Matt D
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Who Will Survive The Next Recession?

Sat Nov 18, 2000 9:14 am

Since the years of Deregulation, we have had only 2 major recessions, one in the early 80's, and the other in the early 90's. Both were directly or indirectly responsible for the demise of several weak carriers.
As an example, the recession of 1980-83 cost us Braniff, Air Florida, and no less than a dozen "Deregulation Knockouts". It also spun Continental into near extinction, and Pan Am basically contracted a terminal illness.

During the recession of 1989-1993, we lost Eastern and Midway. Pan Am was finished off, as was the short lived Braniff II. TWA and America West went into bankruptcy as did Continental again. The only reason we didn't lose MORE airlines was because the industry was reeling from "takeover fever" and only a handful of airlines still remained. Every airline with the exception of Southwest was bleeding red ink to the tune of high 7 digit figures.

So with us heading towards recession number 3, who's going to bite the dust this time? Who will survive? Who will lose a bundle but still survive?
 
FlyBoeing
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RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 9:44 am

Continental will survive the next recession. This one's coming because of fuel costs and CO has the newest and most efficient fleet of the majors. During a recession, vacation travel falls off more than business travel and CO is based in New York and really depends on the First Class pax.

Also, I foresee the employees rallying around Gordon and accepting the salary cuts that will be an inevitable part of any recession.
 
Fokplanes
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RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 12:31 pm

Interesting issue

I think that we can devide todays airline industry into two parts:

1) airlines which are just privatized or are on list to be privatized. During recessions and a bad economic climate high losses were covered by allowances provided by the local government. These airlines are not used to be independent from financial point of view. Therefore in bad times and without public money they won't survive.
2) long established private airlines which didn't receive public money in recessions and bad economic climate. Therefore these airlines are used to be selfsupporting. That's why this airlines will survive the next recession.

Best Regards,

Fokplanes
 
desertjets
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RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 12:48 pm

Hmmm... good question Matt.

Of all the majors TWA has the most at risk from a decent sized recession. They are still licking their wounds, have not yet been consistently profitable, and are still shackled by Karabu till 2003. The remaining majors have the cash resevres and a decent passenger base to survive 2-3 years of hard times. As for the start-ups, I think Air Tran and Frontier could weather well. They are both profitable and moving towards more efficient fleets and are fairly well established in their home markets. I really don't know about National, they seem to be very strong early on. If a recession hit in 24-36 months Jet Blue could be badly wounded, depending on how willing their venture capitalists are to see it out. The current batch of US majors are in a much situation then they were in the past 10 and 20 years. They all have at least one entrenched fortress hub. I don't think the next one will be as deadly for the airline industry.
Stop drop and roll will not save you in hell. --- seen on a church marque in rural Virginia
 
a32
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RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 2:41 pm

Flyboeing,

I must disagree respectfully with some of your comments. The fact remains that in a recession the first to go is the corporate travel departments and the perks of riding in Business. Therefore airlines that depend on the business client model do suffer the most in a recession. Additionally, although newer aircraft are more fuel efficient they come with their own baggage i.e. lease rates tied to the prime rate ... in the last recessionary cycle the primerate hovered around 9 %. Therefore airlines with a high lease ratio ... particularly operating leases will also suffer a lot.

Your comment about employee givebacks to make up the recessionary pressures is a favourite of airline managements. Noticeably the executive perks do not decrease at such times. Just curious why you think that CAL employees will just give in to GB.

regards
 
Guest

RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 5:23 pm

In the lean years, CO employees took
pay-cuts and reduced benefits in spite
of the dictatorial leadership in place at
the time. If CO employees rallied around
the likes of a Frank Lorenzo, we will
certianly rally behind our man Gordo!

peace,
COexERJ
 
SInGAPORE_AIR
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RE: Who Will Survive The Next Recession?

Sat Nov 18, 2000 5:37 pm

I am sure Singapore Airlines will go through the next recession (if there is one). They were relatively unscathed last time (they did lose about $100miliion in net profit to about $670m). THey are currently going through their own recession as the fuel crisis looms, they are hedging (whatever that means) and are dealing with flight 6.

Cathay will probably go though having learnt the lessons of last time.
Anyone can fly, only the best Soar.
 
777gk
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 4:32 am

My 300th post!  

Anyway, if the UA/US merger does go through, it will most definitely put United in a precarious position and a recession might be enough push UA over the edge. If I were the head of UA, I would be hesitant, if not reluctant to buy out US. If they do merge, and within, say 36 months, the airline closes its doors because of bankruptcy, it will go down as one of the worst business decisions in history and will open a huge chunk of our country's market open to other airlines.
 
Republic
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 5:43 am

What recession are you talking about? A slowing economy does not indicate a recession. You can go ahead and have your own recession. As for me, I think I will continue on profiting from a vibrant economy with endless opportunity.

Joe
 
Guest

RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 6:16 am

USAirways will die if a recession hits. They have been shrinking the past few years, and their fleet is getting newer, however it won't be new enough if fuel prices skyrocket.

AA737-800
 
a32
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Coexerj

Sun Nov 19, 2000 6:17 am

frank lorenzo gave them no choice. If you do not believe me ask someone who was there. After the first bankruptcy frankie shut the place down and reopened it 2 weeks later with salaries at 30 % of the pre bankruptcy days. Those who wanted to work could do so at those rates. Those who did not could go flip burgers. No one rallied around frankie. If you believe this then you need some more research.
 
