More Airlines Collapse: Jet Airways India, Alitalia, WOW Air

And the 217 planes that Jet Airways has ordered from Boeing?

By MC01, a frequent commenter, for WOLF STREET:

Today, another major airline collapsed. Jet Airways, India’s largest private airline, announced “with immediate effect” that it was “compelled to cancel all its international and domestic flights.” It suspended operations on a “temporary” basis. It said: “Since no emergency funding from the lenders or any other source is forthcoming, the airline will not be able to pay for fuel or other critical services to keep the operations going.”

Last year, Jet Airways “suddenly” discovered serious financial issues, which led to a highly dramatic rescue effort by the main creditors (chiefly state-owned State Bank of India and private-sector ICICI Bank) and minority shareholder Etihad under the new Sashakt legislation introduced by the Indian government to deal with the chronic “sudden liquidity problems” of the giant Indian economy.

Etihad injected $35 million into the ailing Indian airline, and the State Bank of India and ICICI Bank provided $218 million emergency line of credit to meet immediate liquidity needs, such as paying salaries and keep alarmed lessors from immediately repossessing aircraft.

Apparently Jet Airways burned these fresh funds in no time, as the company’s financial situation was spinning out of control. Cabin crews, pilots and office staff went on strike over unpaid salaries. Suppliers of goods and services started cutting off deliveries “until debts are repaid at least in part.” Dutch authorities seized a Jet Airways Boeing 777-300ER at Schiphol Airport on April 12 following a court ruling over unpaid handling fees.

Unpaid lessors scrambled to get their aircraft back: According to India’s Directorate General of Civil Aviation (DGCA) in the April 8-14 week alone, 22 of the company’s leased 737-800’s were deregistered and handed back to lessors. Between leased aircraft being repossessed and others being grounded for financial issues, Jet Airways’ operational fleet has gone from 124 planes in February to just 14.

This presented a major problem, as the DGCA requires a bare minimum of 20 aircraft for an airline to operate internationally. This led to a wave of flight cancellations while Jet Airways tried to work out a “temporary” agreement with the DGCA over international licensing. In short, the company was falling apart.

Jet Airways presently has 217 aircraft of various models on order from Boeing. How many are going to be paid for and will be delivered remains an interesting question and raises even more questions about the feasibility of the maxi-orders placed by many other Asian airlines with vulnerable financials.

The Indian government was publicly asking state-owned banks to step in and “invest in Jet Airways,” but the banks raised their hands: They have already lost too much money and they don’t want to lose more, at least not without direct guarantees from the government.

And the Indian government’s desperate efforts to privatize chronic loss-making Air India promises to be a very interesting show.

This follows the Alitalia fiasco. On March 31, the deadline imposed to Alitalia by the Italian government and the EU to present a recovery plan passed with only a press release from the bankruptcy administration: As no financially feasible plan could be put together by the deadline, the administrators asked for a two months extension. They got one, so the new deadline is April 30.

Alitalia, Italy’s air carrier, has a long history of poor financial performance, but the present troubles started in 2008 when the Italian government finally decided to privatize the airline. Initial talks with the Air France-KLM Group fell through due to politics and the 2008 Financial Crisis forcing the Franco-Dutch group to considerably cut new investments. This failed sale sent Alitalia into bankruptcy protection almost immediately, until a sale could be arranged to a group called Compagnia Aeronautica Italiana (CAI).

CAI was a peculiar creature, nominally a consortium of investors who upon closer scrutiny turned out to be a motley collection of Italian banks, economic godfathers, and Poste Italiane, the state-owned Italian Post Service. Make of this what you want.

As the Euro Bubble started to deflate and the receding tide showed who was swimming naked, the investments needed to effectively rebuild Alitalia from scratch vanished into thin air, and the embattled airline found itself savagely slashing costs to survive. These cost-cutting measures started with the sensible (spinning off the loss-making maintenance division and allowing it to fail) but quickly turned into desperation (selling aircraft to leasing companies such as APF for quick cash and leasing them back) and finally became downright grotesque (abandoning the profitable Milano Malpensa hub, MXP).

