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Growing evidence that the downturn is upon us....

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Growing evidence that the downturn is upon us....

Old 4th Feb 2008, 06:14
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Growing evidence that the downturn is upon us....

From Ryanair this morning... not the most optimistic reading

DUBLIN, Feb 4 (Reuters) - Airline Ryanair <RYA.I> posted a sharper than expected drop in third-quarter net profit on Monday and warned high oil prices, an economic slowdown in the UK and weak sterling meant profits may fall up to 50 percent next year. Europe's biggest low-cost carrier said excluding a one-off gain from the sale of aircraft net profit in the three months to the end of December fell 27 percent to 35 million euros ($52
million) as winter fares fell almost 5 percent.

That was below an average forecast of 41.8 million euros and in line with the lowest estimate in a Reuters poll of 10 analysts. Ryanair stuck to its full-year forecast for a 17.5 percent rise in the year to the end of March. It warned, however, there was a "significant chance" profits would fall in its 2008/2009 business year.

"The European airline sector is presently facing one of these cyclical downturns, with possibility of a "perfect storm" of higher oil prices, poor consumer demand, weaker sterling and higher costs," the airline said in a statement. According to the most optimistic scenario, profit next year
could grow 6 percent to 500 million euros if average ticket prices, or yields, stay flat and oil prices drop to $75 a barrel. "But at our most conservative, if forward oil prices remain at $85, and consumer sentiment/sterling weakness leads to a 5 percent reduction in yields, then profits in the coming year
could fall by as much as 50 percent to as low as 235 million euros (excluding profits from aircraft disposals)," it said. The company also said it planned to spend up to 200 million euros buying back shares which, based on its current share price, would equate to 3 percent of Ryanair's share capital. Ryanair's stock has fallen 18 percent since the start of the year due to fears over the impact of rising energy costs and the company's limited fuel hedging for the year starting April 2008. "We remain essentially unhedged for next year," Ryanair said on Monday.
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Old 4th Feb 2008, 07:47
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Actually we're in the downturn right now and this was expected:

On 26/06/07 we read:
"We have a very conservative outlook for the next 12 months," says Ryanair chief executive Michael O'Leary. "The market is soft, yields are soft."
O'Leary adds the softening arrived unexpectedly after a benign first three months of the year. He says it is difficult to know why the market has softened but cites interest rate rises, the doubling of the UK's air passenger duty, increased airport charges and the continuing fall-out from increased security measures at airports as possible factors.
http://www.flightglobal.com/articles...oing-soft.html

No need to fear for pilot jobs, China and India need at least 5000 new pilots each, Europe and USA around 4000 each, over the next 5 years.

Airbus and Boeing together registered over 2400 new orders in one year.
More than half of the orders were for expansion and not for replacement.
For every new airplane that is bought for expansion, you need at least 12 new pilots. 2400 x 50% x 12= 24400 new cockpit seats booked in one year!!

And we're not yet talking about the VLJ revolution and the bizjet boom....

Last edited by Nichibei Aviation; 4th Feb 2008 at 08:03.
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Old 4th Feb 2008, 07:52
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The US is in recession and we will be there by the summer. Europe will tear itself apart economically as the Euro brushes up to 1.50 euro to the dollar. House prices have gone lower for 5 months in a row and the shareprices of the 4 biggest UK housebuilders are all down by more than 65%.

Interest rate cuts will be small and in many cases not passed on to borrowers. New credit is drying up fast and now the credit card companies are just terminating accounts with 35 days notice.

Without the credit there is no spending. Without the spending there is no economy.

The party is over. Those with £80k of debt, 200hrs and a lovely stack of CV's have my sympathy.


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Old 4th Feb 2008, 08:19
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Moderator,

you don't have to buy everything the media tells you.

Politics are manipulating the media to lower the prices of houses, to make you live in fear etc,...

The airlines aren't buying this and what proves it best is that in January, Airbus and Boeing have booked strong orders again, more than the 2007 average monthly orders.

The problem is in the USA and nowhere else.
The airlines there are doing bad... but that's a political problem.
Since Bush came to power the US economy is in bad shape, with fuel prices rising 80%, the dollar dropping 70% over the Euro and the Japanese Yen.

