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airbazar
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Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:06 pm

With oil and subsequently, fuel that cheap are we going to see airlines extending the life of the 747 and A380?
It's probably too late for the few remaining A340's.
 
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LX015
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:10 pm

I would assume with so many grounded fleets and transatlantic/transpacific all but suspended because of Coronavirus, cheap fuel won't help the large 4 holers.
 
Toinou
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:11 pm

As it goes with a fall in demand for transport, probably not much. Even if it is cheaper to fly those planes, it is of no interest if it is not possible to fill them.
And it is probable that demand and oil price will increase somewhat together.
 
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Dutchy
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:12 pm

Don't think anyone would be interested to give them a new lease of life. The reason we are in low-oil prices is that we also have a low demand (extremely low at the moment) and given that we probably will move into a recession, I don't think anyone will bring them back ones the Coronavirus has been mitigated.
Many happy landings, greetings from The Netherlands!
 
jetblueguy22
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:13 pm

Low oil means nothing if you don’t have the passengers to fly
Look at sweatpants guy. This is a 90 million dollar aircraft, not a Tallahassee strip club
 
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SEPilot
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:15 pm

The A380 and 747 are not flying because people are not traveling, not because of oil prices. Oil will perhaps stay cheaper than it was for a while, but it is unlikely to stay this low. Once passenger traffic returns to normal, the oil prices will probably be in the $30-$40 dollar range, but the relative inefficiency of the quads will remain. Most of their replacements are already ordered, and will likely go into service. A few carriers may string their quads along for a few more years, but I would not expect it to be many.
The problem with making things foolproof is that fools are so doggone ingenious...Dan Keebler
 
ILNFlyer
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:24 pm

The airlines cant even fill a 737 or A320 right now, much less a VLA.
 
airbazar
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:28 pm

The drop in passenger traffic is only temporary and not due to some underlying economic disaster. Unlike the global recession of 2008 which took a few years to recover from and it was rooted on some really high risk behavior on the part of financial institutions, I expect the recovery this time around to be very fast because the underlying indicators were strong going into this Pandemic. A paid off 747 or A380 will be cheaper to fly than a brand new 777X.
Dutchy wrote:
Don't think anyone would be interested to give them a new lease of life. The reason we are in low-oil prices is that we also have a low demand

Uh? The reason for the low oil prices is because of the spat between Saudi Arabia and Russia. It has nothing to do with low demand.
And while it won't last forever you can bet airlines are buying hedges today to safeguard against future price increases. In other words, they will be paying low fuel costs for years to come.
 
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smithbs
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:29 pm

Some things that may play into it:
* Interest rates going back down, which helps the purchase of expensive new fuel-efficient aircraft like 787 and A350.
* The competitive aspects of CASM will remain. If your competitor is enjoying lower cost operation, then you should too.
* Low oil prices means keeping older aircraft in operation is more feasible.
* Reduced pax loads might mean a roll-back of P2P flying and return to trunk/hub ops.

Various factors are at odds with each other. We'll have to see how it plays out. But I don't dabble in airline stocks because I don't trust myself to forecast their market conditions, so take it for what it's worth.
 
IWMBH
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:29 pm

It’s great for freighter companies but not for passenger carriers, they can’t barely fill a Cessna.
 
Noshow
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:33 pm

Reduced pax loads might mean a roll-back of P2P flying and return to trunk/hub ops.

This
 
btfarrwm
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:36 pm

It's good for airlines that hedge their fuel supplies. Big buying opportunity...if they have the cash on hand to buy now.
 
Opus99
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:38 pm

Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.
 
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lightsaber
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:44 pm

One poster noted this will be returning to hub and spoke. That is somewhat true. If a city could support a direct flight, it will. I personally believe airlines will imitatate the ULCCs with partial weekly frequency.

For example Allegiant (G4) has a large number of Monday & Friday flights and Tuesday & Saturday flights. For most of my flying needs, that is good enough.

There will not ne the connecting traffic to fill a VLA for years.
ILNFlyer wrote:
The airlines cant even fill a 737 or A320 right now, much less a VLA.

Unfortunately, routes must be downgauged. With the low load factors, flights that are not cancelled will be flown with the smallest equipment possible.

