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Airlines being upended

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saxman

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Surprised this forum has been quiet in the wake of recent events and how the airlines will fair out. We went from pretty full flights in the end of February to completely empty in the beginning of March. Most of us know the $2 trillion included $58 billion for airlines, half of which will be loans and half will be grants. It comes with the stipulation that there will be no layoffs until September 30th and the money doesn't go to stock buy backs nor upper management compensation. The billion dollar question is what happens after September 30 now?

I liked this article on how things might turn out: How The Airline Industry Will Transform Itself As It Comes Back From Coronavirus

Some bullet points

-Volume won't come back for 3-5 years
-Business travel will return first but remain lower
-Pricing power will lag behind volume
-Hub and Spoke model may change for more point to point service
-Regional trips (less than 500 miles) will be upended
-More use of narrow-body aircraft for long-haul flights (ala Airbus A321XLR for trans-Atlantic)
-LCC carriers will do well as leisure travel comes back

If any time is a time for Amtrak (or Brightline or Texas Central like companies) to take advantage of the changing regional travel market, NOW is the time.
 

Bob Dylan

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Surprised this forum has been quiet in the wake of recent events and how the airlines will fair out. We went from pretty full flights in the end of February to completely empty in the beginning of March. Most of us know the $2 trillion included $58 billion for airlines, half of which will be loans and half will be grants. It comes with the stipulation that there will be no layoffs until September 30th and the money doesn't go to stock buy backs nor upper management compensation. The billion dollar question is what happens after September 30 now?

I liked this article on how things might turn out: How The Airline Industry Will Transform Itself As It Comes Back From Coronavirus

Some bullet points

-Volume won't come back for 3-5 years
-Business travel will return first but remain lower
-Pricing power will lag behind volume
-Hub and Spoke model may change for more point to point service
-Regional trips (less than 500 miles) will be upended
-More use of narrow-body aircraft for long-haul flights (ala Airbus A321XLR for trans-Atlantic)
-LCC carriers will do well as leisure travel comes back

If any time is a time for Amtrak (or Brightline or Texas Central like companies) to take advantage of the changing regional travel market, NOW is the time.
Still flying regular runs Chris, or are there cutbacks??
 

Devil's Advocate

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If any time is a time for Amtrak (or Brightline or Texas Central like companies) to take advantage of the changing regional travel market, NOW is the time.
Travel demand is plummeting across the board leaving Amtrak in no position to expand service with no mandate and nonexistent equipment, Brightline's owner Softbank has been hemorrhaging billions while Texas Central is laying off staff left and right as they near the end of a critical approval process. Supposedly there is talk of a major infrastructure budget bill being discussed, but knowing that aviation is certain to benefit at least as much as passenger rail and that it takes a decade or more to complete an order for US-spec rolling stock, this bill is unlikely to change anything. I'm doubtful we'll see any major passenger rail expansion projects finished in the next three or four years and by that time the US airline industry will have been nursed back to subsidized profitability with working class taxpayer bailouts and looking to reclaim any lost ground.
 
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jis

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Brightline's real owner is FECI, which has relatively stable financial situation so far, since it is mostly based on Florida real estate. That could of course change if real estate crashes. Anything is possible these days given that the entire economy is upended. But the main point I am trying to make I think is that FECI's finances are relatively separate from Softbank. In any case Brightline has shut down operations for the duration, but construction for the West Palm Beach to Orlando segment carries on within the realities of the pandemic of course.

Both Delta and United have made statements to the effect that they plan to come back as much smaller airlines.
 

railiner

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I can see the possibility of the government, allowing more merger's, even though there would be less competition....whatever it takes to bring back air service...
 

Devil's Advocate

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Brightline's real owner is FECI, which has relatively stable financial situation so far, since it is mostly based on Florida real estate.
And FECI's "real" owner is Softbank. Claiming that FECI is safe while Softbank is flailing is missing the forest for the trees. Unfortunately Softbank made several risky bets that failed to pay off and left them with a sloppy track record and negative trend line. Maybe they can still turn things around but when you're losing other people's money in the best of times it's difficult to see how you're going to get back on top with your own funds in a period of extreme adversity.

That could of course change if real estate crashes. Anything is possible these days given that the entire economy is upended. But the main point I am trying to make I think is that FECI's finances are relatively separate from Softbank. In any case Brightline has shut down operations for the duration, but construction for the West Palm Beach to Orlando segment carries on within the realities of the pandemic of course.
Being a solid investment in a weakening portfolio makes you all the more attractive to sell on to someone else in order to counter other losses and stem the bleeding. If the buyer is healthy with long term goals maybe no harm is done, but if they are desperate to make a profit on the purchase or willing to slice and dice their way to a bigger return anything is possible.

