Failure by design

With United Airlines ( UAL ) and American Airlines down 25% today, when will the carnage end. In a recent trip to Mexico, I was discussing the airlines industry with a friend and how they will react to higher energy prices. We came up with a few ideas but all involved higher passenger density or lighter aircrafts.

It appears that we were on the ball with one of the suggestions actually hitting the newswire today. American Airlines will now be charging a fee for even 1 piece of luggage ($15). This is on top of their recent fuel surcharge. This will act to discourage travelers from bringing luggage and operating on a asset light plan, with only carry on pieces.

I seriously don’t blame them, on this recent trip some of the travelers brought different pairs of shoes and outfits for each day. This is completely unnecessary and I sympathize with the airlines who are struggling to survive and have never had margins higher than 5%. … Now what next. Hedging oil is creating its own problems for the industry by allowing airlines to undercut each other depending on when they happened to have bought the oil futures and when they expire. I see airline traffic becoming increasing more expensive as traffic lessens and people (americans) stop traveling because they realize their Peso is worthless outside of the US.

Forecast: Patriotism, Localizing and efficiency will be the name of the game for the foreseeable future. The US has accomplished the greatest mismanagement of resources in the history of the world. For every unit of GDP the US uses twice as much energy as Germany. The days when fruit grown on the East coast will be driven over to Florida or Tangerines from China brought over to Ontario.

Long consumer non-discretionary items, fertilizer, and rural real estate. I think that local farms will become much more competitive with imported food as energy prices continue to increase driving up farm land by the acre.

Aside: “Following AMR’s announcement, Standard & Poor’s Equity Research cut its price target for AMR stock to $2 from $10 and reiterated its hold rating for its stock.”

I will never understand analysts. If the stock is currently higher than $2, and you set your price target at $2… why would recommend people hold the stock…

Recently

You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.