Lightsaber
Flu+Covid19 is bad. Consider a flu vaccine, if not for yourself, to protect someone you care about.
 
11C
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:48 pm

Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

Webster’s Dictionary entry under ”obviality.”
 
WaywardMemphian
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:48 pm

Dutchy wrote:
Don't think anyone would be interested to give them a new lease of life. The reason we are in low-oil prices is that we also have a low demand (extremely low at the moment) and given that we probably will move into a recession, I don't think anyone will bring them back ones the Coronavirus has been mitigated.


Oil was going to the 30s regardless of the ( insert you name of choice here) flu. It will depend on the Saudi's after this passes but there's so much oil out there, they are leasing any and everything they can to store it. Unused rail tankers, semi trailers, boats that barely float are being used.
 
Opus99
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 4:51 pm

11C wrote:
Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

Webster’s Dictionary entry under ”obviality.”

That was meant to respond on someone’s post. Forgot to actually quote the post
 
MIflyer12
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 5:17 pm

airbazar wrote:
The drop in passenger traffic is only temporary and not due to some underlying economic disaster. Unlike the global recession of 2008 which took a few years to recover from and it was rooted on some really high risk behavior on the part of financial institutions, I expect the recovery this time around to be very fast because the underlying indicators were strong going into this Pandemic. A paid off 747 or A380 will be cheaper to fly than a brand new 777X.
Dutchy wrote:
Don't think anyone would be interested to give them a new lease of life. The reason we are in low-oil prices is that we also have a low demand

Uh? The reason for the low oil prices is because of the spat between Saudi Arabia and Russia. It has nothing to do with low demand.
And while it won't last forever you can bet airlines are buying hedges today to safeguard against future price increases. In other words, they will be paying low fuel costs for years to come.


I don't think you're doing too well keeping up with, or analyzing, current events.

Oil demand has crashed. Parked planes, parked cars, ~two billion people ordered to shelter in their homes.

IHS Markit projects that Q1 2020 world oil demand will decline by 3.8 million barrels per day (BPD) from a year earlier. This represents a downward revision of 4.5 million BPD from estimates prior to the outbreak. Previously, the largest quarterly decline was during the financial crisis of 2009, when Q1 oil demand fell 3.6 million BPD year-over-year.

Jim Burkhard, vice president and head of oil markets at IHS Markit, noted “This is a sudden, instant demand shock—and the scale of the decline is unprecedented.”
Emphasis mine.

https://www.forbes.com/sites/rrapier/20 ... ccc3e44610

Hedging oil takes money, like buying insurance. Carriers don't have surplus money. They won't be buying hedges for some time. Firms with big hedges held from from previous quarters that are now severely underwater will require mark-to-market write downs. https://www.eurofinance.com/news/airlin ... ty-surges/
 
Toinou
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 5:19 pm

airbazar wrote:
The drop in passenger traffic is only temporary and not due to some underlying economic disaster. Unlike the global recession of 2008 which took a few years to recover from and it was rooted on some really high risk behavior on the part of financial institutions, I expect the recovery this time around to be very fast because the underlying indicators were strong going into this Pandemic. A paid off 747 or A380 will be cheaper to fly than a brand new 777X.

I love your optimism. If you are right, I would be the first one to be happy. But I guess that having many of the world's largest economies being lowered by an impressive factor (trying not to say paralysed here) and a global perturbation of trade for months may probably be much worse than the 2008 crises. This is not a financial crises contaminating an otherwise healthy economy, this is the real economy (you know, people making things and selling them, not numbers on crazy computers) almost collapsing.
 
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Dutchy
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 5:20 pm

airbazar wrote:
Dutchy wrote:
Don't think anyone would be interested to give them a new lease of life. The reason we are in low-oil prices is that we also have a low demand

Uh? The reason for the low oil prices is because of the spat between Saudi Arabia and Russia. It has nothing to do with low demand.


