On the matter of the stories in the market right now I think that the partial closures within the US government are very interesting. Last week we reported that the FAA has partially closed down and that US airlines are collecting taxes from bookings but are no longer paying the FAA.
JetBlue has stated that passengers must apply to the IRS for a refund but is the only airline doing so. If the status quo continues it shows the inability of Capitol Hill to get its act together and collect taxes in the first instance – surely the very front line in sorting out that deficit. US airlines remain in good shape to take on anything other than a deflation scenario within the US economy which may yet occur. They have a strong ticket price ratio and no real over-capacity and all seem able to adjust at speed to circumstances and cut routes, this is very impressive.
The Chinese high speed rail crash last week will help the growth of airlines for sure in the short term unless the cover-up is unwound by central government at speed (talk about burying the evidence – only in China would this be literal for a transport accident). The Chinese airlines will show a short-term jump in domestic traffic at the very least.
In Europe the recession is yet to fully hit the consumer and airlines remain in no shape to fight off a slump in passengers and they may yet see premium traffic slow too. This is a danger area and capacity must be cut further at speed but there are too many players. The European airline sector and its aftermarket support side is one to keep an eye on as something will have to give and its will be the airlines unless cuts are made at speed. Lastly, Iceland is proof that full fiscal independence is the quick way out of an economical hole. Alas the Euro being held together with sticky plasters may well lead to more pain and animosity than it is worth.
Did I say lastly? Moreover, please all remember that a prolonged slump in the US Dollar will badly damage Airbus/EADS as they have a Euro-cost base and dollar-revenue base. If the US were to default then Airbus/EADS will be hit very hard indeed, far more so than Boeing. Airbus has benefited from the problems with the Euro of late but that looks set to be equalised at the very least during this current period, this is worth keeping an eye on.
So is there a silver lining lurking out there at all at the moment? Well oil is showing slight signs (dare I say it) of weakness on the back of the global slowdown and this as always will give a fluttering boost to airline shares across the globe. If it is a Friday bet you are after then maybe you could do a great deal worse than check out OEM supplier and composite specialist Umeco, which since the sale of its Pattonair division and the loss of a few leading lights, has been devalued to such an extent that it is showing real value even in this uncertain market.