By 2014, CAI had run out of steam and funds, so Poste Italiane (read: the Italian government) directly stepped in with a €75 million cash injection to avoid an immediate bankruptcy. At the same time, the Italian government started negotiations with the Abu Dhabi flag carrier, Etihad, to bring the Gulf airline on board. The deal was sealed in 2015, with Etihad buying 49% of Alitalia, the maximum share allowed under EU airline ownership rules.

The euphoria of having a partner loaded with oil money and willing to spend it with complete abandon was short-lived however, as Etihad was soon discovered to be yet another “naked swimmer.”

Once forced to cease shady accounting practices and presenting honest financials, Etihad was found to be losing enormous sums of money, to the tune of $1.8 billion in 2016 and $1.5 billion in 2017.

In 2016, the first full year of the Etihad partnership, Alitalia lost an unprecedented €600 million. It was immediately apparent Etihad lacked both the ability and resources to turn Alitalia around.

So in May 2017, Alitalia entered bankruptcy administration again, and it has resided there ever since. So far, the Italian government has extended two “bridge loans” totaling a €900 million just to keep the company alive. The EU approved this direct state aid under the condition that a recovery plan be presented by March 31, 2019. So here we are again.

The bankruptcy administrators have tried very hard to find if not a buyer at the very least a committed financial/technical partner for Alitalia, but so far this has proven extremely hard. The only interesting assets Alitalia has left are 60% of the slots at the highly constrained Milano Linate (LIN) airport; Europe’s two largest-low cost carriers, Ryanair and Easyjet, expressed interest in them. Both have since withdrawn from talks citing the impossibility of reaching a satisfactory deal.

The only potential partner remaining is Delta Air Lines, but too many open questions remain: Apparently their interest in buying 20% of Alitalia needs the approval of shareholders, and airline shareholders and investors these days are becoming increasingly cautious when buying ailing airlines, as proven by the WOW Air fiasco.

Iceland-based ultra-low-cost carrier WOW Air ceased operations on March 28, and at the time of this writing all of their remaining aircraft are still parked at various airfields around the Atlantic, awaiting a decision by a Reykjavik bankruptcy court.

WOW Air started operations in 2012, but their business model proved unprofitable. By 2018, the company was accumulating losses at an alarming pace. In November 2018, Sigurdur Helgason, chairman of the Icelandair Group, announced “a done deal” to buy WOW Air. However, this “done deal” was shot down by Icelandair shareholders rightly worried about the financial resources needed to turn WOW Air around.

A similar deal was announced shortly after by Indigo Partners, but again the deal was scuttled by investors fretting over the financial viability of the operation.

WOW Air is yet another former darling of the financial media which praised the “aggressive expansion plans,” “cool image,” and “appeal to key demographics” without bothering with niceties such as the financial viability of the airline or market saturation. By MC01, a frequent commenter, for WOLF STREET

There has been a hail of bankruptcies in the airline sector. Read… Next in the Bankruptcy & Restructuring Saga of European and Asian Airlines

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  44 comments for “More Airlines Collapse: Jet Airways India, Alitalia, WOW Air

  1. 2banana
    Apr 17, 2019 at 5:33 pm

    “If you want to be a millionaire, start with a billion dollars and launch a new airline.”
    – Sir Richard Branson, Virgin

    • WES
      Apr 17, 2019 at 7:18 pm

      2banana: Or stated another way. To turn a fortune into a small fortune buy an airline!

    • MC01
      Apr 18, 2019 at 1:11 am

      Ryanair, EasyJet, Lufthansa, British Airways, Volga-Dnepr, Antonov Design Bureau… just a few examples of profitable airlines.

      Germania used to be a rather profitable company until management bought into “expansion at all costs” drivel. Losses didn’t matter until they did. That’s the problem in a nutshell, not the airline sector itself.

  2. Linda
    Apr 17, 2019 at 5:40 pm

    I flew WOW air in 2018 and didn’t realize it was doing that poorly but it did explain the half empty plane upon departure.