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PanAm_DC10
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 7:19 am

MattD

How refreshing to see a prophet of doom amidst all the euphoria of the greatest economic expansion the USA has ever seen!  

On topic now and I think that CO would do very well compared to the last recession and maybe even benefit in terms of market share given their strong balance sheet. A32 makes a good point about business travel, Corporate travel departments will be the first to trim costs and economy class will beckon for those more used to sitting up the front of the bus so to speak! So maybe BA would have a hard time if they haven't sorted their loss making European routes out by that time. I'm not saying they go down, but they'll lose a good percentage of high yield business travellers to lower yielding economy seats. Which is contrary to their plan of smaller aircraft flying with more premium passengers.

Tour operators in the UK would be in the world of grief given the razor thin margins that they operate off and surely one of the start up discount airlines of the 90's would find the going very tough. Ryanair will survive but as for easyjet or Go, if they're spun off from BA, then I wouldn't like their chances of surviving on their own. Go that is.

Worth noting though is that given the length of the current growth cycle most airlines are in a far superior financial position going into the next recession than those previously seen. With the move toward fleet commonality not yet fully implemented amongst most majors there is still room for considerable cost savings as fleet renewal programs are completed.

Now where's that recession?

Ask the impossible to achieve the best possible
 
Matt D
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 7:35 am

I too agree with what was said. But no one is being a "prophet of doom" as you put it. I am stating a simple fact of the Capatalist Economic Cycle. It has its peaks and valleys. Do you honestly believe that this boom (which by the way, I am grateful for) really will go on for infinity? If so, why???????? How is todays economy any different than what it's been in the past, other than the proliferation of dot coms??????
Speaking of which, can you tell me why so many of those dot coms vanished overnight?
Anyway, to answer my own question, there is one fundamental difference.
Up until about 1995, the Stock Market was driven by reported earnings, and factual data. Today it's based almost, if not entirely on SPECULATION. Very big difference.
I'm not saying we ARE in a recession. I'm saying that one is COMING. Like I said, it's a simple fact of economics.
One other thing that tends to be overlooked is this.
I am 27 years old, which seems to be the favorite age group for these pollsters to ask the following question:
"Are you better off financially than you were 8 years ago?"
And of course most of us will respond with a resounding "YES"
Therefore, it gets reported that everyone is better off than they were 8 years ago.
There is just one tiny flaw in that conclusion.
8 years ago, which was 1992, I was 19 years old. I was one year out of high school, and had just entered college. My job was working at a greasy fried chicken outlet, paying about $100 a week.
Now that 8 years have gone by, I have entered the workplace, and climbed my way up to bigger and better jobs with greater responsibility, and higher pay to boot.
I am now making many times more than I was in 1992, thus my financial position is much better.
Economic boom? No just growing up.

Now just two questions for you.

1. How do you explain the seemingly growing trend of the Stock Market taking a dive?
2. Amidst this so called boom, why is Consumer debt and bankruptcies at all time highs?
 
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PanAm_DC10
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 8:30 am

MattD

No offence intended with the "prophet of doom" statement, thus the smiley face next to it!

No, the expansion will not go on forever. That's the fundamental point that most people forget after an expansion of such magnitude. I didn't state that we are in a recession and would be of the same opinion as you that one is coming, thus my final statement asking where it is!!!

You are one of the few people who actually seems to be reading the warning signs, as you noted consumer debt and bankruptcies are at highs, cheap money has fueled a fair degree of the consumers spending.

As for the dot com scenario you are again correct, speculative money being squandered as greed took hold. You have a valid point in that this expansion cannot go on forever. In fact the most recent growth data for the U.S. shows an annual rate of only 2.7%, well down from it's peak.

I am slightly older than you and have benefitted greatly from the current cycle, in addition to growing older so I got the best of both worlds. For that I am thankful.

In answer to your questions
1: Markets are forward looking, therefore they are beginning to price in lower earnings estimates. Same for your bond market, yields are continually falling pointing to the need for lower interest rates as growth slows. Despite the threat of higher Inflation due to higher oil prices.
2: You answered it well enough by explaining how you are better off. It would appear that the wealth effect of rising stock markets has been overstated and the distribution of those gains not spread evenly enough throughout the economy as a whole.

Regards PANAM_DC10
Ask the impossible to achieve the best possible
 
FlyBoeing
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 10:04 am

But A32, you noted that with respect to CO, executive perks remain whereas the general business travel market will go down. Don't you think that the first thing that people will stop doing in a recession will be to fly for leisure? Therefore the low-fare carriers with slim margins will die first; corporate travel will remain and CO has its fortress hub at the biggest concentration of corporate wealth in America. New York and New Jersey have gigantic corporations where they don't think twice about the cost of travel no matter whether there's a loss or gain that quarter. Places where the average firm size is more sensitive to travel costs will cut the executive perks; not Goldman Sachs and Bristol-Myers Squibb.

Although I do think you make a good point about the lease ratio... I didn't think that out. Still, though, I think that the fuel cost savings will be more than enough to offset the lease ratio.
 
BH346
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RE: Who Will Survive The Next Recession?

Sun Nov 19, 2000 10:12 am

Definitely Southwest. Southwest has strong Employee support, good management, good fleet, and their niche.

Regards,
BH346  
Northwest Airlines - Some People Just Know How to Fly