WorldTraveler
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The problem for Saudi Arabia is that their national budget is heavily supported by oil revenues. Low price oil hurts badly.
The cost of production is not the problem for them
AA to Pay 30 Cents Less Per Gal of Fuel Than DL/UA in 2015
- Thread starter Kellerguy
- Start date
The cost of production is not the problem for them
That's the thing, production cost is no longer a problem here either.WorldTraveler said:
Sounds like some Sheiks are going to need to readjust their standard of living.
The way things are trending, it could be a long time before we see $100 per barrel oil again.
It just is not nearly the same as it was for many years.
There is now a whole lot of production in the market that OPEC has no control over.
That, coupled with the dollar getting stronger, it's a double whammy for oil prices.
WorldTraveler
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the price of oil and the value of the US dollar are closely linked since oil is traded globally in US dollars.
A strong dollar is a natural hedge for US consumers (including airlines) but an increased expense for other consumers in other countries.
Actions of the Federal Reserve and central banks in other countries are increasing the value of the dollar, which is offsetting part of the decrease in the price of crude oil for consumers in other countries.
note, however, from the article that crude oil was comparably priced to today's prices less than 6 years ago in 2009. In that time, it has more than doubled and fallen back again.
The volatility of oil prices will always be there.
Airlines that maintain hedges - and all US airlines that hedge say they will continue to do so - will benefit when oil goes up again.
A strong dollar is a natural hedge for US consumers (including airlines) but an increased expense for other consumers in other countries.
Actions of the Federal Reserve and central banks in other countries are increasing the value of the dollar, which is offsetting part of the decrease in the price of crude oil for consumers in other countries.
note, however, from the article that crude oil was comparably priced to today's prices less than 6 years ago in 2009. In that time, it has more than doubled and fallen back again.
The volatility of oil prices will always be there.
Airlines that maintain hedges - and all US airlines that hedge say they will continue to do so - will benefit when oil goes up again.
FrugalFlyerv2.0
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WorldTraveler said:
eolesen
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Sort of ironic that oil hits its low as the new Congress is sworn in.
Can't help but wonder how much of this action by the Saudis is tied to a fear of Congress taking steps (e.g. Keystone is approved, coal plant restrictions get rolled back) which might now have enough votes to overturn an Obama veto.
Can't help but wonder how much of this action by the Saudis is tied to a fear of Congress taking steps (e.g. Keystone is approved, coal plant restrictions get rolled back) which might now have enough votes to overturn an Obama veto.
Glenn Quagmire
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Keep wondering. It has nothing to do with your premise.eolesen said:
WorldTraveler
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true, Q, true.
Now that OPEC itself is at risk because of low oil prices, I suspect that the markets are more than happy to push as far as they can to regain control of the price of oil instead of having it controlled by a handful of people in the world.
And for right now, the US economy is in better shape that many other global economies which means that the US has better ability to outlast the Saudis in this standoff.
the price of any global commodity will affect the economy of the world. OPEC has reduced fuel prices many times when it became apparent that they were on the risk of tanking the world economy.
Now that OPEC itself is at risk because of low oil prices, I suspect that the markets are more than happy to push as far as they can to regain control of the price of oil instead of having it controlled by a handful of people in the world.
And for right now, the US economy is in better shape that many other global economies which means that the US has better ability to outlast the Saudis in this standoff.
eolesen
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If fuel really does stay in the $50 range, I'd say that's good in general for the industry. But, there is going to be some pain along the way.
1) A number of international carriers have been adding on fuel surcharges to their fares over the past five years. There's going to be more pressure on those carriers to drop the surcharges, which in turn starts lowering pricing, so don't assume that it's a windfall everywhere.
2) Low fuel may have given upstarts like PeoplExpress v2.0 a shot of adrenaline, or at least a stay of execution, assuming they can find pilots
3) The business case for DL's refinery is probably more questionable than it was to begin with
4) The economics of keeping around 50 seat RJ's and 25 year old MD80's don't look nearly as bad as they did a year ago, so some of that capacity that was expected to come out of the system may stay around, and that means replacement airplanes may have just become growth airplanes
1) A number of international carriers have been adding on fuel surcharges to their fares over the past five years. There's going to be more pressure on those carriers to drop the surcharges, which in turn starts lowering pricing, so don't assume that it's a windfall everywhere.
2) Low fuel may have given upstarts like PeoplExpress v2.0 a shot of adrenaline, or at least a stay of execution, assuming they can find pilots
3) The business case for DL's refinery is probably more questionable than it was to begin with
4) The economics of keeping around 50 seat RJ's and 25 year old MD80's don't look nearly as bad as they did a year ago, so some of that capacity that was expected to come out of the system may stay around, and that means replacement airplanes may have just become growth airplanes
FrugalFlyerv2.0
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Blasphemy!eolesen said:
WorldTraveler
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no, it is not blasphemy. it is simply wrong.
Trainer is a REFINERY that buys crude. DL is NOT a petroleum producer. The economics of the refinery for DL are effected by the crack spread and the supply of individual types of petroleum products NOT by the price of crude oil.
The future will show that people here who have tried for years to argue this will be wrong.
The other points E makes are valid, though.
Lower oil prices will help all carriers - but foreign carriers usually hedge more than US airlines which means they will have larger hedge losses - AND foreign airlines also pay for fuel in dollars but the majority of their revenue is in other currencies. The Euro is weaker relative to the dollar. And Euro carriers are facing major competitive issues so they will not equally benefit. Much of the same type of thing in Asia and Latin America as well.
the US airlines will look the best over the next 12-18 months.
Pilot availability is the biggest hindrance to keeping 50 seaters and the growth of upstarts. The US carriers will grow as much as they can - and few pilots would choose to start a career with an upstart at lower rates than with any one of the big US carriers.
and, no, I am not making forecasts about fuel.
(edited)
as for your bottom line assessment, we'll still have the same financial, operational performance, and customer service metrics that will provide guidance as to how airlines are actually doing.
Trainer is a REFINERY that buys crude. DL is NOT a petroleum producer. The economics of the refinery for DL are effected by the crack spread and the supply of individual types of petroleum products NOT by the price of crude oil.
The future will show that people here who have tried for years to argue this will be wrong.
The other points E makes are valid, though.
Lower oil prices will help all carriers - but foreign carriers usually hedge more than US airlines which means they will have larger hedge losses - AND foreign airlines also pay for fuel in dollars but the majority of their revenue is in other currencies. The Euro is weaker relative to the dollar. And Euro carriers are facing major competitive issues so they will not equally benefit. Much of the same type of thing in Asia and Latin America as well.
the US airlines will look the best over the next 12-18 months.
Pilot availability is the biggest hindrance to keeping 50 seaters and the growth of upstarts. The US carriers will grow as much as they can - and few pilots would choose to start a career with an upstart at lower rates than with any one of the big US carriers.
and, no, I am not making forecasts about fuel.
(edited)
as for your bottom line assessment, we'll still have the same financial, operational performance, and customer service metrics that will provide guidance as to how airlines are actually doing.