  3. OutLookingIn
    Apr 17, 2019 at 5:48 pm

    Boeing is going, going……
    They dropped the ball with the ill fated 737 MAX. This failed attempt to maintain market share against the upgraded Air Bus A 330 NEO, has put Boeing into a tough financial situation. Considering the crippling amount they are going to have to spend in legal fees and settlements, to the impending lawsuits resulting from the 737 MAX crashes. To say nothing of the mounting order cancellations.
    The entire global airline industry, both manufacturers and operators, face tough economic times ahead, calling for pared down size and lean, more efficient operations. Watch as more airlines wash down the tube, as energy prices continue to spiral up and global economic conditions continue to worsen.

    • IdahoPotato
      Apr 17, 2019 at 5:54 pm

      Nearly 100 billion dollars in federal, state and local subsidies over the past decade alone, plus all those DoD contracts for this welfare queen called Boeing. Thoughts and prayers.

      • chillbro
        Apr 17, 2019 at 6:08 pm

        Boeing cheerleader screw hates when people speak poorly of this venerated giant.

    • 2banana
      Apr 17, 2019 at 6:53 pm

      Boeing is too big to fail.

      • Paulo
        Apr 17, 2019 at 7:26 pm

        Nah, it would have to be located in a swing state like Michigan to carry that distinction.

      • Old Engineer
        Apr 17, 2019 at 8:23 pm

        Jet had an order for 217 Boeing planes that is likely going away. As others fail more orders will be lost. And their reputation is probably sunk because of the complete ethical lapse. But I think 2Banana is right, the govt will consider them too “important” to fail and the bailout will be huge. And probably fruitless.

        • Blockhead
          Apr 18, 2019 at 4:20 am

          Not fruitless; there’s at least 2Bananas left.

    • Javert Chip
      Apr 17, 2019 at 7:39 pm

      I’m not an airline guru (passenger, yes; guru, no). What secret stuff is it that OutlookingIn, IdahoPotato, Chillbro know, yet the stock price has not moved much?

      Always interesting to hear opinions and compare them to people who actually have money in the game.

      Time will tell.

      • OutLookingIn
        Apr 17, 2019 at 8:05 pm

        Javert Chip –

        “stock price has not moved much?”

        The equities (stocks) market has and is being kept elevated by purely manipulated means. ei: stock buy backs, FOMO, etc.
        If you have “money in the game” you have my condolences.
        Time will surely tell indeed!

        • Javert Chip
          Apr 18, 2019 at 11:30 am

          Uh huh.

          In the mean time, Boeing stock has not responded to your dystopian warning.

          Haven’t sold my BRK/A stock (bought 1972) yet either. However, you are correct that QE, low interest rates, stock buybacks somewhat help inflate the market, and you are also correct that the market will go down someday. We seriously disagree on “…equities (stocks) market has and is being kept elevated by PURELY MANIPULATED MEANS…”.

          But then, as the saying goes, this is why they run horse races.

      • Bankers
        Apr 17, 2019 at 10:31 pm

        “Boeing raises its dividend 20%, boosts buyback plan to $20 billion, reaffirming its bullish outlook. Boeing’s board voted Monday to raise its quarterly dividend 20 percent to $2.05 per share in 2019.” cnbc

        That is one thing, if you look through some financially related articles at (leehamnews.com) over the last couple weeks there some of the wider argument plays out in comments (transworld’s comments e.g.) which tend to give much more backing to boeing’s position.

        Me I don’t have a clue what boeing is worth, but there is no other company going to replace it well into the future either.

        O/T but why not as I think there is some broader significance somewhere : Portugal is being tested, half of its gas stations are already out of gas a day or so after a new union encompassing dangerous goods transport asks for a seat at the table and seperate terms to under the transport union, and having the backing of other main unions, calls a strike and all tankers follow. This is timed right over Easter and open ended, state of alert, rationing coming into place, airports trying to guarantee supply, some delays already. Maybe soon resolved, maybe not.

