By LIAM DENNING
Old airplanes aren't necessarily unsafe; after all, how else do they get to be old? But they do guzzle oil. The world's airlines are expected to make a profit of $4 billion this year, down 78% from last year, according to the International Air Transport Association's latest estimate, released Monday. High fuel prices are the major culprit, set to account for 30% of operating costs this year, the highest since 33% in 2008. The figure 10 years ago was 13%.
Airline stocks sold off on the news, as you might expect. But like makers of small cars when gasoline is at $4 a gallon, aircraft manufacturers and suppliers should benefit.
Liam Denning explains why high oil prices may prove to be a boom to the aircraft makers, such as Boeing, as airlines seek to replace old planes with new fuel-efficient models.
An important difference between today and 2008 is that, despite oil's strength, airlines should still be profitable this year. In the U.S., cost cutting has made room to absorb higher fuel prices. Labor accounted for 35.4% of the U.S. airline industry's operating costs in 2001, but just 25.3% in 2009, according to the U.S.'s Air Transport Association. Slashing routes has also kept planes full and ticket prices high.
Squeezing labor, raising ticket prices, and cutting routes have finite utility, though. Workers and passengers revolt eventually: Price-sensitive demand for economy-class seats has fallen 3.5% over the past five months, says IATA. Cutting routes, meanwhile, means remaining ones have to absorb more overhead.
Replacing planes with more fuel-efficient models is, therefore, one of the few levers left to airline management for preserving profits. An Airbus A320, for example, saves more than a quarter on fuel costs compared with the older McDonnell Douglas MD-80. Boeing's delayed 787 Dreamliner and Airbus's A320 Neo are just two examples of new models designed to cut oil consumption.
At the same time, airlines, particularly in the U.S., have been scrimping on investment in new planes in recent years to preserve cash: Capital expenditure by the world's 50 largest airlines was just 8% of revenue last year, the lowest in at least a decade, according to Nomura. The stage is set for a wave of replacements of older planes in developed markets, to complement the continuing growth of aircraft fleets in developing markets.
Single-aisle aircraft, workhorses for regional routes and trans-Atlantic flights, represent a big opportunity. J.P. Morgan Cazenove identifies models like the MD-80 and sister model MD-90, Boeing 757s and older-generation Boeing 737s as being particularly disadvantaged in terms of fuel efficiency. Altogether, there are almost 4,500 of these aircraft in service globally.
As airlines replace their fleets, the obvious beneficiaries are Boeing and EADS, which owns Airbus. Investors should also consider suppliers to the two big manufacturers, such as GoodrichCorp.
More discretion is required when it comes to aircraft-engine manufacturers such as France's Safran. While they benefit from new engine orders, they also lose high-margin post-sale service revenue when older aircraft are scrapped. Even so, airlines' persistent pain at the pump should boost aircraft suppliers' profits for years to come.
Write to Liam Denning at liam.denning@wsj.com
沒有留言:
張貼留言