plus the savings rate for Americans has dropped in the past 20 years, from 10% to 2%. Derivative traders in the bond and oil pits have been warned of the looming tightening to ward off what Greenspan fears: MORE MELTDOWNs.
When it finally dawns on the world how America is a high-cost country in a sea of low-cost nations, any rescue operation for the US dollar will be too little too late.
>>>>Interest rates will NOT skyrocket as you put it. Read what Greenspan has to say about interest rates before you post like you did. Are you trying to cause a panic?<<<<<<
No. But in today's giant global economy, a panic on Wall Street leading to a collapse of stock prices would happen so suddenly that the alert systems for letting the world know would overload so badly, by the time the emergency was over people would be saying "what happened?"
Greenspan is about to puncture this dream-like nirvana BUBBLE with the power of the Federal Reserve. The outcome for all sectors, airlines included--including hedge funds, derivative traders, investors in stocks and bonds, skeleton bones and currencies--will be in for a rude shock. Spikes in interest rates to contain inflation, whether slight or racing, will prompt huge Chapter 11's and 7's and 13's to pile up like a train derailment.
Whether inflation is permanent or temporary, inflationary pressures WILL warrant a spike in rates so Greenspan has advised, despite slack industrial capacity and minimum pressure on retail prices; any upward pressure on prices is fueled by none other then irrational credit and liberal lending policies. Everybody's brother and dog is gettting credit card solicitations, and it takes no money down to purchase a house anymore. Sub-prime lending has taken on dangerous qualities and Fannie Mae and Freddie Mac are poised to dish a dose of deflation as we've never seen before if the (2) mortgage giants have a meltdown when interest rates spike. If the Savings & Loan (S&L) destruction in the late 80's was inevitable based on excess borrowing and lending, so Fannie and Freddie's mortgage business will crater in like fashion, affording Greenspan more emergency measures which won't be good for interest rates.
Rates will spike hard since Greenspan opened the spigot wide as possible post-9/11 and post Nasdaq crash, flooding the economy with liquidity. But easy money, easy credit now has slowed and expected to slow further as the months progress. That's why profit comparisons next year will be impossible to meet, forcing earnings that much lower, forcing P/E multiples that much higher though stocks plummet. Main reason P/E's are more reasonable this year than last (lower), is due to record earnings (E) stemming from Bush/Greenspan's newly created tax cuts and tax incentives upping the wealth effect. The tax rebates and tax cuts were so powerful last year that all private losses subsequent to the year 2000 Nasdaq crash have been recouped thanks a lot to spriralling real estate and the 2003 stock market [sucker] rally.
Interest rates will NOT skyrocket as you put it. Read what Greenspan has to say about interest rates before you post like you did.
Are you trying to cause a panic....
>>>>>"The majors" are saddled with pension liabilities, smaller markets, and an aging workforce (ie, more medical claims, higher premium costs to the company).<<<<<
TRUE. Which is why Delta hired investment advisors, bankruptcy lawyers, business consultants to help navigate the hurdles, just in case the only way out is Chapter 11 Reorganization (as it is looking more like daily).
>>>> Layoff policies just wind up skewing the workforce in the wrong direction. The way out of the conundrum is to grow out of it, not shrivel up in the face of it.<<<<<<<
In a logical turn of events, a bankruptcy judge, creditors and teams of lawyers will address the RIF subject (Reduction In [work] Force), then decide the pace of new growth or contraction as it relates to what's best to maximize revenue for creditors and bondholders who got short-changed. Outsourcing will be another topic of great discussion.
>>>>>To beat the Low-Cost Carriers, "the majors" need to make radical changes: Spinning off Flight Attendants as a separate "F/A contractor" company is a radical change to make for a lower cost and more flexible staffing of the flights.<<<<
The concept behind even more radical Outsourcing is to close the gap between high-cost labor and lower cost labor where it can find identical (or better) quality, yet still achieve optimal pricing and simulaneously get the job done. If that means contracting out a few more departments to save brand Delta, then let outsourcing be that next logical step. With the boat taking on so much water so fast with everyone wearing the same Delta uniform, it won't be long until she sinks unless changes are made.
>>>>>Aggressively marketing a promise to CUSTOMERS that they can relax and stretch out in unsold inventory adds a value proposition that can differentiate AMR from its competitors.<<<<<<
Making promises to customers might best be reserved for after the internals are reoriented with regard to labor costs and outsourcing. However if both can be done without service repercussions and service degradation, more power to those involved. Tackling too much too soon, chasing too many rabbits at once may ensure they all get away.
