unc ... the one thing that no one talks about too much is the Venezuela situation. Though this has been known, this could be the time when they take the write down. A lot of other companies involved with Venezuela have been taking write downs. That'll dirty up 2014, but leave 2015 a little cleaner. It's been a known situation, but the reaction is unknown.
unc ... thanks for the advice to "just stay calm" when I said "I wonder" ... I came down from the ceiling.
It will be interesting what they put out as to 2015 fuel using the forward curve. It could be significantly differentiating from the others. I can understand you saying "everyone" knows. I can add "everyone" knows about the capx ... new planes, other merger investments, and that airline stocks have run-up the last few days. Then again, who knows what the market will do? Right now AAL is being treated just like the hedged airlines as to P/share.
The 4% extra labor cost is an extra cost, but ex the 4%, those increases were considered when they estimated making $4.3 billion (2015) in the merger prospectus as the synergies exceed the pre-merger labor agreements costs. I'm still holding to that (plus fuel savings). In 2014 the prospectus estimated $3.7 billion which they exceeded ... so far no reason to doubt AAL.
Unc ... 5% is not bad growth. It's not going to give you a high growth tech PE, but even no growth stocks can be trading below their "no growth" PE. Theoretically, there are only three variables in the "PE" model, earnings, growth of those earnings and the interest rate you discount those future earnings. Even a "no growth" yields a PE value. 5% growth isn't bad ... and especially as in the case of AAL, where earnings jumped 80-100% the year before (2015). Those are in-close earnings (2015), not earnings growth years out ... much more valuable (present value wise).
I can't off hand list the fuel cost savings that other carriers have announced for 2015 ... what are some? ... $1.2 billion, maybe $1.7 billion, some less. I wonder what the market reaction will be when AAL gives near a $4+ billion figure? Maybe not that much going by the forward curve, but it should differentiate them from the others.
It's a good post, because it is positive about AAL. But Parker's view of hedges is that it is extremely expensive to put them on for only a portion of the year's fuel. But his main argument is that there is a "natural" hedge. If the economy is strong and oil goes up, the industry now has the discipline to raise fares. If the economy is weak, oil will weaken. So, why pay for expensive hedges?
The low PE has two parts (leaving out growth): It is based on pre-taxed earnings (It'll jump when they report after tax earnings). Also related to the "E" part is that he airline industry is also considered cyclical and the "E" always has to consider the earnings over the business cycle. But probably more important is what interest rate do you discount those future earnings. That's a debate. Many argue that the company's cost of capital should be used. That's where LUV has an edge, and primarily because of their financials. One thing, as AAL brings down its cost of capital, multiples can expand ... nothing like good "E's" to clean up a balance sheet.
Having said all that, the market is going to price the stock as it feels, trading above or below the true valuation ... momentarily at the true valuation, but who will know?
// 2016 and 2017 of we do not yet know what the prices will be then.//
If those hedges for 2016 and 2017 were put on before December, they are losing money at this point. Going forward, they'll lose more, or lose less depending on what oil does ... but the 2016, 2017 position is being held at a loss.
Without any numbers, I can't see how you can claim they do it the "best" ... I think LUV's hedging halo from 2008 is coloring that point of view.
// not a bad way to run it //
Well, like other hedging carriers, LUV is stuck and trying to make the best of their bad hedges. They took a hit getting out of 2015 hedges, and still have losses on 2016 and 2017 hedges. And they'll be trying to minimize those. What else can you do when caught in a bad situation? They are just trying to make it less bad ... they already ran themselves into a bad situation.
Don't get me wrong, LUV is the strongest airline financially (decades of profits make them a king in that area) ... their hedging as been a negative since the bet on 2008.
// LUV is true kings of hedging //
LUV made the right bet for 2008 with hedges, but has lost since then. Anyone who has hedged since 2009 has lost against someone not hedging, and that includes LUV, and LUV hasn't done any better than others that have hedged. Parker (LCC) hasn't had hedges since 2009 ... can't think of any other major airline that didn't hedge besides Parker at LCC.
That's all I was saying, unc ... it's more complicated than just "or when the Rig Count will drop". I must have misunderstood you.
// or when the Rig Count will drop //
I think you have to be careful with the rig count, though I'm sure that reduction story will be pushed. From what I understand, different rigs produce different amounts and some fields are just better, so what is reduced is probably more important than the number ... it just isn't linear. We'll see how the reporting goes.
I'll gladly accept $60-70 oil, but frankly I don't think anyone knows what the proper price should be after a decade plus of deregulated commodity swaps that were ripe for manipulative speculation mispricing things. Commodities look to the futures market for price discovery. Price allocates resources. You screw up that system ... and who knows? One thing for sure, you don't have an efficient allocation of resources ... which brings us back to what you were saying. Regardless, I think this is a huge positive for the economy. The perplexing economic past may be starting to crumble.
What do you look at to tell a large fund is buying ... ? Even when I buy or sell something it is broken up into small lots. If you look at volume, how can you distinguish between HFT and a fund?
I'm trying to figure out what the market is worried about ...
When I listen to many of the financial talking shirts they seem to think that there will problems withdrawing the liquidity from the economy when the time comes (their words). Just by using the term "liquidity", leads me to wonder if they really understand the QE's in the first place. In my mind if the QEs are reversed, it will only be done if there is no impact on liquidity. Sure the Fed will have to finesse it, but it can be done.
In my mind, the Fed will withdraw the printed money from the QEs only if the velocity of money picks up. If that way, the money supply will stay the same. So, what's the problem?
Do they feel if the Fed withdraws, that will raise the long end of the market and liquidity from QEs in other parts of the world would flow into here? Would that even be a big problem? Well, I did say the Fed has to finesse things.
Anyway ... where are the worries coming from?
I was just saying that I'm not a healthcare professional. So don't think I know what I'm talking about. But there are some in my family that are in healthcare and I pick up on things listening ... so my advice is probably a little worse than dangerous.
Well, glad your allergies are light, but still be careful since, I believe, they can develop into something worse if not watchful. But one thing I'm not and that is a healthcare person ... just have some in the family.
unc, oil did jump just after 2. And then all airlines dumped. Some airline trading algos must have picked up on the oil. Isn't that just our luck? Get great new fundamentals on the airlines with jet fuel down big, and we have to put up with the way the "old algos" are written to trade airlines. Just can't find good help these days.
I think peanuts are beans (legumes), and nuts are nuts. But it is entirely possible being allergic to a lot of things your are told to stay away, avoid certain other foods to be safe. And I'm sure to cover all the bases, people are told to avoid both.