Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.
It is a pretty nasty cycle we are seeing with the airlines. The higher fuel costs have led to higher tickets prices and extra fees. These higher prices have led to less air traffic, and that has led to an even greater need to find more ways to cover rising costs. Definitely a tough situation.
The new way they are starting to combat the high costs of flying is by cutting back, or postponing long international flights, in particular flights that are in excess of 12 hours.
Gather around the campfire and let me tell you such scary stories Jason's mask would fail to impress you after that.
Of course, the theme that runs in the background of these scary stories is the state of the economy in the U.S., from the housing slump, inflation and soft labor markets to weak dollar, excessive government spending and increasing national debt load and trade gap.
1. Exxon Mobil and Oil
So scariest of all stories is oil. With prices reaching new records nearly daily, gas prices have also zoomed higher, crossing the $4 a gallon mark. Why, then, is Exxon Mobil (NYSE: XOM) exiting the retail gas business. To be sure, BP (NYSE: BP) and ConocoPhillips (NYSE: COP) have either indicated taking such measures or have taken them already. Apparently, gas prices haven't been rising fast enough to keep pace, causing margins to narrow and for cents-earned-per-gallon to be dismal.
One would then think it's a good move by Exxon and the other oil giants to get out of the retail gas business, but I have questions. First, it's alarming that companies with revenues in the hundreds of billions of dollar look for ways to make even more money (even if YTD XOM is down 6.4%). Second, and most important, what could it mean for the consumer? As Doug McIntyre suggested, would the price of gas at the pump increase even more after the sale to private owners than when it was sold under Exxon? Scary indeed.
US Air (NYSE: LCC) is the latest airline to cut people and routes. It is a wonder it took so long.
The news that another carrier was trying to save itself by chopping expenses was bad enough. Worse was news from the government that airline traffic is falling. According to the AP, "The Transportation Department's Bureau of Transportation Statistics said Thursday that U.S. airlines carried 0.4 percent fewer passengers in March, compared with the year-ago period."
The one hope that U.S. airlines have is that, as expenses rush higher due to increasing oil prices, passengers will continue to fly and pay higher fairs to boot. No such luck.
The news pushed shares in AMR (NYSE: AMR) down over 14% to $4.79. That is against a 52-week high of $29.32. AMR is considered a special risk for Chapter 11 because of the size of its debt-load.
Airlines have continued to expand capacity over the last several years as passenger demand has continued to move up. That trend looks awfully stupid now.
Douglas A. McIntyre is an editor at 247wallst.com.
U.S. stock futures were mixed to lower early Friday morning as investors awaited data on inflation. News about companies cutting workforce and Yahoo!'s failed talks with Microsoft also soured the mood.
On Thursday, U.S. stocks closed with gains following a surprisingly strong retail sales, but the gains were tempered as the day went on due to rising oil prices and the Yahoo! announcement about the failed Microsoft talks.The Dow industrials ended 57 points, or 0.48%, higher, the S&P 500 rose 4 points, or 0.33%, and the Nasdaq Composite rose 10 points, or 0.43%.
What may yet change the atmosphere on Wall Street is the Consumer Price Index is scheduled for release at 8:30 a.m. EDT. Economists surveyed by Briefing.com expect CPI to show an increase of 0.5% in May following a 0.2% rise in April. Core CPI, which excludes the volatile food and energy prices, is expected to have risen 0.2% in May, after it rose 0.1% the month before.
At 10:00 a.m., the preliminary University of Michigan consumer confidence gauge for June is also due.
How the mighty have fallen, at least in the stock market. GE (NYSE: GE) trades near a 52-week low at $31.
Now, short sellers have added insult to injury. The short interest in GE has moved up 11 million to 68.7 million between May 15 and May 30. That percent increase is almost as high as the jump in the short interest at US Air (NYSE: LCC).
The fact that so many shares are bet that GE will fall further is extraordinary. The company still holds one of the best credit ratings of any corporation in the US. Its infrastructure business, the firm's largest division, continues to do remarkably well.
But investors are assuming that GE's industrial, medical and financial operations could have more bad quarters ahead of them.
Shares in rival conglomerate United Technologies (NYSE: UTX) have far outperformed GE during the last year.
That says a mouthful.
Douglas A. McIntyre is an editor at 247wallst.com.
Starting with an aggregate of recent airlines news:
Continental Airlines (NYSE: CAL) said it would cut 3,000 of its 45,000 jobs, about 6.5%, and cut capacity 11% in the fourth quarter. The company will eliminate 67 planes and the company's chief executive and president say they will not take a salary for the rest of this year and will decline bonuses.
Delta Airlines (NYSE: DAL) May traffic rose 4.2% from the year-earlier month to 10.51 billion revenue passenger miles. Delta's May capacity increased 1.5% to 12.67 billion available seat miles. Load factor, or the percentage of seats filled with passengers, in May rose to 82.9% from 80.9%.
US Airways Group Inc. (NYSE: LCC) said its May mainline traffic rose 0.6% to 5.39 billion revenue passenger miles from last year. May mainline capacity was flat at about 6.54 billion available seat miles. Mainline load factor in May rose to 82.3% from 81.9% a year ago. It also said Wednesday it is cutting up to 1,100 more jobs, about 3% of its workforce.
The Charleston Gazette reported that Chesapeake Energy Corporation (NYSE: CHK) has decided not to build its Eastern Division headquarters in Charleston, West Virginia in the wake of a West Virginia Supreme Court ruling on May 22.
WEB SITES:
AppleInsider reported that Apple Inc (NASDAQ: AAPL) is expected to announce a back-to-school deal soon that will encourage students to buy new Macs by offering some of the largest incentives in the history of the company.