        • Bankers
          Apr 18, 2019 at 7:09 am

          The strike ended with the new union demands met, so in the end just a small reminder on how quickly the activity of any country can in certain ways be disrupted.

      • IdahoPotato
        Apr 18, 2019 at 9:11 am

        Someone close to me is an employee at one of the banks who loaned money to Jet and and he saw this coming a while ago. The Indian government bullied the banks into propping up Jet.

        As for Boeing, I have been waiting for a while for the stock price to drop despite the paeans to it by the crowd at seekingalpha.

  4. D.J.
    Apr 17, 2019 at 6:45 pm

    This is just the beginning of the airline purge. And it’s certainly not just airlines. When borrowing money became basically free, all manner of zombie companies were created and allowed to operate at a loss (and often an ever-increasing loss) year after year. When this extraordinary level of malinvestment is finally purged, look out.

    • MC01
      Apr 18, 2019 at 1:18 am

      This is not a conventional purge: think of it as airlines dropping dead at the side of the road one by one as they fall victim to their own crazy expansion plans.
      This started back in 2017 with Air Berlin: it wasn’t supposed to happen as Mr Draghi was busy hitting interest rates on the head with a mallet and the company was supposed to be backed by Gulf investors eager to burn through mountains of cash. Failing that the German government was said to have a rescue plan already formed; kinda like the Fed has “folded” and will cut interest rates and start buying securities by the trillion next week. In short it shouldn’t have happened. But it did.
      As Michael O’Leary of Ryanair fame said “Expect these bankruptcies to become the norm”.

      • Bankers
        Apr 18, 2019 at 8:14 am

        That makes me ask where the world economy is going, or if it knows it’s own direction. Examples of say the industrial revolution and subsequent urbanisation of society, the major shifts of all kinds that appeared then, now seem similar but to be technological and service related and at a global scale, with developing countries going through previous transitions at high speed catch up. Always governance and management of the resulting reality poses new challenges, the political experimentation at various turning points being very obvious, and I suppose global finance, media control, and social themes are all product of new attempts to channel that direction. The oversupply of credit to me seems like an attempt to wash out competition and settle demand into a new hierarchy of supply, it wrecks the more traditional order, but where does it lead to ? I don’t think at all it is an inevitable direction, I have seen local economies set for a slow fruitful continuation of their existing order completely transformed, and not always for the better, just because of new pressures that were allowed introduced, just because change was possible and profitable for some. The result though will be what ? For airlines I imagine the cost cutting financially eased competition will end with a greater monopoly, especially due to restriction on available routes, and that prices will then rise in relative terms, passenger numbers either settle down ( in which case you end up with some kind of cost/price balance being reached) or be restricted by seating limits (in which case the benefit is ultimately to airlines and airport construction) . There is going to remain high demand for air travel, hence airlines, hence aircraft, so in all it is more a question of which companies will end up ahead and dominant. Apart from all of the financially sponsored availability, the other main real restriction will be fuel costs, a sharp rise in fuel prices at any time will shake out the sector quite quickly I think due to decrease in passenger numbers. What is funny is that national carriers used to be something of the monopoly ( and still are for certain countries) , in a new liberalised market monopoly is instead being fought by finance, often with indirect national backing to that effort. Unusual times we live in, a lot of uncertainty and ‘just in time’ in the air, and a lot of soft backing keeping it that way. Previously planning was slower but much more methodical.

        • sierra7
          Apr 18, 2019 at 11:33 am

          Bankers:
          Kinda reminds me of the famous line in the original movie, “Wall Street” (Late 1980’s)…..why the destruction of an airline by the lead (Michael Douglas)…..”….because it’s ‘wreckable’, OK!” This is what minimum regulated capitalism looks like. It’s gonna be a long slide to the bottom but that slide will continue. There’s only so much juice you can squeeze out of a lemon!

  5. HR01
    Apr 18, 2019 at 12:18 am

    MC01,

    Thanks for the update.