No, not really, Before the Corona crisis, the world's economy was cooling down, big time. OPEC (Saudi Arabia is calling the shots there) wanted to decrease the oil to the market, in order to stop the downfall of the oil prices. Russia didn't want to play ball and that's why the oil prices fall even further.

airbazar wrote:
Dutchy wrote:
And while it won't last forever you can bet airlines are buying hedges today to safeguard against future price increases. In other words, they will be paying low fuel costs for years to come.


You might fundamentally be misunderstanding the phenomenon hedging. Hedging is removing risk from yourself and placing it with someone else. In general, hedging will cost money to reduce risk. So it all depends on how an airline is able to operate. Does it need to mitigate risk at a cost, then fine, hedging is for you, if you can weather out the risk, it is more profitable in the end to take this risk. This is because you do not have to bear the cost of the profit someone else is making on this.
Many happy landings, greetings from The Netherlands!
 
airbazar
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 5:27 pm

MIflyer12 wrote:
[

I don't think you're doing too well keeping up with, or analyzing, current events.

Oil demand has crashed. Parked planes, parked cars, ~two billion people ordered to shelter in their homes.

IHS Markit projects that Q1 2020 world oil demand will decline by 3.8 million barrels per day (BPD) from a year earlier. This represents a downward revision of 4.5 million BPD from estimates prior to the outbreak. Previously, the largest quarterly decline was during the financial crisis of 2009, when Q1 oil demand fell 3.6 million BPD year-over-year.

Jim Burkhard, vice president and head of oil markets at IHS Markit, noted “This is a sudden, instant demand shock—and the scale of the decline is unprecedented.”
Emphasis mine.

https://www.forbes.com/sites/rrapier/20 ... ccc3e44610

Hedging oil takes money, like buying insurance. Carriers don't have surplus money. They won't be buying hedges for some time. Firms with big hedges held from from previous quarters that are now severely underwater will require mark-to-market write downs. https://www.eurofinance.com/news/airlin ... ty-surges/


When talking about extending the life of the 747 and A380 as is the topic of this tread, we're talking about 2025 and beyond. Not today, not next month, and not next year.
 
LCDFlight
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 5:53 pm

This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.
 
peterinlisbon
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:07 pm

LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.


It's true that older aircraft that are owned or leased cheaply have much lower overheads right now and fuel is probably going to be cheap for a while until the world's economy gets back on its feet. In the end the MAX crisis is probably going to end up being a good thing for the airlines that ordered it, as the aircraft that they are waiting for would just be sitting parked and costing them a lot of money right now.
 
winginit
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:14 pm

LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.


I don't disagree with the fundamentals there under normal demand circumstances, but that's not where we are, and what you're seeing as a result of this demand drop off and likelihood of a slow recovery is the big three most notably doing the exact opposite of what you're saying. They're accelerating retirements of old aircraft across the board.

As others have mentioned, given the demand situation I think this cheap oil will do nothing to extend the lives of four holers. This is only accelerating their retirement.

airbazar wrote:
The drop in passenger traffic is only temporary and not due to some underlying economic disaster. Unlike the global recession of 2008 which took a few years to recover from and it was rooted on some really high risk behavior on the part of financial institutions, I expect the recovery this time around to be very fast because the underlying indicators were strong going into this Pandemic.


Virtually every single airline CEO disagrees with you. Shutting down the global economy for at least a month is an economic disaster by virtually every metric. Goldman Sachs said just this morning that the US GDP will drop by 34% in the second quarter. THIRTY-FOUR PERCENT. Unemployment will reach, at a minimum, 15% and could see for the first time in modern history - 30%.
Last edited by winginit on Tue Mar 31, 2020 6:42 pm, edited 1 time in total.
 
smartplane
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:31 pm

smithbs wrote:
Some things that may play into it:
* Interest rates going back down, which helps the purchase of expensive new fuel-efficient aircraft like 787 and A350.
* The competitive aspects of CASM will remain. If your competitor is enjoying lower cost operation, then you should too.
* Low oil prices means keeping older aircraft in operation is more feasible.
* Reduced pax loads might mean a roll-back of P2P flying and return to trunk/hub ops.

Various factors are at odds with each other. We'll have to see how it plays out. But I don't dabble in airline stocks because I don't trust myself to forecast their market conditions, so take it for what it's worth.

Good summary.