MOL's "no fuel surcharge" policy was a pain in the ass for Ryanair (and MOL said it himself, "fuel costs lowered their profits") when the oil struck the 100$ barrier, while other carriers adapted by applying surcharges, which is why carriers like Swiss, Air France-KLM, Lufthansa and Brussels Airlines did very well in 2007.

There's no need to panic because Ryanair had worse results than expected, no. LCC's are typically the first ones to benefit from a passenger number increase in a recession...
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Old 4th Feb 2008, 08:30
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I beg to differ, the problem does not solely lie with the US and the Dollar. It was not the US that told the European financial institutions to buy into hedge funds!, lets get real here, they wanted to make some quick money by doing as little as possible, had some of these institutions done their homework, they would have seen the downturn in the US housing market and increase in foreclosures almost 12 months ago and surely when Bush changed the bankruptcy regulations, did nobody ask why he did that?, hint, they were on the rise!
The root cause of most of this is nothing short of greed and some of the institutions have now got their fingers burnt.
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Old 4th Feb 2008, 08:54
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I do my own research thanks. You will find that as we entered the last recession in 1990 both Airbus and Boeing had full order books and long waiting times. It means nothing.

There has never been a US recession without the UK following suit. Given the dire state of the public finances there is little scope for increasing government spending to take up the slack left by the consumer going on strike. If you run an economy based on credit then eventually a credit crunch is inevitable.

With average houses now at 9 times average earnings an unwinding of around 30% looks inevitable.

I hate to tell you that the airline business is hit hard and fast in any recession. In Ryanairs press release that goes with MOL's appearance in the media this morning they mention profits going lower still despite 'profits from aircraft disposals'. If RYR are contemplating shrinking their fleet then that it very big news indeed for the industry.


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Old 4th Feb 2008, 09:18
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The economy is a world of offer and demand, between production and consumption.

Banks invested in area's where demand was increasing strongly till it reached a peak, resulting in short term gains as you say but long term losses.

Property values fall, which means buyers with less financial power will not easily get to buy a house but will more easily buy a car (car prices drop aswell), fuel, food and rent apartments for less money, which leaves more money for leisure and travel.

A downturn in the financials and real estate sector really don't harm the economy as much as the economists and media pretend.

In Ryanairs press release that goes with MOL's appearance in the media this morning they mention profits going lower still despite 'profits from aircraft disposals'. If RYR are contemplating shrinking their fleet then that it very big news indeed for the industry.
MOL is not contemplating shrinking his fleet.
"One hears what he wants to hear".

Anyway a recession in Europe and USA is very welcome for my company ;-)

Last edited by Nichibei Aviation; 4th Feb 2008 at 09:29.
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Old 4th Feb 2008, 09:36
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I wonder where the price of oil is going to figure in all of this. With recession in the US, will our governments be applying a pressure to get OPEC/oil companies to reduce prices to give the economy reprieve? Apparently Shell in Europe have just had their most profitable year ever. Would any reduction in fuel costs simply be irrelevant in the face of reduced disposable income?

If people do have to dispose of their overseas properties I imagine the knock on effects on the UK routes especially on the off season load factors will be quite serious.
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Old 4th Feb 2008, 09:55
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Nichibei Aviation

On the other side it may be that people will spend less on everything irrespective of the reduced costs of consumer goods. In the UK it is very clear to me that fuel and in particular foodstuffs have increased considerably since January 2008. Whereas car prices seem to have been reduced because there are too many of them around. I think that many of us in the industry have been predicting downturn for the last few years and the longer it is in coming the worse it will be for many of us.

On another note I have seen a decline in GA / leisure flying for the last couple of years and it was particularly noticeable last summer. Is this reflected worldwide.
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Old 4th Feb 2008, 10:06
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The problem with Shell's announcement of record profits last year (something in the region of $1.5million an hour) is that they didn't announce the results of their oil reserve analysis at the same time. That has widely been taken as a sign that the results are not going to benefit the consumers.

In other words the results suggest Shell (and Exxon etc) are removing more oil from the ground than they are discovering elsewhere. Which means all the political lobbying in the world is going to have little impact on the price of a barrel. If their research suggests we are running low on known oil reserves, the price of oil simply cannot drop. More likely $85 a barrel will be a fond and distant memory.