Stock futures were higher early Friday morning as oil futures continued to drop and Dell reported surprising strong earnings. (Read the full transcript of the conference call that followed the earnings announcement.)
Some upcoming economic readings about personal income might affect the Street's mood yet, but as long as oil prices remain at around $125 a barrel or go even lower, investors may feel more positive on the day.
If last week stocks witnessed one sharp-drop session after another, this week stocks have been more consistent on their way up and on Thursday U.S. stocks rose for the third session in a row due to a big drop in crude-oil futures. The Dow industrials rose 52 points, or 0.41%, the S&P 500 added 7 points, or 0.53%, and the Nasdaq Composite rose 21 points, or 0.87%.
On the economic calendar today several releases:
At 8:30 a.m. EDT April Personal Income and spending is due. While not perfect, personal income is a decent indicator of future consumer demand. Once personal income starts to stagnate, meaning inflation has caught up with income growth, this is another indication of a recession. A price index is included in the income report. The personal-consumption expenditures is often considered to be the Federal Reserve's preferred inflation gauge.
A little after the open, May Chicago PMI, a regional manufacturing survey, is due out.
Finally, at 10:00 a.m., a revised reading on consumer sentiment from the University of Michigan for May will also be released.
Bear Stearns (NYSE: BSC) shareholders are due to approve the buyout by JPMorgan Chase (NYSE: JPM) today, marking what many feel as an end of an era as the 85-year-old company collapsed due to the subprime mortgage crisis.
The chief executives of UAL Corp. (NASDAQ: UAUA) United Airlines and US Airways (NYSE: LCC) are set to meet today to discuss a possible deal despite concerns that threaten the deal, according to two people briefed on the discussions, the AP reported. Stocks of both airlines are up over 2% in premarket trading.
In other deal news, Yahoo (NASDAQ: YHOO) CEO Jerry Yang said that Yahoo is not a company under siege and that he is still waiting for a clearer proposal from Microsoft Corp. (NASDAQ: MSFT) about a possible partnership between the two firms. He said said that Yahoo "did not walk away from the proposal - Microsoft did. We were willing to do the deal on the right terms."
H.J. Heinz Co. (NYSE: HNZ) is today expected to increase its sales and profit projections for the next two years, as it reports results of its fiscal year ended April 30. The Wall Street Journal reported that sales are to grow 6% or higher from 4%, while earnings per share growth for the next two years is projected to grow between 8% and 11% from the earlier projection of 7% to 9%.
It appears that Vistaprint Limited (NASDAQ: VPRT), a graphic design services and printed products company, counts on referral fees from pop up rewards programs on it website for a certain amount of its revenue and profit and also relies on the referral of its customers to outside firms offering rewards programs, which turns out to be a monthly fee for services such as discounts on movies and amusement parks, according to the Wall Street Journal's "Heard on the Street". Some believe the stock, whose shares have plummeted over concerns of slowing revenue and slimmer gross margins, may be trading too high for its own good.
According to people familiar with their plans, the Financial Times reported that the CEOs of UAL Corporation's (NASDAQ: UAUA) United Airlines and US Airways Group (NYSE: LCC) will today meet to discuss the carriers' potential merger agreement.
OTHER PAPERS:
The Independent reported that for the second time this month, Barclays Plc (NYSE: BCS) revised lower its calculation of analysts' consensus for its full-year profit, cutting its 2008 figure by nearly 8% to GBP5.876B pre-tax; Barclays cut the calculation 15% two weeks ago.
Stock futures were higher early Wednesday morning as oil and other commodities declined, providing some relief.
U.S. stocks ended higher Tuesday, especially the tech heavy Nasdaq composite which rose 36 points, or a solid 1.5%. The Dow industrials and the broader measure S&P 500, rose 68 points, or 0.55%, and 9 points, or 0.68% respectively. A dramatic retreat in crude of more than $3 a barrel helped boost sentiment.
On the economic docket today is April durable goods order, which economists are expecting to show a further decline. The report is due to release at 8:30 a.m. EDT.
Weekly crude inventories, usually released Wednesdays, will be postponed due to the shortened week. Meanwhile, though, oil prices continued to decline, dropping below $127 a barrel Wednesday in Asia, extending the previous session's decline. It seems that the higher prices cut demand, which in turn, pressured prices back.
Airline mergers no longer look like a panacea for the industry. They do not solve the problem of higher fuel costs. They often drive the ire of unions which do not want to lose any more jobs. And, integration problems usually make customers mad, which can send them off to fly other carriers.
Perhaps because of some of these factors, United (NASDAQ: UAUA) and US Air (NYSE: LLC) are cooling talks about a tie-up. Or, it may be that each airline thinks it can find a better deal. "Even as its talks with US Airways were continuing, United had begun talks with Continental for a possible alliance," Reuters reports.
The most likely case is that managements at airlines are looking for ways to stay out of Chapter 11. Rising jet fuel prices and the potential of lower passenger traffic in a recession have executives working overtime to keep losses from piling up.
A merger does no good if neither party in the marriage is in good enough shape to add much to the deal.
Fuel prices seem to be the number one concern on just about everyone's mind lately, and it seems like things are not going to be getting better any time soon. As prices have risen to record levels, many of us have decided to cut back on our driving, especially on long trips in order to save a little on our fuel prices. Well, the airlines are no different, and there's an interesting report today in The Wall Street Journal showing how airlines are cutting back on long flights in order to save a little on fuel consumption.
Gather around the campfire and let me tell you such scary stories Jason's mask would fail to impress you after that.
U.S. stock futures were mixed to lower early Friday morning as investors awaited data on inflation. News about companies cutting workforce and Yahoo!'s failed talks with Microsoft also soured the mood.
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