Another 'at odds' factor, is while interest rates are currently low, finance margins applied to new WB's, already (and always) bigger than NB's, are still heading North. The appetite to provide pre and post shipment finance is at an all time low in respect to new WB's, requiring direct intervention by A & B.

We might see some short-term WB sale anomalies as A & B retain milestone payments from cancellations, to assist finding new homes.

However, the outlook for old WB's has simply improved from non-existent / terrible to terrible / very bad. There will be Hi Fly style on demand deals from OEM's, financiers and lessors, and we might see some newer models converted to freight, allowing some to linger longer.
 
ltbewr
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:37 pm

I suspect most remaining and older pax 747's will be retired and scrapped, even some early production A380's. Cheap oil won't make a difference as won't be enough demand for at least a year or more for their size and if an airline has widebody 2-engined planes, thus with better fuel burn, they will fit demand better and will use them.
 
11C
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:43 pm

Opus99 wrote:
11C wrote:
Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

Webster’s Dictionary entry under ”obviality.”

That was meant to respond on someone’s post. Forgot to actually quote the post

My apologies. I thought you were just providing us an update on current events!
 
Boof02671
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:43 pm

LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.

But they have higher maintenance costs and part availability issues.
 
UPNYGuy
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 6:44 pm

If anything, you might have the ERJ-145XR returning like a phoenix, and doing runs like they used to (EWR-OKC).

Are any XR still around?? Wikipedia says XJT has like 27, but I know it’s not always reliable.
 
blockski
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 7:12 pm

airbazar wrote:
MIflyer12 wrote:
[

I don't think you're doing too well keeping up with, or analyzing, current events.

Oil demand has crashed. Parked planes, parked cars, ~two billion people ordered to shelter in their homes.

IHS Markit projects that Q1 2020 world oil demand will decline by 3.8 million barrels per day (BPD) from a year earlier. This represents a downward revision of 4.5 million BPD from estimates prior to the outbreak. Previously, the largest quarterly decline was during the financial crisis of 2009, when Q1 oil demand fell 3.6 million BPD year-over-year.

Jim Burkhard, vice president and head of oil markets at IHS Markit, noted “This is a sudden, instant demand shock—and the scale of the decline is unprecedented.”
Emphasis mine.

https://www.forbes.com/sites/rrapier/20 ... ccc3e44610

Hedging oil takes money, like buying insurance. Carriers don't have surplus money. They won't be buying hedges for some time. Firms with big hedges held from from previous quarters that are now severely underwater will require mark-to-market write downs. https://www.eurofinance.com/news/airlin ... ty-surges/


When talking about extending the life of the 747 and A380 as is the topic of this tread, we're talking about 2025 and beyond. Not today, not next month, and not next year.


So, how does the price of oil today make the economics of a VLA more palatable 5 years in the future? What price of oil are you projecting for 2025?
 
airbazar
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 7:18 pm

winginit wrote:
Virtually every single airline CEO disagrees with you. Shutting down the global economy for at least a month is an economic disaster by virtually every metric. Goldman Sachs said just this morning that the US GDP will drop by 34% in the second quarter. THIRTY-FOUR PERCENT. Unemployment will reach, at a minimum, 15% and could see for the first time in modern history - 30%.

Indeed. But I'm talking about what happens afterwards.
It doesn't look like my original post was clear to a lot of people. Extending the life means operating beyond the current scheduled retirement plan. That's 5 years from now in most cases.
And you should take what CEOs say with a very large grain of salt. They want bailouts and for that they need to paint and sell a picture that shows a worst case scenario and that I'm not buying. Yes it will be bad for a little bit but 4-5 years down the road I suspect we're going to be right back where we were. Maybe even in less time.
 
9Patch
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 7:36 pm

11C wrote:
Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

Webster’s Dictionary entry under ”obviality.”

No such word in Webster's Dictionary, did you mean obliviality?
 
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smithbs
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 7:48 pm

With cheap oil and WB usage down, what's the forecast on cargo operators? Is it a good time for them to go shopping in the used market?
 
slcdeltarumd11
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 8:11 pm

Demand won't be there for A380s. This is gonna take a while. I wonder if some smaller fuel guzzlers could stay though?