    No surprise about Jet Airways. The company has $900 million in loans due within the next 12 months. Scratch off 225 planes from Boeing’s order book.

    No surprise on WOW either and Alitalia is the zombie that won’t admit it’s dead.

    Norwegian Air shuttle not long for this world either. The grounding of the MAX has killed its chances to compete on long-distance routes. We’ll likely be reading about their demise later this year or early in 2020.

    Avianca Brazil finally got approval for its recovery plan by creditors. Will be split up into seven units and sold to repay debt. Azul has a bid of $105 million for one of the units that includes 30 A320’s.

    As for BA, some of the comments here are overdone. The company’s demise is not imminent. However the risk built into the share price is significant. The order book likely sustains significant cancellations the next 18 months or so.

    • MC01
      Apr 18, 2019 at 7:21 am

      Norwegian lost NOK1.54 billion in FY2018 which compared to the NOK2.24 billion they lost in FY2017 looks great, until one reads the whole press release.
      Norwegian sold off all of their brand new Airbus A321neo. These is not what they did in 2017, selling off a number of their Boeing 737-800 and leasing them back in sweetheart deals to raise quick cash: these aircraft are gone for good.
      Also Norwegian announced (like Air New Zealand did at the same time) they have delayed deliveries of part of their Dreamliners. As we are not privy to the agreements between Boeing and Norwegian (as is usual these agreements remain confidential) it’s possible canceling orders outright would have cost Norwegian money, so it’s just cheaper and easier to put the problem into the future.
      It seems Norwegian’s charm is getting a bit long in the tooth: differently from Netflix, Delivery Hero and the rest of the cash burning machines they haven’t been able to bamboozle investors into keeping on providing liquidity on a strict no-questions asked basis. Shares have been bludgeoned year on year (down from NOK172 to NOK40) but they haven’t been wiped out yet, proof once again that stock markets exist in the same parallel universe as Chinese economic data.

      Regarding Boeing… I don’t think their order book will suffer as much as others believe, at least as long as the Asian companies behind most mega-orders can perform their balancing act. But profits are another matter completely. But big cash-laden customers with huge standing orders and big options for the MAX series like Ryanair and Southwest are going to grab Boeing by the ankles and shake it for pennies.
      Boeing can always fall back to the obscenely profitable military contracts, but I fear those have long been “priced in”. Multiple times.

      • MCH
        Apr 18, 2019 at 3:31 pm

        There is also the issue of ME3 with their mega orders propping up 777x. I am now wondering when someone will decide to split Boeing off into a military company and a civilian company again.

        • MC01
          Apr 19, 2019 at 2:14 am

          Forget the 777X: think about the 747-8.

  6. J.M.Keynes
    Apr 18, 2019 at 12:54 am

    – As soon as I heard of the bankruptcy of WOW Air(-lines), I thought this would be picked up by MC01 here at Wolfstreet.
    – Alitalia has been a basket case for decades. And everytime I thought that it wouldn’t survive the company was able to come back to live, was given an extended life. One reason it survived was national pride. Each country wants to have its own national airline and Italy was no exception.
    – It’s long overdue to let Alitalia go bankrupt.

    • Javert Chip
      Apr 19, 2019 at 9:34 am

      …and Italy.

  7. Willy2
    Apr 18, 2019 at 1:08 am

    – With all these airline companies failing the waiting list for all those newly ordered planes will be thinned out very significantly/soon.
    – @MC01: Do you have an estimate how long Etihad will be able to survive ?

    • MC01
      Apr 19, 2019 at 6:16 am

      I haven’t got a crystal ball, but Etihad will be around for as long as the Al Nayan (the Abu Dhabi ruling family) want.

      To be honest given the monstruous appetite for yield worldwide I am actually surprised Etihad, Emirates, Gulf Air etc haven’t followed in Aramco’s footsteps and started to issue bonds to foreign investors. We are far more desperate for any scrap of yield than Etihad will ever be for cash…

  8. Bob
    Apr 18, 2019 at 1:30 am

    Don’t get it
    When the UK bailed out the banks the EU said they had to sell there best bits off to conform with EU rules
    Seems that only the UK has to do it
    As Italy does what it wants like France does

    • MC01
      Apr 18, 2019 at 6:43 am

      The EU has a very thick and rather convoluted rulebook when it comes to “State aids”.

