Airlines going bust

[Mega]

You may have noticed that in the last few months or so a number of airlines have gone bust............
Today
https://news.sky.com/story/bidders-t...ourse-11698817

My boss told me last week that he been told a "Major Player" is on its knees & could go very soon........he didn't say which but its a "very well known brand" & a quite a few others are in the same boat.

Looks like a Bloodbath is coming..................Why?

Mike

[dcarrigg]

Re: Airlines going bust

You may have noticed that in the last few months or so a number of airlines have gone bust............
Today
https://news.sky.com/story/bidders-t...ourse-11698817

My boss told me last week that he been told a "Major Player" is on its knees & could go very soon........he didn't say which but its a "very well known brand" & a quite a few others are in the same boat.

Looks like a Bloodbath is coming..................Why?

Mike

it's a good question. retail bloodbath started up heavy here too. jc penny. family dollar. victoria's secret. payless. gap. ann taylor. macy's. massive cuts. on the heels of last year's foot locker, sears, sam's club, abercrombie, toys r us, winn dixie, nordstroms & kmarts. feels like pe firms are snuffing them out all at once. like the end of a mob movie.

[Mega]

Re: Airlines going bust

To answer my own question, I think TEC & Credit are the answer, TEC has killed my local bank branch (been going there since I was 5).....think of all the bank braches that have died & all those well paid jobs that have gone!

I recall my father calling me down from my bedroom to watch a BBC program about the micro-processer :-

It KILLED Blue jobs, now its killing white jobs dying.

Credit bubble was made in 2010 to save the west banking system, its over & its hard to see how "They" blow up another one?
Stock market bubble
Tec Bubble
China bale out bubble

Btw Fast Forward (1:05 ish) to & see the left wing commie bastard say how he want the hard ware end of the job so he can TAX the SH1T out the people, not the software because the people would just move add-void his insane tax demands!!!!

[Mega]

Re: Airlines going bust

I forgot the 1970's before Mrs "T"...........like something out of the CCCP, unions must agree to anything & everything....British management frightend to take them on..........a nation in decline!

I loved it !

[GRG55]

Re: Airlines going bust

As I have posted before, the airline business is brutal. It deals in a perishable commodity, much like the greengrocer business. The minute a commercial jet takes off with an empty seat the value of that seat is lost forever, just like unsold lettuce about to spoil.

The massive expansion of capacity, as a result of (partial) de-regulation and the entry of low cost carriers, means radically different passenger demographics, price sensitivity and expectations as commercial air travel was opened up to the masses - remember Sir Freddy Laker and Don Burr, both early pioneers of the low cost model, and ultimately victims of the economics of the airline business?

This "commoditization" of air travel has been hard on the legacy national flag carriers, where for a couple of decades now mergers and regional spin-offs became the norm to deal with their high cost structure. Even those strategies are impaired by governments reluctant to allow a "national treasure" to disappear - look at what is going on with Air France right now. Even the state-owned carriers in the Persian Gulf are feeling it. The much vaunted Emirates had to be bailed out with money from Abu Dhabi a decade ago. And Etihad is hemorrhaging cash today and therefore unable to bail out its Indian affiliate, Jet, which shut down operations last Wednesday:

New Delhi (CNN Business) Almost 26 years to the day after its first flight, one of India's biggest airlines has thrown in the towel.

Jet Airways announced late Wednesday that it was indefinitely suspending all flights after it ran out of cash, marking a swift downfall for an airline that dominated India's fast-growing aviation industry for years...

I believe the low cost commodity model of air travel has also hit (and run a bit beyond) it's sensible business model capabilities, however.

First, the failure of the Airbus A380 suggests there's a limit to how many people want to be packed in an aluminum tube on any given time and day, between any two cities, anywhere in the world. Even the populous city pairings in China and throughout the rest of Asia proved insufficient to support that behemoth.

Second, fuel prices have been rising recently, and my expectation is the world is setting up for another oil price shock sometime in the next 6 to 12 months (I am back in Texas yet again right after this Easter weekend and may post an amplification of this theme). That is never a good time for a business, like an airline, where fuel is one of the largest input costs. The low cost carriers have thinner margins and more price sensitive consumers.

But they are all going to be challenged if my outlook proves correct.

[Mega]

Re: Airlines going bust

I notice oil is going up here, Brent is $72 ish..........I wonder if its going to carry on up?
Shale production to peek in2024 ish?