>>>>The liquidation of UAL won't save Delta or AMR, only create opportunities for Low-Cost Carriers to grow from their position of financial strength.<<<<
To repeat, AMR and Delta are beefing up their respective operations to fighting size to better compete and make a profit. They will do this by taking the battle to the Low-Cost Carriers and slugging it out on their turf more so. By doing so, they become more like them and less and less like the drunken Major Network Legacy carriers they know so well.
>>>>growing, profitable airlines like Jet Blue are acquiring the newer more [fuel] efficient jets.<<<<
But employees want a raise every now and then--usually each year--and planes get older with each new year, which ups the maintenance bills as well. Cost-advantages for start-ups are fleeting over time.
>>>> And so the high cost of fuel puts "the majors" at a competitive disadvantage.<<<<
Lest we forget, all major airlines still in the game, still gasping for air are in the process of slimming down in order to wipe out most cost differentials and Marketing distinctions between them and the "Low-Cost" carriers.
>>>>If a terrorist attack has any affect on air traffic, it will only be to reduce demand, not to increase it....and will further hurt "the majors" and erode their market share.<<<<
As you say, passenger demand will be crushed, but all airlines will feel the crushing weight of a stalled industry, if for no other reason than just mentioned: "all major airlines still in the game, still gasping for air are in the process of slimming down in order to wipe out most cost differentials and Marketing distinctions between them and the "Low-Cost" carriers."
>>>>>Southwest is able to gain advantage by hedging their fuel cost, up to 80% of swa's oil needs, and for another two years<<<<<
Look no further than fuel hedging as an indication of something amiss to keep LUV's head above water--an unsustainable position.
Now the US heads into a summer of discontent with high oil prices, a slowdown in automobile sales, Housing on the precipice, interest rates about to skyrocket, mushrooming federal debt, widening trade deficits, volatile stock markets here and in Asia, and China and Japan each with banking systems in dire straights. The US heads into UNCHARTED WATERS with no examples from which to draw to say LUV fuel hedging strategy is workable or not; most likely it is not.
If it takes sand to make silicon chips, and river water to make drinking water and crude oil to heat homes and fuel jets, who's to say Low-Cost leader Southwest will win the airline wars even if it wins the "BATTLE" to contain JET-A fuel costs by hedging? Then again LUV could well lose the airline wars if refineries stumble for macro, geopolitical reasons. In such an emergency--for example if the U.S. faces a summer tempest of horrors where few brave souls venture to drive or fly to the beach or Vegas or home away from home, or the malls down the street--refineries could struggle to turn crude oil into JET-A, pushing up JET-A prices so high few airlines could afford to fly even a partial schedule. Were that so, LUV, like AMR or DAL, would go file Chapter 11 based on fuel scarcities.
In a fiscal emergency brought about by an overloaded trading system, fuel hedge dealers could run into fuel shortages with not enough fuel to sell. And if that weren't enough, fuel hedge traders could be engulfed by creditors and bill collectors squeezing them for all they have in a financial crisis. That alone could cause a derivative meltdown if mega-traders all at once excercised their options overloading the system. Dealers in derivatives often must borrow money, and money has a cost, and a rate of interest to charge and to pay. Now interest rates are poised to rise in a couple of weeks, and various linkages make a simple derivative trade--whether oil or interst rates--more like the tail wagging the dog, especially once panic is in the air: Interest rates and oil have the capacity to induce panic because they are two precious commodities that lubricate the transportation needs and financial needs of the world.
Southwest is no more better hedged to face the future than Delta considering uncertainties in both the financial and trading systems.
>>>>The pilots, planes, maintenance, gates, etc. are already paid for but being underutilized.<<<
As long as Delta schedules 50 and 110 minutes to turn its fleet, there will always be underutilization. FUEL could go to $10 barrel and Delta would still be ineffiently run.
>>>So basically for the cost of the fuel, DAL can add a flight.<<<<
DAL would also have to revamp its HR mindset and culture to think more like a Low-Cost Carrier in speeding up the tempo, but that would require more customer demand and stable pricing LOWER than what Delta has been accustomed to charging. This would entail greater emphasis on tracking more pennies and dimes, but only if more capacity were taken out of the industry by the demise of other Zombie (dinosaur) airlines like US or UAL.
