Furlough Estimates

SlumTodd_Millionaire said:
I think what people aren't getting is that even a substantially good reaction, let's say 80% of the prior load factor, would still be catastrophic for the airlines. Only Southwest could really handle that without mass furloughs. The financials of airlines are just bad to begin with. The slightest hiccup and it all goes to hell.
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Show your work.
 
Dexter said:
Show your work.
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High school math flashback
D1A54ABB-57CF-4622-A32C-6CED99A4FFF5.jpeg
 
MikeD said:
Bets on mergers and acquisitions?
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JetBlue buys United after United axes Commutair, Expressjet, and Air Wisconsin. They get sued by the Feds led by AOC for flying too low.

Spirit buys American. American WOs go under and most of us start driving for Uber and DoorDash.

Skywest tries to buy Delta but fails and instead buys Mesa, then underbids them for contracts.

Alaska dumps all the Virgin 320s but then merges with Frontier and has even more 320s.

Allegiant opens a chain of hotels and diversifies to transcontinental buses.

Delta kills off Endeavor and vows to hire only Navy and AF fighter pilots and astronauts forever.

Southwest comes out with no furloughs, the MAX finally gets recerted, buys Allegiant, and merges the Allegiant hotels with Motel 6 and Super 8. Every thing now costs $49. Hotels, bus tickets, plane tickets, anywhere and everywhere, $49.
 
ASpilot2be said:
I don't think it's just Southwest. Spirit and Frontier probably can as well.
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Spirit’s net margin is trash. It hasn’t been great since early 2018. I’m not familiar enough with Frontier, but I doubt they’re in any better shape.

Dexter said:
Show your work.
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Airline financials are a matter of public record. Go take a look.

tcco94 said:
Sounds like the airlines report record breaking profit or else they are in for catastrophic failure and there is no in between....
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Yes, that’s basically correct. This is why Warren Buffett said for years that he wouldn’t touch airline stock, and why he said a couple of weeks ago that he had made a big mistake not sticking with that earlier advice. The airline are enormously capital intensive businesses. Their fixed costs are outrageous and CAPEX requirements are astounding. This leads them to leverage to the hilt, so their balance sheets are garbage. Meanwhile, costs are always out of control, and because their two biggest costs are labor (slow to adjust because of collective bargaining requirements) and fuel (basically a fixed cost), managing those costs through changing demand cycles is virtually impossible. The result is that airlines even during the best of times are just mediocre businesses. You refer to this as “record breaking profits.” And you’re not wrong. Those profits were record breaking. The problem is that you’re comparing mediocre to bad.

Let’s look at an actual good business. JP Morgan Chase maintains a steady net profit margin of 25%. In good years it hits 30%. That’s an exceptionally good business. How about just a pretty good business? Look at a company like American Express. Most years they exceed a 15% net margin. In general, unless a business is producing a net margin of over 10%, it’s a pretty crappy business.

So what do the airlines do on even a good year? American has been low single digits for years. United mid single digits. Delta occasionally breaks 10%, but even as the best run legacy airline, they still are usually in single digits. Only Southwest is able to break 10% on a fairly regular basis.

This is not the sign of a healthy business. It means the slightest hiccup and you go from profits to losses. If 20% of your revenue disappears? It’s cataclysmic. Every airline would already be in bankruptcy right now if not for the bailout. And it’s only been six weeks.
 
I think all 3 legacies are at risk of Ch11 if this doesn’t turn around by the fall. Yes, they can survive longer than the end of 2020 if they need to. But you need money to enter bankruptcy, you can’t go in penniless.

I think we don’t really know just yet how things are going to shake out for the majors and legacies.

I would expect mergers at the regional level before the end of 2020. And anything beyond that will likely be in 2021.
 
SlumTodd_Millionaire said:
Spirit’s net margin is trash. It hasn’t been great since early 2018. I’m not familiar enough with Frontier, but I doubt they’re in any better shape.



Airline financials are a matter of public record. Go take a look.



Yes, that’s basically correct. This is why Warren Buffett said for years that he wouldn’t touch airline stock, and why he said a couple of weeks ago that he had made a big mistake not sticking with that earlier advice. The airline are enormously capital intensive businesses. Their fixed costs are outrageous and CAPEX requirements are astounding. This leads them to leverage to the hilt, so their balance sheets are garbage. Meanwhile, costs are always out of control, and because their two biggest costs are labor (slow to adjust because of collective bargaining requirements) and fuel (basically a fixed cost), managing those costs through changing demand cycles is virtually impossible. The result is that airlines even during the best of times are just mediocre businesses. You refer to this as “record breaking profits.” And you’re not wrong. Those profits were record breaking. The problem is that you’re comparing mediocre to bad.

Let’s look at an actual good business. JP Morgan Chase maintains a steady net profit margin of 25%. In good years it hits 30%. That’s an exceptionally good business. How about just a pretty good business? Look at a company like American Express. Most years they exceed a 15% net margin. In general, unless a business is producing a net margin of over 10%, it’s a pretty crappy business.

So what do the airlines do on even a good year? American has been low single digits for years. United mid single digits. Delta occasionally breaks 10%, but even as the best run legacy airline, they still are usually in single digits. Only Southwest is able to break 10% on a fairly regular basis.

This is not the sign of a healthy business. It means the slightest hiccup and you go from profits to losses. If 20% of your revenue disappears? It’s cataclysmic. Every airline would already be in bankruptcy right now if not for the bailout. And it’s only been six weeks.
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And all of that is out the average line pilots control. Airlines don’t need to make $6B profit to be a viable business. 80% load factors will be more than enough to prevent thousands upon thousand of furloughs and industry devastation that people in here are predicting.
Obviously 99.9% of us didn’t have the very high margin real estate family business to fall back on.
 
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SlumTodd_Millionaire said:
I think what people aren't getting is that even a substantially good reaction, let's say 80% of the prior load factor, would still be catastrophic for the airlines. Only Southwest could really handle that without mass furloughs. The financials of airlines are just bad to begin with. The slightest hiccup and it all goes to hell.
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I would think that Frontier, Spirit, and Allegiant would be able to do ok at 80%.
 
Beefy McGee said:
Oh and Hawaii finally secedes so Hawaiian becomes a national carrier.
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The whole fleet has the Hawaiian flag decal next to the boarding door. Still have a US flag next to the N number though.

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Granted, it's the Hawaii state flag, and not the Kingdom of Hawaii flag.
 
Derg said:
But the doors... are open. :/ Well, mostly.
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It's still damn hard to find a place open to get a haircut! And the ones open are 2+ hour waits! No restaurants near me are even open, besides take out still.
 
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