      For example the two “bailouts” of perpetually troubled HSH-Nordbank were given the green light on the ground the two main shareholders (the City of Hamburg and the Land of Schleswig-Holstein) would eat the losses and inject new liquidity. This is how the German banking sector was bailed out without anybody noticing: as the main shareholders were invariably Länder and Cities, they were passed off as bail-ins, and technically they were.

      Another example are the subsidies airports receive from local governments: the airport of Frankfurt-Hahn (well, technically it’s 120km from Frankfurt and the nearest railway station is 20km away; talk about false advertising!) has two shareholders. HNA Group of China, owning 82.5% of shares, and the Land of Hesse, owning 17.5%.
      This airport has always lost money, but until HNA seemed to have money to burn it was not a problem. All of this changed when HNA Group was revealed to be yet another “naked swimmer”.
      As Ryanair announced they are shifting part of their operations to the (true) Frankfurt Airport following the purchase of a majority stake in Laudamotion, the Land of Hesse applied with the EU to directly subsidize airport operations. This was duly approved, albeit subsidies cannot exceed a total of €25 million from 2018 to 2021.
      This set a very intriguing precedent as the Land of Hesse is clearly the junior partner in this operation and opens the door for all kinds of EU-sanctioned shenanigans.

      • Olivier
        Apr 19, 2019 at 12:04 pm

        I would say (based on these examples at least) that it’s not convoluted at all: an owner is a “source of strength”, to use US lingo, and thus obligated to puts its own property to rights, including making good on losses. That applies to public as well as private owners. It’s only a bailout when the state rescues something that is not its property.

        I’ll grant you, though, that it raises eyebrows when the state is only a junior partner. And yes the name of that airport is a sad joke.

  9. Realist
    Apr 18, 2019 at 2:20 am

    I have always wondered where the budget airlines do their cuts to manage to keep fares down because cheap money can’t cover everything.

    Boeing’s difficulties are so huge that it must be felt in the official GDP numbers of the US for April.

    I did recenly watch an interesting document about Boeing and if even a quarter of what the document claimed is true, that would go a long way to explain the 737 MAX debacle.

    Here’s a link to the document:

    https://www.youtube.com/watch?v=UqIzcuNpXP0

  10. Nars
    Apr 18, 2019 at 7:00 am

    Use jet regularly great airline in the domestic scene .. they will be back it’s simply a way to not pay debts settle at pennies on the dollar and restart anew leaving shareholders and creditors in the toilet grasping for air before the final flush ….hey is that not what private equity does all the time….Sears…payless shoes etc. Way to go the more power to shet they figured this out sooner this way it stops the venture capitalists from getting it … any company about to go under should follow the jet model you might as well scrrw it so bad and then go to venture capitalists so they have nothing left well played kudos to jet management

    • IdahoPotato
      Apr 18, 2019 at 9:54 am

      Agree about the quality of Jet service. They have a loyal passenger base.

    • MC01
      Apr 18, 2019 at 1:46 pm

      To do that Jet Airways would need to either go through a proper bankruptcy procedure or find some kind of binding agreements with their creditors.
      They may get away with some shenanigans on the Indian market, but Small Planet was forced to enter liquidation precisely because their inability to pay the bills meant they lost their license to operate in the EU and in Thailand.

      On top of this lessors are getting back their aircraft, or they already got them back. Leasing companies don’t like having their aircraft in the hands of bankrupt companies or, worse, deadbeats, and now even less than before since there’s good money to be made with the start of the vacation frenzy in Europe and the Hajj less than four months away. Aircraft need to be stripped of the Jet livery and prepared for the new customers.
      On top of this there’s always the possibility of shenanigans: last year GECAS and CIT had serious troubles repossessing the aircraft they had leased to Cobalt Air because “somebody” had parked a row of old vans and pickup trucks all around the aircraft. As airport authorities proved unable (or unwilling) to help, the situation was resolved by involving the US and Irish embassies in Nicosia, but only after a long stadoff.
      Nobody wants a repetition of that.