Both Delta and United have made statements to the effect that they plan to come back as much smaller airlines.
US airlines are coming back smaller whether they planned to or not, but as mentioned above they'll just keep merging into yet another massive behemoth that does whatever it wants because the American government has taught large American businesses that throwing money at executive enriching stock buy backs instead of saving for a rainy day is no barrier to yet another free money taxpayer bailout.

Delta bought back...$11 billion since 2013. American Airlines Group (AAL) has bought back $12.4 billion since 2014. Both companies have seen their stock prices and market values shrivel. Delta is now valued at $14 billion and American at just $4 billion.
Link...
 
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Dakota 400

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I can see the possibility of the government, allowing more merger's, even though there would be less competition....whatever it takes to bring back air service...
Oh, I hope not for the sake of the small and medium sized airports.
 

ehbowen

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Like all things in our Society, well have to take a Thourough look @ Everything once were back to Every Day Life.

Cue David Bowie singing "Changes".
Well, in my case it's frustration. Small retail in this country was already just barely surviving...but, when things return to "normal", it will almost certainly be gone. The giants, such as Amazon, Wal-Mart, Target and others with friends at the Fed who can borrow unlimited amounts of money at 1% interest...they'll come through this fine. Mom & Pop in Yakima? Not so much.

Change may be inevitable...but that doesn't mean it's always 'good'. There's a dispenser of milk here at the hotel which hasn't been swapped out in the two weeks since the kitchen staff was let go. The milk has 'changed'...but you sure don't want to try and drink it!

“Have you no idea of progress, of development?"
"I have seen them both in an egg," said Caspian. "We call it 'Going Bad' in Narnia”


― C.S. Lewis, The Voyage of the Dawn Treader
 

Bob Dylan

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Boeing just announced they will start doing "Buyouts" to reduce their Workforce Permantely!( and Airlines are starting to Furlough droves of Employees)

Wasn't the recent Corporate Stimulus Bill supposed to ensure that Corporations and Businesses kept their Employees on the Payroll in order to receive the Hundreds of Billions in Bailouts that Congress doled out??

Once again Corporate Welfare, ie Socialism, surfaces!!!!
 

MARC Rider

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US airlines are coming back smaller whether they planned to or not, but as mentioned above they'll just keep merging into yet another massive behemoth that does whatever it wants because the American government has taught large American businesses that throwing money at executive enriching stock buy backs instead of saving for a rainy day is no barrier to yet another free money taxpayer bailout.
Delta bought back...$11 billion since 2013. American Airlines Group (AAL) has bought back $12.4 billion since 2014. Both companies have seen their stock prices and market values shrivel. Delta is now valued at $14 billion and American at just $4 billion.

Hmm.. Seems to me the obvious policy is for the government bailout to take the form of stock purchases by the government. As a stockholder, the government would then have a place at the table to push back on the shenanigans of the top executives and force the companies to provide quality airline service rather than simply be a tool to allow a few people to enrich themselves. But of course, that's "socialism," even if the government does not have a controlling interest in the company.

But regulating and restricting mergers, stock buybacks, and executive compensation would be a good start.
 

ehbowen

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But regulating and restricting mergers, stock buybacks, and executive compensation would be a good start.
Especially since any stock buyback, particularly those conducted with borrowed money, is essentially a way for insiders to transfer equity from "the little people" to themselves. There's a reason why it used to be banned...and why that ban used to be enforced. I hope that the mod team won't see this as 'political', as both major political parties are equally at fault.
 

Dakota 400

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Hmm.. Seems to me the obvious policy is for the government bailout to take the form of stock purchases by the government. As a stockholder, the government would then have a place at the table to push back on the shenanigans of the top executives and force the companies to provide quality airline service rather than simply be a tool to allow a few people to enrich themselves. But of course, that's "socialism," even if the government does not have a controlling interest in the company.

But regulating and restricting mergers, stock buybacks, and executive compensation would be a good start.
If the government did have a place at the table, would that not be something like "nationalism" on the order of what the UK once did? (Or maybe still does? Unsure of British politics.)

Re: possible "stock buybacks and executive compensation", it is my understanding that such are specifically not to happen in the Stimulus legislation that our Congress passed. Am I incorrect in my thinking?
 