Definitely makes airlines want to save cycles on the MAX . Even if they become "legal”*. Might extend some 737s and 320s just cause the fuel savings of a MAX are probably less than depreciation of a newer plane at this point. Oil being so low is keeping the airlines afloat!

I know it's been a few weeks but I still can't believe how fast we went from this industry making record profits and needing more capacity to totally empty planes and parking them in the desert. The MAX was needed capacity and lost revenues now the parked MAXs are ironically saving money. Things changed so drastically so fast.
 
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DarkSnowyNight
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Tue Mar 31, 2020 8:40 pm

winginit wrote:
Virtually every single airline CEO disagrees with you. Shutting down the global economy for at least a month is an economic disaster by virtually every metric. Goldman Sachs said just this morning that the US GDP will drop by 34% in the second quarter. THIRTY-FOUR PERCENT. Unemployment will reach, at a minimum, 15% and could see for the first time in modern history - 30%.


Indeed. And that is in addition to the permanent damage that a long term draw down will do to most business travel as well. If we see another two months of this -and there is every indication that this will persist longer than that- corporate communications, training and likely several other paradigms will shift to the point that what was once taken as read will no longer be seen as a justifiable travel expense. It will be a new normal, and it will not be airline friendly.

airbazar wrote:
And you should take what CEOs say with a very large grain of salt. They want bailouts and for that they need to paint and sell a picture that shows a worst case scenario and that I'm not buying. Yes it will be bad for a little bit but 4-5 years down the road I suspect we're going to be right back where we were. Maybe even in less time.


No, you really should not. These guys are hardly enthusiastic about asking for bailouts, as it is not generally a career enhancing move, and will also come with a lot of uncomfortable stipulations, including the likelihood of the gov't becoming a primary investor.

The changes mentioned above -which were always going to happen sooner or later anyway- coupled with dismal employment and discretionary spending outlooks, indicate that the assumption that things will ever be back to where they were before hover somewhere between highly optimistic and fiduciary recklessness. Leave alone that it would happen in just a few years.

I get that it is difficult to process this happening in a very short time. But the changes afoot are both seismic and irrevocable.

slcdeltarumd11 wrote:
I know it's been a few weeks but I still can't believe how fast we went from this industry making record profits and needing more capacity to totally empty planes and parking them in the desert. The MAX was needed capacity and lost revenues now the parked MAXs are ironically saving money. Things changed so drastically so fast.


It is astounding, yes. And while I get that with enough hindsight, everyone is an expert, but the idea that a company like DL will only be about half its present size this time next year is incredible. And not in a good way, of course.

Boof02671 wrote:
But they have higher maintenance costs and part availability issues.


Maintenance? Yes. The frequency of both scheduled and non would undoubtedly increase.

Part availability? Not as much a problem as you might think. It is worth noting that a whole tranche of 747s or A380s leaving the global fleet at once does leave a lot of spare parts lying around. As long as the mark-ups are not predatory -and they should not be- the spares cost will not increase, especially as in service units shrink in number.
"Nous ne sommes pas infectés. Il n'y a pas d'infection ici..."
 
oceanvikram
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 5:03 am

Will the airlines keep B744 and A388, I have no idea. All the posts makes sense to me but if you look at Qantas, they are retiring B744.

So far DL and UA have expressed that they will be smaller than before. Most airlines will most likely be smaller than before and some will go bankrupt and some will merge. I would not be surprised if the US allowed DL and UA to merge. The situation is dire for our beloved industry.

After this pandemic is over, sadly the following could happen (I hope not!):
1. People will lose jobs without any social safety net (US and developing nations). They will not be able to travel, sadly I maybe one of them.
2. Company’s will realise that conference calls can be equally as affective as face to face meetings. Less business travel.
3. Most likely new security measures at the airports will take into account of viruses and infections.
4. Some countries will be no go zone for foreign travels on the bases of lingering CONVID-19 cases. Or, I may not be allowed to go to country X since I will not be allowed to return to my own country.
5. Visa requirements will be more stringent to include health.

I don’t know whether the future will be point to point or hub and spoke. But you won’t see me flying through Dubai, if I were get to fly again.