  11. Paulo
    Apr 18, 2019 at 10:12 am

    These airlines are dying at the side of the road and I agree they will continue to do so. The reason why I believe this is looking at two trends; smaller airlines and over tourism.

    In another lifetime I used to be a bush pilot in Canada’s North. I got into it at what I call the ‘tail end’, when flying was still flying and not operating computers. The oldest machine I flew was built in the ’30s and we were the workhorses who opened the north up. We were paid well. Two summers ago I was offered a job after leaving the industry for over 15 years. It came out of nowhere and was quite flattering and lucrative. These operators can no longer find experienced pilots who know what they are doing without ATC holding their hands, and companies are also being over regulated with almost nonsensical strictures from Ottawa and TC regional offices.

    Who cares and why is this important?

    That kind of flying was the beginning and foundation of all things aviation. Freight, mail flights, mining, medical emergencies, etc. What has morphed into what most now think of the aviation industry of today is what I call the ‘touristification’ of every possible location imaginable. Even places like Iceland are over crowded, the Canaries are like a little slice of England (without the water….think desalination plants), Hawaii is talking about discouraging any increase in tourism, and the thought of standing in line at the Louvre to glimpse a painting behind forty or fifty backs and rear ends is absolutely nauseating. My wife told me when she first viewed the Mona Lisa there were 3 other people with her. Nowadays, there would be +100-200. It is insanity. Spain? The Red Sea? Even Antarctica is over prescribed.

    How was this all possible? Enabling technological advances (in particular engines and structure materials like light weight honey-comb flooring, composites, etc), marketing, debt DEBT DEBT, and cheap fuel. These remarkable machines run on fuel cheaper than bottled water. Think about it…fuel cheaper than water.

    Last week I surfed out some of the old companies and locations I used to work for and at; just for fun. Most of the companies no longer exist. I still live on the west coast where I flew on and off for another 15 years as a part-timer while I worked at a real job. Our location was the busiest seaplane base in the World in the ’70s and 80s. Now, there 4-5 machines, and work for 3. People here now travel by boat, car, or have cut back, totally.

    You take away the debt fueled tourism industry, whim and fluff on a credit card that books seats on airlines operating on 2-3% credit (leased machines); flying to places that has no more room, places now exhibiting outright animosity towards foreign tourists (like Spain), running on fuel cheaper than water……It. Ain’t. Goona. Last.

    This is just the beginning of the real coapse after recent consolidation trends. It used to be, in my lifetime, that people welcomed tourists and wondered how they came to visit? I don’t think that is even the slightest possible case, anymore. People accept tourism if there is no possible other way to make a buck, but really, what kind of dignity is there cleaning and picking up soiled towels and plates? If there was any other way to make a living……

    And when the free flowing dollars quit, this almost free money? Aviation will be a true canary. I submit less than 10% of flying is actually necessary. Cruise lines? They’re next.

    But hey, what do I know beyond this fact? The river I live on used to have a seaplane dock and was a sched stop for a local coastal airline. The dock is long gone. It is now a nature preserve. The airline is long gone, and there is little to no travel by air anymore. I last landed on this river in 1993.

    regards

    • a reader
      Apr 18, 2019 at 11:39 am

      A most excellent comment. Cheap fuel is like a bag of sugar somebody dumped near an ant hill.

      “I submit less than 10% of flying is actually necessary.”

      When this frantic, pointless hyperactivity finally tapers off we’ll all be better off, in a meaningful way.

  12. Tonymike
    Apr 18, 2019 at 10:43 am

    I would say that flights should be cheaper in the US, but we have a monopoly based system with few choices. I believe the prices are rigged by the big 4 and their “ancillary services” which rip flyers off to the tune of billions, should force regulation once more by the government.