>>>>>Only way shrinking even begins to make sense is under bankruptcy where it would be possible to eliminate an aircraft type.<<<<
The bonus of a new Plan of Reorganization is that, while you give up a measure of operational control, you gain the power to cut out a lot more than just an aircraft type. You get to retool, revamp, restructure practically anything that sits, walks, runs, breathes or takes manpower to operate (machinery and assets), including debt.
>>>Personally, I think even that is a terrible idea.<<<
Think of it this way: Have you ever tried to sell your own house e.g., For Sale By Owner? Talk about pins, needles and an emotional roller-coaster: Most end up hiring a realtor just to escape the emotional trauma. As you said, B/K is a terrible idea--an admission of failure--but far, far, far less terrible than trying to keep tens of thousands of employees busy with dead weight around the ankles (massive debt), while valiantly fighting the competition (SWA), while valiantly struggling back to solvency (as Moody's waits, as bankers pace, as suppliers fret).
>>>>>A better solution would be to reduce training requirements by finding some way to minimize pilot movement between types.<<<
Finding a new way to hire pilots, train them and administer to them, you mean. ALPA has proven unreliable as a business partner.
>>>>Best solution there would be to eliminate pay for aircraft type and have them work the same as everybody else. As their time with the company increases (or total hours flown), their pay rate increases. As somebody retires, doesn't matter if it's from a 777 or an MD88, the opening can be bid or filled through hiring.<<<<<<<
With ALPA's many Vested Interest Committees to increase Flight Operations bureacracy, good luck Delta becoming a 21st century, post-deregulation airline. ALPA is a perpetual sparring machine which condems Delta to a place that time forgot. Shareholders take note; Chapter 11 judge, ditto.
>>>>>>I'm sure the pilots would balk at this, but in reality they could use it as a way to increase their lifetime pay. By significantly reducing training costs for the company, they could negotiate a signficant portion of that to pay.<<<<<<
BY THEIR ACTIONS, ALPA BALKS AT ANYTHING THAT DOESN'T GIVE THEM A BOARD SEAT AND THE KEYS TO A LUCRATIVE RETIREMENT, LUCRATIVE WAGES AND WORK RULES, REGARDLESS.
"The Majors": employee Anger Management
by: sybrib (40/SiliconValley&Taipei) 06/12/04 03:47 am
Msg: 101877 of 101893
Petroleum is a finite resource, and demand for it is increasing in China and India, which together make up nearly half the world's population.
I think this means that we cannot take cheap oil prices for granted. Profitable airlines with a big cash cushion like SWA are able to get some advantage by hedging their fuel cost. Growing, profitable airlines like Jet Blue are acquiring the newer more efficient jets. It means that the high cost of fuel puts "the majors" at a competitive disadvantage. And it looks like since fuel is a finite resource in a world of growing demand, it ain't gonna be cheap anymore.
Terrorism is likely not to just "go away". If a terrorist attack has any affect on air traffic, it will only be to reduce demand, not to increase it. The profitable "lesser choice" airlines, are better positioned to deal with it: look at their financial performance post- 9/11 compared to "the majors". So, the (hopefully hypothetical) chance of a terrorist attack will further hurt "the majors" and erode their market share.
"The majors" are saddled with pension liabilities, smaller markets, and an aging workforce (ie, more medical claims, higher premium costs to the company). Layoff policies just wind up skewing the workforce in the wrong direction. The way out of the conundrum is to grow out of it, not shrivel up in the face of it.
In order to beat the "lesser choice" airlines, "the majors" need to make some radical changes in the face of competitive challenge.
Spinning off the F/A's as a separate "F/A contractor" company is a radical change to make for a lower cost and more flexible staffing of the flights.
Aggressively marketing a promise to CUSTOMERS that they can relax and stretch out in unsold inventory adds a value proposition that can differentiate AMR from its competitors.
Yes these are radical ideas. When they are suggested on this STOCK message board, airline employees (or retirees) jump on and vent their anger with vitriolic posts, defending/rationaling the status quo and ignoring the reality that without some radical changes, AMR will be the next PanAm/Braniff/Eastern/UAL.
Don't hope that the liquidation of UAL will save AMR: it will also create opportunity for the "lesser choice" airlines to grow, and they will be growing from a position of financial strength.