As such I think the VLA market is dead for at least 25 years. I hope I am wrong and everything will be back to normal within 2 years. I hope I will still have a job. I hope I can still travel. I hope I’ll get sit on a plane in the future.
My comments are based as an aviation enthusiast first, then as a passenger who paid for his own ticket, after that a passenger on a business trip and finally an armchair CEO.
 
ACA772LR
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 5:22 am

oceanvikram wrote:
Will the airlines keep B744 and A388, I have no idea. All the posts makes sense to me but if you look at Qantas, they are retiring B744.

So far DL and UA have expressed that they will be smaller than before. Most airlines will most likely be smaller than before and some will go bankrupt and some will merge. I would not be surprised if the US allowed DL and UA to merge. The situation is dire for our beloved industry.
I
After this pandemic is over, sadly the following could happen (I hope not!):
1. People will lose jobs without any social safety net (US and developing nations). They will not be able to travel, sadly I maybe one of them.
2. Company’s will realise that conference calls can be equally as affective as face to face meetings. Less business travel.
3. Most likely new security measures at the airports will take into account of viruses and infections.
4. Some countries will be no go zone for foreign travels on the bases of lingering CONVID-19 cases. Or, I may not be allowed to go to country X since I will not be allowed to return to my own country.
5. Visa requirements will be more stringent to include health.

I don’t know whether the future will be point to point or hub and spoke. But you won’t see me flying through Dubai, if I were get to fly again.

As such I think the VLA market is dead for at least 25 years. I hope I am wrong and everything will be back to normal within 2 years. I hope I will still have a job. I hope I can still travel. I hope I’ll get sit on a plane in the future.



Qantas hasn’t announced they are retiring their 744s they have parked them for now.
 
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Jamake1
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 6:04 am

I think this means that Family Airlines actually thinks they may have a good business model. :wave:
Come fly the sun.
 
FluidFlow
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 6:15 am

LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.


But only if they are also somewhat economical. The best you can have right now are 737-800s and A320ceos (fully owned and in the age range of 20-25 years), as well as 330ceos in the same age range. This aircraft are cheap to run under this conditions and even if demand and fuel prices increase again this aircraft are still competitive. 747s and A380 are then not competitive again.

What is way more interesting is how good Delta will fare with the A220. It is right now the smallest modern mainline aircraft in service and with reduced demand will be the first aircraft to become cost effective again.
This crisis could actually help sales of the A220 and to a lesser extent E2s to more mainline carriers. It is a good risk diversification strategy. The A220 might be smaller than normal but in downturns it will still run profitable compared to bigger NB aircraft. The E2 would be even better during crisis but in good times it does not have the capacity. So it is a bit less attractive for main line carriers, but for regionals it is by far the best choice, and as a subsidy it can always replace main line routes with smaller capacity aircraft in bad times. Just a shame it is not scope compliant but outside the US the E2 will be a gread regional work horse. For the US we hopefully have the Spacejet soon. Would be great as this would give a nice variety of jets in the 80-120 people market with Spacejet, the two smaller E2s and the A221.
 
LCDFlight
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 7:17 am

FluidFlow wrote:
LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.


But only if they are also somewhat economical. The best you can have right now are 737-800s and A320ceos (fully owned and in the age range of 20-25 years), as well as 330ceos in the same age range. This aircraft are cheap to run under this conditions and even if demand and fuel prices increase again this aircraft are still competitive. 747s and A380 are then not competitive again.

What is way more interesting is how good Delta will fare with the A220. It is right now the smallest modern mainline aircraft in service and with reduced demand will be the first aircraft to become cost effective again.
This crisis could actually help sales of the A220 and to a lesser extent E2s to more mainline carriers. It is a good risk diversification strategy. The A220 might be smaller than normal but in downturns it will still run profitable compared to bigger NB aircraft. The E2 would be even better during crisis but in good times it does not have the capacity. So it is a bit less attractive for main line carriers, but for regionals it is by far the best choice, and as a subsidy it can always replace main line routes with smaller capacity aircraft in bad times. Just a shame it is not scope compliant but outside the US the E2 will be a gread regional work horse. For the US we hopefully have the Spacejet soon. Would be great as this would give a nice variety of jets in the 80-120 people market with Spacejet, the two smaller E2s and the A221.