So all this suggests Ryanair, one of the most profitable airlines in the world, are looking at anything up to a 50% reduction in profits. Ryanair losing 50% of it's profits?

Oh dear

The party is over. Those with £80k of debt, 200hrs and a lovely stack of CV's have my sympathy
Harsh, but looking increasingly accurate. Good luck to everyone, even those of us with airline jobs are going to need it.
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Old 4th Feb 2008, 10:23
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http://www.telegraph.co.uk/money/mai.../cnjobs104.xml

More than 100,000 jobs will be slashed in the retail sector over the next two years as the economic slowdown beings to take its toll, writes James Hall.

Then you have Egg sending letters to 161,000 of its card holders informing them that they have 35 days until their card is revoked and how would they like to pay? Halifax is slashing their credit limits on loads of cards - a friend of mine saw his limit slashed from £7,000 to £500 last week.

Its goodbye easy credit which is what is going to result in lots of shops closing and from there we start the downward spiral already evidenced in house prices.

Interest rates won't make much difference if you can't get the credit in the first place. Or the Mrs loses her job in the shoe shop whilst you have a 98% LTV mortgage (on interest only) that's about to jump 30% as you leave your previously fixed rate..

Holidays and short breaks you can live without - Tescos and a roof over your head you can't.


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Old 4th Feb 2008, 10:53
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Nichiebi you are hysterical.... house price falls mean people will buy more cars... a recession is good for Ryanair.... a recession is good for my company (do you work for a debt consolidation company?). Ask however many pilots you know whether a recession was good for the industry in 01/02 or the early nineties....

You are right the press do tend to sensationalise news stories but equally sticking you head in the sand like a ostrich is the wrong approach as well. The recruitment industry will tighten very very quickly over the next 12 months and if you are just starting you training you do need to thing about where we are in the cycle.
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Old 4th Feb 2008, 11:52
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So in summary... i take it those who are just starting out, or in my case in the process of sending my loan application off, basically needn't bother? Or am i incorrect...?

I'm assuming that a loss in profits for airlines is, in turn bad news for new, & current pilots? But then again, is this a long term forecast?
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Old 4th Feb 2008, 12:03
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I personally have put an hold on my flight training for the next 12 months or so, this is definately not the time to start, hold on a little while see how it develops.

It all depends on who is funding your training, I am funding my own, so I dont want to spend all my money and have nothing at the end of it. Some others may be using the parents money and may not care whether they loose it all or not, others and the majority are probably taking large bank loans, these are the people that need to have a backup plan, as they will have to pay off the loan when their training is complete.

You need to time your training so you complete as the next upturn starts, hold of a while and see if you can estimate when it will be (probably 2010 - 2011), that is the time to start.
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Old 4th Feb 2008, 12:05
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If I could predict the future I wouldn't be here typing this message. Its ALWAYS been a risk investing in flying training and there are always concerns that you've missed the boat, there is no boat or that the boat has sunk.

If you are 20 and you have no idea that there is a strong likelihood of a recession and you have no idea what a recession means for pilot recruitment THEN I would say you are underprepared. In the 1990 recession several major airline stopped trading. As a result there were hundreds of experienced jet pilots with no job, a pressing mortgage and willingness to take any flying job in any part of the world for any money.

You can imagine how this impacted the job chances of someone with 200hrs and no commercial experience..

Brutally the clock begins ticking the minute you complete training. Every month the school churn out another batch just like you. Except they are more current. You haven't flown for another month, and then another, and then another. You are getting rusty. Your IR will expire soon and renewing it will cost you thousands of pounds. The bank manager wants to know when you are going to start paying back the loan. The clock ticks louder. The school churn out more students all more current than you. You're now so rusty you stand little chance of passing a sim ride even if an airline offered you one.

Pop! Your time has passed.

Sure. The industry will recover. It may take a year it may take five. But can you wait for it? Can you service the debt and keep current? Because if not then you may just have wasted all your money.

THAT is the issue that should be gnawing away at you night and day. If it isn't then truly ignorance is bliss.