Devil's Advocate

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If the government did have a place at the table, would that not be something like "nationalism" on the order of what the UK once did? Re: possible "stock buybacks and executive compensation", it is my understanding that such are specifically not to happen in the Stimulus legislation that our Congress passed. Am I incorrect in my thinking?
1. The restrictions against excessive compensation are limited and temporary.
2. The billions in buybacks that really mattered already happened before the bailout.
3. The 96% of cash flow spent on buybacks in good years left no money to weather the bad years.
4. Nationalizing a private company generally involves little or no compensation in return for taking control.
5. Our system of privatized profits and socialized debt is about as far from nationalization as you can get.

We've repeated this boom-bust-bailout cycle four times in my life and nationalization never looked better.
 
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Michigan Mom

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In the midst of all the more sophisticated analyses. I'm not ever going to have a sophisticated take on anything. I just know that the stock market isn't going to take care of the people who need care the most. Stocks are not going to ensure that nursing homes are clean and well managed. The marketplace is not going to ensure that ordinary working class folks are heard. Wall Street is not going to prioritize education, safety, health, infrastructure, and environment.
Profit as the goal is a distinct aim separate from all of these other goals. There is not a market solution for anything other than pricing and profits.
We need human beings who care about these things to represent us.
 

MARC Rider

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In the midst of all the more sophisticated analyses. I'm not ever going to have a sophisticated take on anything. I just know that the stock market isn't going to take care of the people who need care the most. Stocks are not going to ensure that nursing homes are clean and well managed. The marketplace is not going to ensure that ordinary working class folks are heard. Wall Street is not going to prioritize education, safety, health, infrastructure, and environment.
Profit as the goal is a distinct aim separate from all of these other goals. There is not a market solution for anything other than pricing and profits.
We need human beings who care about these things to represent us.
I was recently reading an essay on "property" by the philosopher Bertrand Russel. (I think it was written in the 1930s or thereabout.) He pointed out that private businesses that aren't monopolies and actually provide useful goods and services are just as much exploited by capitalists as the working class. By "capitalists," he means those who extend credit at interest, landowners who engage in rent-seeking, and those who inherit excessive wealth. He believes that this worship of money causes great damage to civilization. But he was never a Communist, in fact he was one of the few leftists who strongly criticized the Soviet Union, even in the 1920s before Stalin took over.
 

MARC Rider

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If the government did have a place at the table, would that not be something like "nationalism" on the order of what the UK once did? (Or maybe still does? Unsure of British politics.)
When the British nationalized the railways in 1948, they exchanged government securities for the shares of the private railways. Of course, at that time, the private railways were more or less bankrupt, so I suspect that the value of the securities was not what the shareholders would have liked. But better that than to lose everything in a bankruptcy.

This would be different from a government actually buying shares of a company on the open market and exercising whatever ownership privileges comes with the stock. For one thing, the British government actually had complete ownership. What I suggested would be that the government would bail out the ailing company and take partial ownership, leaving the private management in place, but exercising the indirect control that all large shareholders have, kind of like being the ultimate "activist investor." The main interest of the government investors would be (1) ensuring that the enterprise continues to provide quality products and services and not be used as a cash cow for managers, (2) that the interests of the employees andcontractors, especially those who are citizens of the owning government, are protected, and (3) company operations don't endanger the public by unsafe practices or environmental pollution.
 

railiner

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Conrail, was government ownership, done right.
They took over the bankrupt Northeast railroads, assumed their debt, infused massive cash into rationalizing and rebuilding its infrastructure, hired the best management team available, and did a remarkable turnaround.
Then, they did an IPO, and returned the property to private sector ownership. The government got their investment back, and then some.

The only unfortunate mistake they later made, was to allow it to later be chopped up and acquired by the two competing roads...
 

IndyLions

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Travel demand is plummeting across the board leaving Amtrak in no position to expand service with no mandate and nonexistent equipment, Brightline's owner Softbank has been hemorrhaging billions while Texas Central is laying off staff left and right as they near the end of a critical approval process. Supposedly there is talk of a major infrastructure budget bill being discussed, but knowing that aviation is certain to benefit at least as much as passenger rail and that it takes a decade or more to complete an order for US-spec rolling stock, this bill is unlikely to change anything. I'm doubtful we'll see any major passenger rail expansion projects finished in the next three or four years and by that time the US airline industry will have been nursed back to subsidized profitability with working class taxpayer bailouts and looking to reclaim any lost ground.
You make valid points - but now is the time to prepare a logical strategy for a more balanced and sensible transportation infrastructure. Millions of people are going to remain out of work when this is all over - and history has shown that infrastructure construction is a proven way to put people to work.

The infrastructure needs to take into account the needs and desires of the next generation (the 20 & 30 somethings). They are the ones who will be living with it. The trick is going to be the “balanced” part of it, because the 60+ crowd is still in power.

