1kBill

mcgahat

I would think the companies cash position would dictate this. With credit the way it is for even good companies if you dont hasve cash then you are done and chapter 11 may hold things off for a bit but not like in the past. I also think a lot of other airlines will fall before UA.

HonestABE

The million mile question then is:

If many legacies are facing extinction, how much will they cut back their FF programs in an attempt to survive?

If they go "nuclear" (i.e., suspend or eliminate their FF programs), there won't be much left after the dust settles.....

BobKinkaid

I've had conversations with people over the last two weeks who think oil may actually go down. The markets are getting wise to Iran's posturing over the nuclear issue, which has its partially intended effect of raising oil futures over market/supply jitters. This, of course, helps Iran quite a bit.

Russia is doing their part in the game to perpetuate tension, since they are in the position to turn the nuclear valve on or off, with respect to Iran, since they supply the reactor(s) (especially Bushere), the technology and, very importantly, the fuel itself. It's also not in Russia's interest to have another nuclear power and an instable one at that, on its southern flanks. However, it is very much in their interest to prolong the angst, so they'll dribble out things nuclear to Iran to draw things out optimally for themselves.

The Russians are another winner in this game, because as tensions increase, so does the price of oil, which feeds their coffers and emboldens them even more, with respect to foreign policy.

(They're still big-time pissed at us (and the EU), for endorsing Kosovo independence and creating a domestic and buffer state problem for them). (It was a dumb move on our part...)

And, Nigeria has the nasty rebels who are annoyed, because they're not cut in on the oil platform and pipeline deals, so they're creating instability by kidnapping foreign oil service employees and cutting into pipelines, which drives up the oil even further.

However, consider these factors:

1) Expanded oil production in the US will be a reality, notwithstanding the moralistic wailings of the "environmentalists". There's a geopolitical strategic component, not to mention political issues, here that will not tolerate further dissent on this topic

2) Further exploration will take place in this country, in part, because the holes that were drilled in the past were done with lesser technology, the price was much lower and the maps many E&P (Energy & Production) people were using were inaccurate and out of date.

3) Huge new reserves have been discovered, not only in this country, but offshore from Brazil. 100% chance they'll come on-line.

4) The price of oil is approaching the point where it's quite appealing politically and now getting economical to give impetus to alternative (read non-oil) technology development. You can bet that this has not escaped the OPEC nations' notice, so before long, there will be a heavy push to get prices down. If you were a member of OPEC, it would not be in your long-term interest to witness the rise and widespread acceptance and implementation of these alternative technologies. You'd want to play brinkmanship, to optimize the market yield, but would cut it short, just before those alternative technologies gained the confidence of the capital markets. That means production would go up and prices would be going down.

5) The EU countries, especially the Brits, just love their carbon credit scheme and the exchequer is just wallowing in new-found tax funds, through "environmental" taxes. But, that's going to raise prices even higher, reducing demand further.

6) China (and other countries) are reducing their subsidies for oil to their populations, because to do so is unsustainable. This will dampen demand, but only somewhat.

7) Iran is actually a smaller player in this; did you know that Iran has leased dozens of tankers to store their heavy, sour crude in, because they cannot sell it to the market? And, how many of us know that Venezuelan crude has the undesirable properties of being of high viscosity and highly sulfurous, where only a few refineries can accept it? (They are the CITCO-owned refineries - two and a Valero refinery). Brazil, Argentina, Columbia, Uruguay and Chile are thoroughly fatigued with Hugo Chavez's antics and rhetoric and will do much to help clip his wings a bit. This points to a potential softening of the market.

8) The nations that are the bad guys to the US (many of the OPEC nations), don't want to see McCain get in; they really want to see Obama elected, figuring there will be a bit of a geopolitical retreat with him, giving them some relief. If they keep pushing, they'll get McCain elected, a prospect they really fear.

So, while I'm not saying oil will go down immediately, the longer term trend seems to indicate this. If I were in the capital markets and investing, I would be looking long and hard at this.

I'm not too worried about the legacy carriers going out of business. They have to be looking at the same data I'm looking at. I didn't have to look too hard to find it and arrive at some of the points I just made.

Given that, all the hand-wringing and eyes cast heavenwards for signs over the airline industry would appear to be unnecessary.

trflyer

I agree with Lucky, Woodway and others that this kind of speculation is useless. Informed major Wall Street analyst reports (S&P- 6/28; Goldman Sachs-7/2) do not call for these draconian scenarios for UAUA.

das

Add Frontier, Spirit, and Airtran to that list. Not that I think all of these carriers will liquidate.

As you say, anything's possible, and while I think there is definitely more restructuring to come at UA, we need to keep in mind that other carriers are in worse shape with weaker route networks, and that any liquidation will reduce industry capacity and improve conditions for UA and other survivors.

Southwest is definitely in a good position right now, but since oil hedges won't cover incremental growth, I can't see them getting so big they are the only game in town...after a point, it would destroy their profitability.

N334AA

A very well thought out post BobKinkaid, I agree with your points. Welcome to Flyertalk!

planemechanic

Agreed, I was just listing major airlines, there are others that would go long before UA.



My point exactly. I do not see UA going back to BK nor do I see them liquidating. UA has been a long time favorite of the stock shorters and it is posts like the OP that help that effort along. Call a goose a duck long enough and the uninformed will begin to agree with you out of sheer exhaustion.

Nexus888

No info, you are all guessing, and the OP should have known better than post like this.

No facts, and a totally waste of time for flyertalk.

Grace B

Is there a parallel there with the oil futures shorters?

CommittedLurker

Not for me.

I was referring to collecting miles on another program, instead of UA.

I had 600,000 miles at the beginning of the year, and will be down to 6,000 by February. I just hope UA is around until then.

1K could be had for $2,500 this year with the DEQM promo. 600,000 miles = $20,000-$25,000. I consider my unused miles to be more valuable than so called 1K "Elite" Status.

BobKinkaid

Thanks and thanks.

I just wanted people to have the perspective of the bigger picture and events at hand, rather than looking at things through the lens of the US media.

UA_Flyer

^^

Welcome to Flyertalk! you get a :-: from the the above statement.

westerndh

What a fantastic & well presented post - any other forum & people would need to get their atlases out!

oswaldjacoby

United is clearly not sustainable in its current form. No company can survive with such massive losses. So, it is clear that a minimum, another trip to bankruptcy court is inevitable. The question then becomes whether United has any hope of successfully reorganizing this time around. They are in bad enough shape, that we cant discount the possibility of chapter 7. However, what is more likely is that someone else will buy up a stipped down form of United--just the most valuable assets, with everything else liquidated for creditors.