teddybAIR wrote: ↑
07 Jun 2020, 09:22
Flanker2 wrote: ↑
06 Jun 2020, 21:22
The macro numbers are not good. Company fundamentals are bad across the board and getting worse by the day.
Indeed, but usually when this happens, there is an economic root cause that generated these numbers. In this case it is an unprecedented worldwide months long lock down of a large part of the economy. Next to that, the uncertainty that comes with 1) the abscence of a vaccine and 2) the unpredictability of a possible second wave urges entrepreneurs and households to largely postpone purchases.
On the condition that we can achieve a reliable path to a vaccine and treatment in the medium term, that uncertainty will be largely mitigated and consumer and employer condfidence level will largely restore as the fittest survived the crisis. However, it will be paramount to think about company resilience and shape in a post-corona world where both the virus and the lockdown have affected consumer behavior in various ways.
I think you are right that the cash burning rate will increase when we start flying again due to low yields (I'm rather confident that volumes will largely restore, but more worried about Revenues per Passenger Kilomter). However, that is not a case to delay the start-up for the simple reason that the competitive environment has largely been reset and new first mover advanteges are to be gained. If you do not have the means to outlive the increased cash burn of a start-up phase now, then you will be unlikely to survive a delayed start-up as well.
My expectation is that on a 5 year horizon the companies that will have sustainably survived this crisis, will be the ones who have taken the toughest decisions on the one hand and the ones that are able to maintain the competitive edge they had before the crisis. I worry most about those airlines that seem to be slow or unwilling to adapte or reorganise.
Macro economic numbers will possibly return to pre-corona levels very fast. The world wide stock exchanges are good barometers for the broad sentiment and they do not reflect the times we have gone through sincne january 2020 at all. They reflect overall optimism and seem to take into account a 'W' or possibly even 'V' shaped recovery.
Only time will tell.
While that is a possibility that we can all hope for, I very much doubt it and most of all in the aviation industry.
Why? Because first of all, the aviation industry is highly seasonal and profits are concentrated on the period of June to September.
June is already a lost cause and bookings for July and August are not picking up pace yet.
A few lines about the stock market:
The current stock market is not a reflection of the fundamentals of the underlying assets.
As many, I've done some research recently trying to make sense of it.
The FED and central banks have swamped the market with lots of cash that institutions and investors are pumping into stocks.
This is causing inflation within the stock market.
At the same time, the trillions in stimulus is creating worry of an inflation, so putting cash in stocks is being considered a defensive strategy, fueling this even more.
However, in the real world, consumers are not spending money because their purchasing power has been cut or reduced.
So the companies behind those stocks are actually experiencing a deflation of their balance sheets.
Cash is being burned while spending is reduced, revenues are down or almost nil.
So what we are experiencing right now on the stock market is a bubble.
The Trillions in stimulus that the central banks have let loose have all been largely parked into the stock market rather than stimulating the economy.
Like all bubbles, it is going to spat sooner or later, we just don't know when and what will be the trigger.
Will it be in July when companies and governments announce Q2 results and GDP numbers?
Will it be in September when companies start failing one after the other?
Will it be in October/November when Coronavirus numbers are going to go up in a strong second wave or at the peak of it in December/January?
Being a first-mover can easily be a disadvantage.
Alitalia's flight this afternoon BRU-FCO seems to have at least 5 out of 34 seats available. According to the seatmap, it's even 11 out of 34 seats.
This is on an A320 and despite open borders in Italy.
The incoming flight is even worse of course with 16 out of 34 seats available.
This is an airline that is operating reliably and offering free first changes, not cancelling flights and issuing vouchers.
(as said earlier, AZ is not doing this for first-mover advantages, but as a public service)
SN already adjusted their schedules many times and I can feel that they are itching to postpone flights.
As I said earlier, I had bookings with Easyjet and Transavia and they were cancelled while route relaunches are being postponed week after week due to low bookings.
There is no money to be made in the current market, only money to be lost.
This is not a theory but a statement on the state of the market.
The situation can improve but I don't see it happening, because people are currently concerned about their incomes and protecting what they have, not about spending money on their travels.
Governments are subsidizing future jobs rather than consumption today. As long as they keep doing that, the stock market will go up, but the real economy will go down, and demand for air travel will remain abysmal.