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Houston plays host to Super Bowl LI on February 5. America’s most prominent sporting event is a very big deal in the travel industry, and this year should be no exception. In the video below (posted December 16), Bloomberg’s Nikki Epstein and David Gura explore the fine art of finding a deal. The city has spent massive amounts of money preparing its entertainment districts for visitors, and if one can’t find a room in one of the hot hotels, there’s still the chance to book a reservation in the right restaurant and stargaze.
Of course, by now the bargains are gone and most of us will stay at home. Gameday occupies an iconic place in American life, as illustrated by the decision of Kraft Heinz to give its office employees the next day off. Those that remain, that is. Kraft recently acquired the Heinz ketchup empire in one of the decade’s mega-mergers, and the restructuring that followed was a particularly tough one. The company has decided not to repeat its pricey Super Bowl advertising campaign of 2016, which featured pooches in hot dog outfits performing for condiment-clad owners, (The former had more dignity,) Even the Super Bowl is not immune to the allure of saving a buck!
British Prime Minister delivered a key policy speech on January 17 that set forth her plans for a definitive exit from the European Union. Speculation had been growing that her Cabinet was struggling with the outcome of last year’s referendum, and that she could not deliver on her previous promise that “Brexit means Brexit”. Her address laid out the broad principles governing the Brexit negotiation: restoration of full sovereignty to Parliament, exit from the EU’s customs union, recognition of British courts as the highest legal authority in the UK, and full control by Westminster over borders and immigration. The Wall Street Journal reports her declaration that:
“What I am proposing cannot mean membership of the single market. Instead we seek the greatest possible access to it through a new, comprehensive, bold and ambitious free-trade agreement.
I want Britain to be able to negotiate its own trade agreements. But I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible.”
Social Commentary Channel has posted the video of the entire 50 minute speech, which appears below.
Stock investors enjoyed a nice ride on the bull during 2016. That didn’t look to be the case for much of the year, notable for its mini-corrections and nerve-wracking volatility. But the broader averages prospered in the end, with the Dow Jones Industrial Average in particular, with its basket of large cap stocks well positioned to be the beneficiaries of massive capital inflows in this Age of Liquidity, clocking in a VERY respectable 13% gain.
Airline stocks, dogs for much of 2016, wound up all over the place. Of the majors, United staged the most impressive recovery, rising 27% after management changes and an increasingly visible marketing campaign. Reliable, well-capitalized and never bankrupt Southwest also did very well at close to 16%, while American and Alaska have apparently calmed down investors’ fears regarding capital spending (AAL) and merger complications (ALK) .
The notoriously sensitive airline sector did well considering the turbulence of the political season and its focus on trade, industrial policy, terrorism and immigration, all of which have a big impact on travel. Yet it’s also remarkable how little attention was paid to two other variables, the rise in energy prices and the strange movements in interest rates. Oil prices are up sharply at 45% compared to the beginning of the year. Despite all the talk of raising rates, long-term treasury rates FELL during much of the year, and were as low as 2.3% in June. They essentially returned to the status quo by year-end. If one had a suspicious mind, one might surmise…smoke, mirrors and election year manipulation. But who has a suspicious mind? 🙂
Image: Hall of Mirrors, Versailles, by Myrabella
What a difference one month makes! November was very kind to airline stocks, which had been laggards for most of the year. Most of the group finds itself in positive territory on a year-to-date basis, while some have posted double digit gains. (The change in UAL is particularly striking.) The sector’s performance is all the more impressive given both the recovery in energy prices and the arrival of long-anticipated increases in interest rates. Even the famously skeptical Warren Buffet is moving into the group, with a particularly large position in American. The market in general is enjoying a post-election spurt. The jury is still out as to the durability of the “Trump rally’. There are a lot of big decisions awaiting the new administration, and events overseas (such as a potential Italian bank crisis) can always complicate life for the best portfolios.
Domestic airline stocks continued to lag the market in October, but many are no longer in stinker territory. American and United in particular have recovered a lot of lost ground, although both are slightly negative on a year-to-date basis. The broader indices are showing a modest return, but many analysts expect a lot of volatility before we ring in the New Year, especially with a possibly turbulent election and unpredictable policy outcomes. Oil prices are holding on to this year’s gains. The decline in interest rates YTD contradicts the optimism of consensus opinion about the strength of the economy. Rate increases are continually talked about but do not materialize. What are the policy makers seeing but not saying?
Airline stocks continue to languish at the end of the third quarter. Most are solidly in the red despite an upwards trend in the rest of the market. OPEC moved to stem the decline in oil prices in late September, while there are continuing pressures on the revenue front in the face of climbing capacity. The Dow Jones airline index is down by -15%, while Delta and Jet Blue are the worst laggards among the individual carriers, posting losses for the year of -22% and -24%, respectively. Despite all the talk of interest rate hikes, long-term rates are still in decline mode, and consumers appear to be in a somewhat nervous, penny-pinching mood.
While the major equity indices scrape new highs, airline stocks remain distinct laggards. Most are trailing by substantial margins. The industry continues to work on managing through the post-consolidation era, as evidenced by the recent efforts by UAL and AAL to firm up their management teams. The bonanza of lower fuel prices provided a huge tailwind during the later stages of this process. It gave the carriers the cash profits to fund integration tasks and appease a restless labor force. But that gift does not seem inclined to keep on giving. While the broader economy is still in recovery mode, it is delivering subpar growth and employment numbers. The retail sector is closing stores and downsizing – never a good sign for a cyclical industry like air transportation. Many investors question the buoyancy of the current stock market, observing that, despite all the talk about interest rates rising in response to the “strong” economy, rates have actually been dropping. How will aviation stocks in the post-consolidation era perform if a real recession comes along? That is the big question!
Airline stock prices moved up somewhat in July, responding to lower fuel prices and interest rates. American became the best (least worst!) performer of the “Big Three” as it announced plans to defer aircraft deliveries and thus take some strain off its debt-laden balance sheet. The sector continues to stack up badly against the broader indices in July, which are now solidly in the black following the summer rally.
The economy at large is sending worrisome signals. Anemic growth rates, coupled with downward moves in interest rates and sideways moves in employment, do not make for cheerful reading. It has been a disappointing economic recovery. And it’s getting long in the tooth.
The year has not been kind to airline stocks so far. Their performance relative to the broader indices is, quite simply, atrocious. Indeed, the industry’s malaise reminds one of the Warren Buffet witticism that prescient investors would have shot Orville and Wilbur down back in 1903. Of course, apart from standard Wall Street fear and greed, there are plenty of causes for concern. The salad days of constant oil price declines may be over. Both markets and currencies are in turmoil post-Brexit, while economic growth is sluggish and certain key indicators are sending recession signals. Capacity, security and leverage (read AAL) are perennial concerns. We will see if the summer travel season provides a chance for the industry to perk up and give its beleaguered investors a break.
Before there was virtual space, there was physical space. And when it comes to advertising real estate and visualizing the brand, nothing beats a billboard in the sky.. Airlines have paid a great deal of attention to the image their planes cut up there, although jazzy paint schemes cost money and don’t help the aircraft fly any better. KLM is doing a major refresh of its livery, adding a huge splash of the signature orange always associated with Holland. It’s a warm color, but it looks pretty cool!