That means there is going to have to be some give and take - not an all or nothing strategy. The older generation is going to have to accept that a strategy with no regard for carbon footprint is not going to cut it. The younger generation is going to have to accept SOME relaxation of environmental regulations to allow these eco-friendly projects to not be buried in EPA red tape. Making some sacrifices for the greater good.

From a rail perspective, it is generally accepted that a sensible transportation strategy includes higher speed rail for 500 mile corridors. It should also include eliminating the mindset of “not invented here” and by purchasing off-the-shelf trainsets. As long as companies build proven designs here in the US with US workers - that should be good enough.

A lot of our infrastructure got built originally because of the Great Depression and/or World War II. This may not be as severe a situation as we faced back then - but we need to be prepared to make the most out of a bad situation.
 

Bob Dylan

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You make valid points - but now is the time to prepare a logical strategy for a more balanced and sensible transportation infrastructure. Millions of people are going to remain out of work when this is all over - and history has shown that infrastructure construction is a proven way to put people to work.

The infrastructure needs to take into account the needs and desires of the next generation (the 20 & 30 somethings). They are the ones who will be living with it. The trick is going to be the “balanced” part of it, because the 60+ crowd is still in power.

That means there is going to have to be some give and take - not an all or nothing strategy. The older generation is going to have to accept that a strategy with no regard for carbon footprint is not going to cut it. The younger generation is going to have to accept SOME relaxation of environmental regulations to allow these eco-friendly projects to not be buried in EPA red tape. Making some sacrifices for the greater good.

From a rail perspective, it is generally accepted that a sensible transportation strategy includes higher speed rail for 500 mile corridors. It should also include eliminating the mindset of “not invented here” and by purchasing off-the-shelf trainsets. As long as companies build proven designs here in the US with US workers - that should be good enough.

A lot of our infrastructure got built originally because of the Great Depression and/or World War II. This may not be as severe a situation as we faced back then - but we need to be prepared to make the most out of a bad situation.
This IS as Serious as the Great Depression, we have Multiple Millions More out of Work,Broke and Losing their Healthcare.

We need to take a Really Serious Look @ our Economy, especially Healthare,the Service Sector and Travel and Leisure which are the Areas that will be hurting the most!

The Days of Wine and Roses is over in this Country, your idea of putting people back to work is Excellent!

Maybe call it the New Green Deal! All that's lacking is an FDR to Lead us, right now the Marx Brothers are in charge!
 

MARC Rider

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Conrail, was government ownership, done right.
They took over the bankrupt Northeast railroads, assumed their debt, infused massive cash into rationalizing and rebuilding its infrastructure, hired the best management team available, and did a remarkable turnaround.
Then, they did an IPO, and returned the property to private sector ownership. The government got their investment back, and then some.

The only unfortunate mistake they later made, was to allow it to later be chopped up and acquired by the two competing roads...
Two problems with that.
1) The taxpayers should not should have not have assumed the debt. The railroads were bankrupt. The lenders presumbly knew (or should have known) about the shaky finances, and have been prepared to take the risk that they'd lose their money. I have no sympathy for the banks. I guess this is what is called "socializing 'private' debt," and it's a curse of our political and economic system.

2) The government should never have allowed an IPO and let the competing railroads (CSX and NS) get hold of the assets. Monopoly is to nobody's benefit except the monopolists. Even after they privatized it, they should have retained some residual partial ownership so in order to prevent future shenanigans like stock buybacks and excessive executive compensation.
 

Bob Dylan

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Two problems with that.
1) The taxpayers should not should have not have assumed the debt. The railroads were bankrupt. The lenders presumbly knew (or should have known) about the shaky finances, and have been prepared to take the risk that they'd lose their money. I have no sympathy for the banks. I guess this is what is called "socializing 'private' debt," and it's a curse of our political and economic system.

2) The government should never have allowed an IPO and let the competing railroads (CSX and NS) get hold of the assets. Monopoly is to nobody's benefit except the monopolists. Even after they privatized it, they should have retained some residual partial ownership so in order to prevent future shenanigans like stock buybacks and excessive executive compensation.
Look for it to happen again when this Crisis is over!:mad::(
 

Dakota 400

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Maybe call it the New Green Deal! All that's lacking is an FDR to Lead us, right now the Marx Brothers are in charge!
[/QUOTe

The name of "New Green Deal" has become too politically charged for wide acceptance of whatever governmental package(s) that come out of this crisis. A different "name" is required.

America has been, for a long time, yearning for Statesmen/Stateswomen, in my opinion. During times of severe crisis, our Nation has been able to allow one or more of such persons to rise to the occasion. I am hopeful that "history will repeat itself" again. As it often seems to do.
 
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