Good luck,

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Old 4th Feb 2008, 12:08
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Nobody is saying don't do it at all.... you are a grown up and part of thats involves taking resposibility for your oown decisions. Personally I would think very carefully about securing a loan on your parents house with no back up plan.

All WWW et al are trying to do is provide a bit of balance because coming out of training into the jaws of a potential UK/US recession with £80-100k of debt to repay and no-one recruiting is certainly a possibility.... what probability you assign to it is up to you.... weigh up the information at hand and fact that into your decisions making process be it modular/integrated/continue working/go full time etc etc.
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Old 4th Feb 2008, 12:10
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Without sounding all doom and gloom, I have to agree with WWW and the others who have been in this industry for a while now.

From past experience an economic downturn is very bad news for anyone hoping to work in aviation. Forget facts and figures, forget scare mongering, just research the effects of the last two recessions in the early nineties and post 9/11.

During these times it was practically impossible for a pilot with no experience to get a job. In fact even with experience it was difficult due to competition being fierce for every job. As WWW said "A roof over the head, or a holiday?" Sounds like a no brainer to me.

If I was starting out now and about to invest huge amounts of money, I'm not sure I would in the current climate. In saying that, the industry does go in cycles and when things are bad they have to improve at some point, so who knows what the next five years will bring.
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Old 4th Feb 2008, 12:49
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i broadly agree with WWW, things donít look good really, although he has more faith in the 'economic cycle' concept than i have. i hope it doesnít turn out to be as bad as it might be, but i'm glad i was able to do the licences at relatively low cost, earn the money in advance and had a good career to go back to, which has mitigated any risk..


i wouldn't advise anyone to take on an £80K debt right now (and lets be honest - it was great when it worked, but there was a proportion of people for whom it didnít, even in the good times). at present, the risk is far too great. also, for peolpe at school leaving age - i would say that its essential to have another string to your bow, so you donít end up stacking shelves on the minimum wage paying your £80K off for the next 40 years, should you find you're not one of the lucky ones...

lets hope things look up before long!
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Old 4th Feb 2008, 13:22
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We are all Doomed - not

Employment at record high

Interest rates no where near the 15% they were when Lamont was in charge
actually interest rates will fall again soon and are well managed

Growth still on target and in range 2 ish percent

Still a shorthage of houses in the UK, a legacy from Thatchers suspension of council house building

Share prices bounced back nicely and all those people who bought at the trough are quids in


British Airways has reported healthy profits for the last nine months of 2007, despite rising fuel costs and the consumer slowdown.

Pre-tax profits came in at £788m, up 34.9% from the same period of 2006.
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Old 4th Feb 2008, 13:23
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Just wanted to comment on the 12.1m euro Net Profit on Disposal of 5 aircraft... Whilst it's difficult as I don't know what method and % depn RYR apply to their fixed assets, to make 2.42m euro profit on disposal per aircraft I would think they write off the bulk costs of their assets pretty quickly. With that in mind I wouldn't be worried about them. They do have to keep the NBV of their assets in check as overstating their balance sheet at year end can get them (and their accountants) into alot of trouble! The time to become concerned is when they start making massive losses on disposal which would point to them trying to artificailly sustain their share price for as long as possible by Overstating their assets and reducing the depn that gets put through the books so as to increase profit.

I know their are loads of other aspects to consider and we won't know the actual state of their accounts in detail until they are published in full in 2 years time. But...for the time being my point is DON'T worry about RYR, they ain't going anywhere and their finances indicate that. The disposal of assets doesn't neccisarily mean that they're in trouble and trust me, they will have enough retained profit to call up for some years to come before they run out of money!

Hope this serves to restore some confidence but only time will tell whats really going on. For me it's too late, the loan agreement is signed, levaing job in 5 weeks, security currently being organised and course booked with deposits paid. So....I'm hoping that things perk up but I'm not sticking my head in the sand over this, simply looking at what is going on now. My honest opinion is that threat on a recession coupled with RYR disposing of aircraft has frightened investors and shares have dropped as a result. If it is anything else more sinister then wish me luck for the ******* bumpy road ahead.

Cheers

CS

Accountant about to turn Student Pilot
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