7e72004
Posts: 3440
Joined: Thu Apr 01, 2004 12:15 am

How Will The Higher Fuel Prices Affect Reorg.?

Tue Jun 06, 2006 9:45 pm

With the price of fuel showing no signs og receding very much if at all (and most likely going up further) how will this affect the airlines that are currently in bankruptcy? What about the ones that have just exited bankruptcy such as UA and US? I think i read yesterday that United had built its plan around $50 per barrel and obviously that is not the case at all? Any thoughts? cheers  Smile
The next generation of aircraft is just around the corner!
 
NWDC10
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Joined: Sat Dec 20, 2003 10:15 am

RE: How Will The Higher Fuel Prices Affect Reorg.?

Wed Jun 07, 2006 1:08 am

Quoting 7E72004 (Thread starter):
exited bankruptcy such as UA

UA "exited" bk and still loosing money. I really don't think they have exited bk. Wait till they make money and get out of debt then they can be considered "Exiting BK". Anyway, don't look good for the airlines in the future. Any little situation can raise the price of oil. I just don't see a future for the airline industry much anymore with the serious situations that are going on in the world today as well as the "future". Robert NWDC10
 
7e72004
Posts: 3440
Joined: Thu Apr 01, 2004 12:15 am

RE: How Will The Higher Fuel Prices Affect Reorg.?

Wed Jun 07, 2006 2:03 am

I don't think the airline industry will fail entirely...it is too much an integral part of the worldwide economy. Perhaps some more airlines will fail (who is anyones guess...for a while it did not seem like anymore were on the "chopping block."). I think things will remain very shaky until the situation with Iran is dealt with (hopefully in a decent manner).
The next generation of aircraft is just around the corner!
 
DLPMMM
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Joined: Wed Apr 20, 2005 12:34 am

RE: How Will The Higher Fuel Prices Affect Reorg.?

Wed Jun 07, 2006 2:13 am

Quoting NWDC10 (Reply 1):
UA "exited" bk and still loosing money. I really don't think they have exited bk. Wait till they make money and get out of debt then they can be considered "Exiting BK".

Bankruptcy is a legal term refering to court supervision of assets and debts. UA has exited bankruptcy (chapter 11) protection. They may go back in soon (either 11 or 7) but for now they are recapitalized with a positive asset minus debt balance, and so they are no longer bankrupt.

In the long run for the industry, the higher fuel prices will help to accelerate the demise of a few more carriers. The market is not big enough for 6 legacies and a raft load of LCCs.

In the end, I would expect there to be 3 legacies and 3 nationwide LCCs to make it, with a smattering of reigonal carriers (ala AS or HA).

Cheers
 
ANother
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Joined: Thu Nov 03, 2005 2:47 am

RE: How Will The Higher Fuel Prices Affect Reorg.?

Wed Jun 07, 2006 3:17 am

IATA is forcasting an industry loss of US$3 billion for 2006 ( http://www.iata.org/pressroom/pr/2006-06-05-01.htm ), slightly less than the $3.2 billion for 2005, but that overlooks the fact that US airlines will likely lose over $5 billion. European and Asian airlines are actually doing well despite the high fuel prices. African and Latam, not quite so well.

Hedging becomes very difficult for airlines in Chapter 11 - they don't have the upfront cash to buy the contracts, and nobody will lend them the money to do so either. Which means they are paying at the moment around $95 bbl for kerosene - the crack spread having increased from around $6 in 2001 to over $25 today. And anyway - is it a good bet to pay $95 for future fuel.

According to IATA "Labour productivity improved 33%. Sales and distribution costs dropped 10% and non-fuel unit costs reduced 13%," which should be returning some decent profits. Only if the geopolitical situation cools down and demand for fuel from India and China (and a few others) declines will we see lower fuel prices, but until then it will be tough times for all.