00:00 Speaker A
Over the years we have talked a lot about you and I about the luxury game when it comes to airlines, how they might look for a consumer with a higher income. We just talk to Brett Ryan about this with us on the set. Can these airlines continue to rely on consumers with a higher income to support their profit in this macroom environment?
00:28 Speaker B
Yes, so I think the answer is yes, certain airlines can still count on the high -quality consumer supporting income. It will be the big full -service: United, Delta and American. Uh look, there is a lot of competition that I think for the UH for the basic basis, uh probably even premium economy travelers. So I think there is probably too much capacity on the market, UH for those who are the number of UH those travelers in this space. And so I would expect some disconpers to fill airplanes. So I think the more you are focused on only premium economy and basic economy as an airline, the more difficult it will be this summer to make money.
2:01 AM Speaker A
I am curious, Josh, what about falling oil prices, that dynamic oil here at 61. What is how many of a tail wind that is for industry?
02:27 Speaker B
Yes, look, it helps, right? So, you know, I think we were doing some mathematics about this, you know, recently and look, I mean, you know, UH fuel prices are UH 20 to 30% of the cost base of an airline. So you know, if you are 10% or something like that, you will save a few points on costs, good, two percent of the costs. It's just not much. I don't think you can cut rates enough, given the extra leeway that you have received from fuel to make a big difference. It will help, but really what we still see is a branch where in 2Q and 3q, based on consensus, not even my figures, but on the basis of consensus, UH expectations for lower EBITDA, income before interest, taxes, depreciation and rent, which is usually how we measure and lower marges. So don't help enough.
04:24 Speaker A
Okay, so don't help enough. What do you think the needle moves? I know that you have sent some areas in your notes where we could see airlines try to be competitive when it comes to prices. If they enter the costs, say, domestic flights, is that something that can be a little more effective than lower oil?
04:58 Speaker B
Well, so I mean, I think that will be what the profit number drives, right? The Interior are the largest company for all airlines. UH and I think that the disconnection they have to do in the house to fill aircraft, because you just can't fly, you know, planes with 60 or 70% full, you will never earn money that way. So you have to make them a discount to get them in the 80s plus percent. I think that disconnection is what the income will damage. We still see International as relatively strong for the summer season. I think you really get a fairly long booking curve for people who become international. So, you know, at the moment the euro is working a bit against that traveler, but they didn't see that at the start of the year. And so I would still think that the question is quite robust about the Atlantic Ocean, at least for the first half of the summer and that will be a nice support for income. I think we will see if someone is starting to change ideas in Europe. It has been a very American point of sale. We will see if everyone starts to change ideas when we get to 3q. My gamble is that you could find something. It may not be enough to create a lot of softness for Europe. So I think that this summer is still a power and that is part of the headwind for United, American and Delta.
