Superpilot92

look familiar

Just yanking your chain bar

deltabound

I don't disagree with anything you've written (or take offense!). However, the chapter of the book in question addresses each of your points in greater detail. The nature of a message board requires brevity, and long ranging plans or quickly summarized ideas are not well suited to the format.

I'd say check out the chapter yourself and draw your own conclusions. It's topical, and certainly relevant to our industry.

In brief, however, the general counters to your points from the recommended book would be:

• Delta has an enormous debt load ($25 billion, at least), as do most of the legacy carriers
• Legacy carriers are heavily unionized and have deeply seated corporate cultures that are not very nimble.
• Fuel costs for airlines in their most profitable years (late 1990's) only amounted to 13% of their overall costs. In recent years, it's been more like 40%, and extra fee's do not seem to have made up the difference. Now imagine gas at 200/barrel.
• Some legacy carriers have a huge amount of gas guzzlers in their fleets and no ability to modernize (AMR, for example, has 300 MD-80s, United has no new aircraft orders)
• At permanent $8 a gallon gas (and rising) consumers are going to pull back from leisure travel unlike anything we've seen before. The days of winging off to Vegas for a weekend or Europe for a summer vacation are likely to disappear.
• Ditto business travel. The internet and tele-commuting are only getting better, and high travel costs will only increase this trend.
• As fuel costs rise, shorter legs make no sense (up and down is what burns the most gas). As each $1 per gallon of gas goes up, shorter routes will disappear. Additionally, 20 flights a day from small cities with small planes will vanish. There will be one, maybe two, tops. . . a trend we're already seeing with CRJ's getting parked as quickly as they can.

What it means is that domestic flying will shrink drastically and permanently. Flying will become a mode of transportation that is a matter of necessity, not convenience and leisure. Whatever few carriers are around will have the pricing power to charge what they need to; the trick is to be a pilot at an airline that can stick around to see it.

The military will have options, of course. With virtually unlimited funds and a critical mission, they will certainly find a way. But cost won't be an object, as it must be with private businesses.

Heh. So much for brief! Like I said, good chapter and interesting. It's really a "what if peak oil is here?" kinda book with some extrapolations as to what long term (next 100 years) this will probably mean to the average American. Generally, it's pretty good. But there's going to be some real pain in the meantime, and pilots are very much going to be impacted.

deltabound

Oy! So that stock given to the pilot group at $15/share then given to individual pilots at $7/share might actually be worth $8/share in a year?

I'm beginning to understand why Buffet is death on airline stocks . . .

Lighteningspeed

I agree with a lot of what you are saying regarding legacy carriers and I do not know which airline will be left standing when the dust settles but I disagree that flying will decrease permanently. If you look at flying worldwide, there has been a tremendous growth in the number of flying passengers in the last 5 years. Without getting into all the detailed analysis, I will simply point out that many very bright business analysts have been stating that flying will continue to increase at an exponential rate. This downturn in the economy is a blip and we are bound to recover sooner or later. We are already seeing some signs of recovery. When the economy does turn around, I think the load factor will go way up as projected by some. For instance, in the international sector, it is expected to more than double in the next 5 years.

As far as doing business via e-mails and teleconferencing, there will always be situations where nothing less than a face to face meeting will do when you are trying to close that multi-million Dollar deal.

forgot to bid

So what happens when the airline that owns us runs out of money?

Air France KLM may face cash challenge next year
July 17, 2009

A study of Air France KLM found that the airline will run out of cash next year if oil prices continue to climb and passenger traffic numbers do not improve, Reuters reported.

Citing a news report in Les Echos, the article said that a worst-case scenario would involve Air France KLM posting a wider loss in 2009-2010 than the $182 million loss posted the previous year. If the case, the airline would be short of cash within the year.

According to the study, another, more realistic scenario involves a sales drop of 9% with oil remaining at or around a $58 a barrel. Air France revealed this scenario as a target in May, the article said.

Ideally, Air France KLM hopes for a smaller 4% drop in sales and oil prices around $61 a barrel. Such a scenario would allow the carrier to reduce its loss and finance new investments. This scenario, however, is unlikely given air traffic drops in May and June, the article said.

Air France KLM said a statement Friday that the carrier’s “financial position is, and will remain, extremely healthy in the coming years.”
The Franco-Dutch group’s had some 4.5 billion euros (about $6.5 billion USD) in cash on June 30, “to which are added 1.2 billion euros in available credit lines, making a total of 5.7 billion euros following the recent, highly successful, 660 million euro convertible bond issue,” the statement said. “Annual debt repayment commitments are limited, and, moreover, the group has almost 40 unencumbered aircraft which can be refinanced at any time.”

forgot to bid

So the book was about what if we had $200bb oil or are we trying to figure out what would happen if it climbed to $200bb and inventories stabilized with no increases or decreases?

johnso29

I don't buy it. The whole thing is just a little dark. Internet conferences can never fully replace conferences/meetings because, let's face it, crooked deals need to happen behind closed doors and sometimes you just can't replace a face to face contract.

If oil will go to $200 a barrel where do you think unleaded gas will be? Do you honestly think someone will drive instead of fly? People will have to travel. Sick people need to travel to specialty hospitals & clinics, families to weddings, funerals, graduations, etc. The economy will come back. It has to. Eventually supplies of products will decrease. They will have to be replenished. This will create more jobs. This will produce more spending. People will continue to travel. It's a natural cycle.

On top of that, the government will have a very hard time allowing the National Transportation system to fail. Some airlines may fall, but his author us being silly.

johnso29

Since when did Air France-KLM own us??

forgot to bid

Half teasing

acl65pilot

Yes, I can say that.