    Fly to Asia on an american flagged plane is akin to being at gitmo. I fly the Asian carriers because they at least “act” like they are concerned that you enjoy your flight.
    Also, the comment about too many tourist may be an issue to some, but I would rather people see how others live, love, and laugh, so that it can allow us to understand each other a little better and see the world in a different light. American’s don’t travel and the collective ignorant of the exceptional people is staggering.

  13. raxadian
    Apr 18, 2019 at 3:41 pm

    Any good book that explaijs why 90% Airlines or more are money sinks? Because is kind of ridiculous at this point.

    • Apr 18, 2019 at 6:19 pm

      My short answer would be that they keep finding investors willing to buy the hype. Over and over again. But it’s a brutal business.

    • MC01
      Apr 19, 2019 at 1:03 am

      Raxadian: the idea that the airline business as a whole is a money losing business is not correct by any stretch of imagination.
      The problems invariably start when a company falls victim to overambitious expansion plans. Just look at Germania: they went from turning a steady €6 million profit per year to losing big money pratically overnight in FY2013.
      Germania made great money for investors, chiefly private pension funds, for years so it’s no small wonder they found investors ready to bankroll their crazy expansion plans. By the time everybody realized these plans were bogus it was already too late.

      Then there are companies like WOW or Primera which basically started out with no clear plans to profitability but a very slick image and the promise of bringing a “disruptive model” to the airline world. The problem is of course in a tightly regulated world such as air travel being disruptive will only take you so far: you have to fly the same aircraft as everybody else, with the same level of maintenance, to the same airports using the same fuel… investors usually allow themselves to be taken in because they are offered two/three interest rate points over other investments. It’s no small wonder all these airlines originate from countries like Denmark and Sweden where financial repression has long been the norm and where private pension/wealth management funds really need the yield. So we are back to the old problem: interest rates do not reflect the risk. But that was the plan from the start.

      Finally we have all the “Emerging Markets”. That’s a completely different can of worms, but I’ll content myself with one country: Turkey. The European market is awash in Turkish airlines right now: Corendon, Pegasus, SunExpress… you name it. Their expansion was chiefly driven by three factors: an overvalued Turkish lira, especially to the US dollar, record-low interest rates in foreign currency denominated loans and extremely low wages in euro terms.
      Some of these companies follow the TUI model: they work closely with (or belong to) travel groups to bring turists to Turkey and back home and make money on top by chartering and wet-leasing their own aircraft.
      But the rest charged in guns blazing to get a slice of an oversupplied market where even Ryanair and EasyJet are seeing their usually steady profits reduced.
      These Turkish airlines have enormous debts denominated in US dollars and euro at a time when the Turkish lira is getting bludgeoned back to its place. That’s a ticking time bomb even if interest rates in the US and Europe remain repressed forever (as it seems more and more likely). They desperately need every euro they can get to service that debt, so they are becoming even more aggressive in that same oversupplied market… you see where this is headed.

  14. marc
    Apr 18, 2019 at 8:16 pm

    The airline industry is a mystery.
    To me, a mega flyer who has no interest in planes or airlines besides the ability to sleep in business class, I see 2 configurations.
    1) the legacy dinosaurs:
    Alitalia is a great example: the service is awful, flight attendants do not give a shit, they’re quasi civil servants and understand customer service as directed to them, not by them.
    They’re all unionized and lazy beyond any therapy , short of bankruptcy.

    2) the “new economy” miracles.
    Like Wow or many others. How they got started and survived is a mystery. They do well in a “new economy” paradigm burning cash until they just drop dead when they miss a payment.
    Eventually things will have to settle somewhere stable.
    Or not.

  15. Mickey
    Apr 19, 2019 at 7:14 am

    Lets watch the industry if oil prices continue to increase or interest rates go up or credit is cut off to consumers and companies or even a large countries government.

    Also take a look at boeings balance sheet. Aint much liquidity war chest there.

    There is a fine line between prosperity and collapse when the prosperity is achieved with massive leverage

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