Hmm.......
BTW Luf-hans-a is in troubles

[lakedaemonian]

Re: Airlines going bust

As I have posted before, the airline business is brutal. It deals in a perishable commodity, much like the greengrocer business. The minute a commercial jet takes off with an empty seat the value of that seat is lost forever, just like unsold lettuce about to spoil.

....

Second, fuel prices have been rising recently, and my expectation is the world is setting up for another oil price shock sometime in the next 6 to 12 months (I am back in Texas yet again right after this Easter weekend and may post an amplification of this theme). That is never a good time for a business, like an airline, where fuel is one of the largest input costs. The low cost carriers have thinner margins and more price sensitive consumers.

But they are all going to be challenged if my outlook proves correct.

I’ve got a bunch of alerts set up for periodic international travel including a few bucket list trips to obscure places.

I have NEVER seen such incredibly cheap flight deals available, ever.

50-70% cheaper than consistent medium term retail prices.

In some cases, such as as NZ/Europe return, the price is half compared to 15 years ago, NOT adjusted for inflation.

Fits right into your thesis, an increasing willingness to accept any revenue as long as it puts bums on seats and keeps the route going.

I also know that where little to no competition exists, airlines are ruthlessly raising prices to maximum threshold like big pharma cornering a drug market.

[vt]

Re: Airlines going bust

My son is flying back from Hong Kong now. This flight usually has some empty seats. Not tonight. It is full with over 15 on the standby list.

[jk]

Re: Airlines going bust

how many bankrupted airlines can you think of?
i've got eastern, braniff, people's express, twa, pan am. trump airlines of course. that's just in the first 5 seconds of thought. should we count us air and continental?

[dcarrigg]

Re: Airlines going bust

primera wow and jet in the past few months. probably more. wow did a lot of cheap transatlantic flights locally, and stranded everyone when it folded.

[jk]

Re: Airlines going bust

it wasn't that long ago that the historical net cumulaive profit of the airline industry was zero or negative. it went positive when the major carriers started restricting expansion so as to increase load factors. those profits, however, attracted a new generation of low-cost competitors. i wouldn't be surprised if the total historical profit is now back down to zero or less.

we can add national airlines bailed out by their governments- swissair is a recent example. belgium's sabena just went through bankruptcy. new zealand re-nationalized its flag airlines.

[thriftyandboringinohio]

Re: Airlines going bust

In the words of Warren Buffet

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."


-- Warren Buffett, in the 2007 Berkshire Hathaway shareholder letter

When I look at that old quote again I think of Tesla and Uber

[dcarrigg]

Re: Airlines going bust

In the words of Warren Buffet

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."


-- Warren Buffett, in the 2007 Berkshire Hathaway shareholder letter

When I look at that old quote again I think of Tesla and Uber

I think tesla is on the money there. Not sure about uber. Uber's original formula was brilliant from a business perspective. Build an app. Circumvent all local taxi licensing, state public utilities carriers law and regulation, and federal labor and disability rights law by calling your employees independent contractors when they're clearly not and throwing some money at lobbyists and lawyers to make government go away. Put all the liability on them, including the liability of violating their personal auto insurance policies by operating commercially. Make them buy, fuel, clean, and maintain rapidly depreciating capital assets for you. Pay them less than minimum wage if you want. And take all the profit.

That model is actually potentially viable. Then they got into all this dumb self-driving car and eats and other nonsense. They lost their focus. So did just about every other big tech company in the last 10 years who seem to have abandoned software and hardware improvements to go straight to subscription fees and self driving cars and other whacky nonsense outside their core mission. Anyways, they all have ADD now. They can't finish one near-impossible project without starting 12 more, and all copying each other.

Anyone who ever watched the auto industry knows it's a tough business. I think some of them just want the data. Others are just enamored with the idea. A few actually are foolish enough to want to become car companies. But it's a really goofy and expensive solution to a problem that largely doesn't exist, and whose greatest upsides can be mostly garnered by buying a bus pass.

[GRG55]

Re: Airlines going bust

In the words of Warren Buffet

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."


-- Warren Buffett, in the 2007 Berkshire Hathaway shareholder letter

When I look at that old quote again I think of Tesla and Uber

As of 2nd Q 2018 Berkshire had significant stakes in four airlines, Delta, United, Southwest and American. Not sure it they still own those positions, but Buffett isn't the trading sort either.

[Mega]

Re: Airlines going bust

https://www.bbc.co.uk/news/business-48021913

Cathay Pacific warn their crews..