If you are parking 70% of your fleet, fuel economy just is not a big factor. Most likely, the aircraft I am discussing is a parked aircraft. That’s what most aircraft are doing right now. Sitting. I will stick by my answer for the right equipment for that. Old and paid for. Airlines are stuck with more new Passenger aircraft than they possibly need or want right now.

I take the point that fuel economy is still important for missions you do fly. But it probably does not justify acquiring or retaining new aircraft. Those are being used in desperation now. Strange times.
 
Eagleboy
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 8:51 am

Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

The price of oil was dropping before the virus spread outside China.
The lack of demand is probably causing it to drop below $40. The Russians like cheap oil as it hurts the US shale oil industry.
 
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par13del
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 1:19 pm

My two cents in this debate, where are the banks, did the stimulus package factor them in?
Airlines will park owned frames because they still have to pay the high financing cost of their new frames, even though cheap fuel makes a 767 more palatable, it does nothing to offset the high cost of the new frame, so since you have to pay for it, may as well use it where you can.

Now if the stimulus package saw the government assisting their best buddies the banks by deferring and or defraying lease / maintenance cost, the airlines could use their money to continue to pay staff and maintain some operations. The knock on effect on the economy is there, more a/c available for surges, more airline money for promotions, in effect a government guarantee to the banks to let the airlines spend their own money.

Banks are already awash in money, and so far, only utility companies are giving clients a break on some bills, very few banks giving breaks on mortgages and other loans, and no, just because governments bailed them out in 2008 does not mean that they feel obligated, if they did, they would not be filled with cash and the economies prior to Covid would have been more robust. Gun shy is a term along with all the other political directives placed on them, then we complain that they are not lending to small business.
 
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par13del
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 1:22 pm

Eagleboy wrote:
Opus99 wrote:
Low oil prices are mixture of things at the moment. Is due to Saudi and Russian tension. But also because there’s low demand at the moment so it’s forcing the price even lower. There’s a huge dip across ALL forms transport at the moment.

The price of oil was dropping before the virus spread outside China.
The lack of demand is probably causing it to drop below $40. The Russians like cheap oil as it hurts the US shale oil industry.

Problem there is the US oil will remain in the ground, once Russia and OPEC ramp up the price the shale producers will get back in the game. Since the technology is not banned, the oil does not spoil, at the right price, financing will not be an issue.
 
ILNFlyer
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 4:20 pm

LCDFlight wrote:
This situation DOES favor the operation of old aircraft. Here's how:

1. Old aircraft have cheaper ownership costs. You can park them. You can wait out a crisis like this more successfully than the operator of new aircraft.
2. Fuel is cheap. This significantly improves unit costs of old aircraft. It makes it closer to the operating cost of brand new aircraft.

For these two reasons, new aircraft are extremely painful to park and wait out the crisis. Old aircraft are simply better right now.


Unless of course, you can't fill them because no one is flying right now.
 
winginit
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 5:09 pm

airbazar wrote:
winginit wrote:
Virtually every single airline CEO disagrees with you. Shutting down the global economy for at least a month is an economic disaster by virtually every metric. Goldman Sachs said just this morning that the US GDP will drop by 34% in the second quarter. THIRTY-FOUR PERCENT. Unemployment will reach, at a minimum, 15% and could see for the first time in modern history - 30%.

Indeed. But I'm talking about what happens afterwards.
It doesn't look like my original post was clear to a lot of people. Extending the life means operating beyond the current scheduled retirement plan. That's 5 years from now in most cases.
And you should take what CEOs say with a very large grain of salt. They want bailouts and for that they need to paint and sell a picture that shows a worst case scenario and that I'm not buying. Yes it will be bad for a little bit but 4-5 years down the road I suspect we're going to be right back where we were. Maybe even in less time.


