The fuel cost savings definitely aren't in the airline stocks yet ... guess there are just too many non-believers. Maybe, with the Chinese airlines reporting last night, that's just the dose of reality that the sector needs.
Filled the gap in the low $50s last week ... it's ready to go.
airlinepilot119 ... thanks again. With AAL saying costs would be about $650m less for 2015 if the labor groups didn't agree to the new contracts (I assumed that meant only implementing the pre-merger agreed to contracts), it seemed that was pretty close to what the 4% would've been (I imagine there were some other items too, so (+/-). Anyway, 23% didn't work with the numbers given.
If the pre-agreed to contracts (ex-4%) were the "pre-agreed to labor agreements" talked about in the merger prospectus, the synergies were net of the pre-agreed to contracts. And there are still synergies that are coming, both cost synergies and revenue synergies. If I'm correct, the synergies should cover the extra labor expenses (4%) plus some, so the 4% shouldn't be a factor as operations get into 2016. That should put AAL making 2014 earnings, plus fuel savings, plus normal growth next year (2016).
I can't make the numbers work out if the 23% wasn't included in the pre-agreed to contract.
airlinepilot119 ... was the 23% included in the pre-merger labor agreements? So, in general, the only thing outside the pre-merger labor agreements was the extra 4%?
I read an article that mentioned there are 3000 wells (shale) that were drilled, but shut in. Usually when a well is drilled, production is wanted right away since most of the cost is spent, but with shale drilling is only half the expense (or less). So, it looks like we have a situation where oil production is still increasing, and 3000 wells already drilled and ready for production when they want it.
(now I have to get a handle on what fraction of the total wells is the 3000.)
// And lasts 3 months. //
We understood what you meant. It looks like airlines are all moving ... MACDs are all just starting to turn up ... should provide for a good run. AAL has to clear that $52 area, then the gap near $55, then make a new high and go from there. Airlines can move 20% in a short period of time.
And this last pullback was six weeks long ... usually those took airline stocks down over 20%, but only 10-15% this time ... changing sentiment?
stox ... what if...
What if rigs declining don't mean what you are thinking it does? Rigs are declining, but the only rigs used now are the ones that drill multiple wells (one replaces six ... and the new ones are mobile ... quicker to the next location at lower cost). Same is going on in the Gulf in much longer term production projects as a matter of fact probably all over the world.
What if AAL never got the bump due to lower fuel, because no one believed oil's drop would last?
You say competition in the industry ... there is always competition, but tell us something quantitative such as how many new ASMs are being added by the industry and what percentage growth that is? You have claimed in depth knowledge of the industry ... help us out.
Shale is not the only increase in oil coming, and there is a lot offline that would like to come back online. And all commodities are down about 30% ... (what's the reason for that?) Down 30% would be oil's top end if oil rises, not even considering the ability to bring on supply profitably at that 30% down. What does Econ 101 tell us about all other commodities being down 30%?
Glad AAL isn't leaving a gap this morning.
If fuel stays reasonably low for a couple of years, AAL can get two years of $10/share pre-tax, and their balance sheet improves considerably (even considering shareholder initiatives).
unc ... what's wrong with the logic that says if the price of oil is driven down (ala Saudi story) and some shale production comes off line, since it is the type of production that can added back quickly, what's going to make oil go back up any further than too much passed the marginal production costs of shale?
// Don't think so, their cost is higher than that //
I've heard the $45 figure in a number of places. And I know a few years ago they were throwing out $40, so $45 today wasn't so surprising to me. Too many figures being thrown around by the experts ... which expert is the real expert?
I think the currency risk is the problem facing the general market as a whole ... that impacts earnings. That can be quantified, so there is market risk, but it shouldn't stop the economy. So, if the economy keeps going, the airlines don't have that part to worry about.
The interest rate question is more a "wall of worry". The Fed has committed to doing it slowly and said rates will stay lower than what the markets consider "normal even after the Fed is done raising them. So, I think we'll have rates low enough in the end to support current market valuations. Nonetheless, a wall of worry.
// Understand you and most people want oil to crash //
unc ... I do want oil to crash? And I don't think I said that either. And, also, I don't know what most want?
My post was more a wondering on where oil might stabilize. Though I will admit that I would prefer that oil stabilize at levels that would allow for good profits for airlines. So, I'd prefer Brent at $75 or below. However if Canada marginally produces at $45 and that is the highest marginal cost producer, why would oil stabilize much higher than $55-60? That was my question.
// "American Airlines Can Survive Rising Fuel Prices" //
The article seemed alright until I read AAL doubled since the early fall ... comparing the ebola low to January high ... guess people have different ways of looking at things ... always have to remember that. And then the article's use of "severe" headwinds supposedly mentioned in the CC ... guess I wasn't listening very well and missed the use of the word "severe".
Re: fuel ... it looks like the marginal producer is Canada with $45/bbl. I don't see how oil is going to get above $55-65 going forward ... it'll just attract production that can be restarted quickly.