So it sounds like you're stating your claim then but I'll ask for clarification. Let's use Delta as an example as they're probably the best positioned of the Big 3 to endure this. Delta brought in $47 billion in revenue in 2019. When do you think they'll again be a carrier that brings in $47 billion annually? I'll bet it's at the very least five years down the road, and maybe seven. What say you?
 
airbazar
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 5:32 pm

winginit wrote:
airbazar wrote:
winginit wrote:
Virtually every single airline CEO disagrees with you. Shutting down the global economy for at least a month is an economic disaster by virtually every metric. Goldman Sachs said just this morning that the US GDP will drop by 34% in the second quarter. THIRTY-FOUR PERCENT. Unemployment will reach, at a minimum, 15% and could see for the first time in modern history - 30%.

Indeed. But I'm talking about what happens afterwards.
It doesn't look like my original post was clear to a lot of people. Extending the life means operating beyond the current scheduled retirement plan. That's 5 years from now in most cases.
And you should take what CEOs say with a very large grain of salt. They want bailouts and for that they need to paint and sell a picture that shows a worst case scenario and that I'm not buying. Yes it will be bad for a little bit but 4-5 years down the road I suspect we're going to be right back where we were. Maybe even in less time.


So it sounds like you're stating your claim then but I'll ask for clarification. Let's use Delta as an example as they're probably the best positioned of the Big 3 to endure this. Delta brought in $47 billion in revenue in 2019. When do you think they'll again be a carrier that brings in $47 billion annually? I'll bet it's at the very least five years down the road, and maybe seven. What say you?


Yes, let's use as example an airline that operates neither 747's nor A380's because that is relevant for this thread how?

So, how does the price of oil today make the economics of a VLA more palatable 5 years in the future? What price of oil are you projecting for 2025?

It's called fuel hedging. You buy fuel for future use at an agreed upon present price.
https://simpleflying.com/what-is-fuel-h ... nes-do-it/
The trick is to find that agreed upon price that works for both parties.
 
LJ
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 5:43 pm

slcdeltarumd11 wrote:
Definitely makes airlines want to save cycles on the MAX . Even if they become "legal”*. Might extend some 737s and 320s just cause the fuel savings of a MAX are probably less than depreciation of a newer plane at this point. Oil being so low is keeping the airlines afloat!.


It depends how much compensation the airline has received for its MAX compared how close its NG or CEO is to a maintenance check. However, you still need the money to pay for your MAX or NEO. As long as the financial firms are relatively untouched by this crisis (unlike 2008), that may not be a problem. However, if the crisis creaps into the financial system, we've a totally different situation.
 
winginit
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 6:51 pm

airbazar wrote:
It's called fuel hedging. You buy fuel for future use at an agreed upon present price.
https://simpleflying.com/what-is-fuel-h ... nes-do-it/
The trick is to find that agreed upon price that works for both parties.


Ah yes, fuel hedging... because that's worked out so very well recently for airlines who have engaged in the practice. Has oil bottomed? Again, you're dancing around the notion that there will be a quick recovery here without stating a claim - when will, in your opinion, the industry be back to where it was at the beginning of this year measured by revenue or whatever metric you choose?

At the end of the day you're implying that cheap oil here might prolong the lives of four holers - the exact opposite is happening in practice.
Last edited by winginit on Wed Apr 01, 2020 7:06 pm, edited 1 time in total.
 
Vladex
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 7:04 pm

It means A380 derangement syndrome will become stronger.
 
Vladex
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Re: Oil at $20/bbl. What does it mean for the 747 and A380?

Wed Apr 01, 2020 7:08 pm

winginit wrote:
airbazar wrote:
It's called fuel hedging. You buy fuel for future use at an agreed upon present price.
https://simpleflying.com/what-is-fuel-h ... nes-do-it/
The trick is to find that agreed upon price that works for both parties.


Ah yes, fuel hedging... because that's worked out so very well recently for airlines who have engaged in the practice. Has oil bottomed? Again, you're dancing around the notion that there will be a quick recovery here without stating a claim - when will, in your opinion, the industry be back to where it was at the beginning of this year measured by revenue or whatever metric you choose?

At the end of the day you're implying that cheap oil here might prolong the lives of four holers - the exact opposite is happening in practice.


I think airlines that didn't buy A380 will go down by a lot including something like Cathay while EK and SQ will go up by a lot when this is done.

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