America’s "Big 3" Airlines are Designed to Fail. Here’s Why
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- Опубликовано: 15 май 2024
- Follow me on Instagram! / cobyexplanes
Commercial aviation has been hit really hard as a result of the coronavirus pandemic. While airlines were seeing record numbers of travelers just a few months ago, many are now struggling to stay afloat. This includes the three legacy US carriers: American, Delta, and United. Things have gotten so dire, in fact, that these airlines have asked the US government for financial support. However, there’s a case to be made that while the coronavirus pandemic is out of the airline’s control, they ultimately brought this hardship on themselves. Let me explain...
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Авто/Мото
American airlines: I am once again asking for your financial support
Abe Edwards maybe they should make an unlimited flight card and charge $700k than wait 20 years and cancel them
American people: oKAy tHeN!
🤣 yeah, socialism for corporations, crumbs for the working class
Lmao Airlines, Banks, Insurance Firms, Hedge funds, Farmers, & Airlines love that sweeet sweet socialism to be bailed out every decade whilst Republicans scream BUDGET DEFICIT every-time they leave office after spending like drunken sailors. Spending on healthcare, infrasturtuce or people tho....That's socialism lmao
@@d.b.cooper1 socialism for the rich and rugged individualism for the rest 😤
Unfortunately this isn't just a United, Delta, and American Airlines thing. Stock buybacks are something that is very commonplace for executives in American companies, ever since regulations on that sort of thing were loosened back in the late 20th Century. That is why this ongoing pandemic is so damaging for MOST US-based companies that see drops in demand.
Joshi112 ---- Stock buybacks are just a tool. Done poorly like with the airlines, it can be a mess. Done properly, like the biggest buyerback in the world: Apple, it is a very good thing that helps the overall economy in a very big way. The alternatives to buybacks are equally grim also. Interest rates are incredibly low, thus keeping a lot of cash is around is a waste because the cash is not creating any return. Unlike Apple which spends a ton on R&D, airlines don't really have any need for that category. Finally, they could spend it on acquiring other airlines, but with consolidation there aren't any reasonable targets left.
The real problem with airlines is that their business is very cyclical. At the beginning of any downturn their load factors immediately go down. In this case because it was an airborne illness, they went from quite full to almost totally empty in less than a month. There is no amount of keeping cash on the balance sheet that would save them this time.
If the IRS stopped taxing dividends (a tax on a dividend is a tax on earnings that have already been taxed) buybacks would be far less popular
Joshl112 Nope: there’s no connection between stock buybacks and changes in consumer buying behavior.
Bitcoin Motorist That’s a key point. The funds are already taxed before they’re paid out in dividends, then they’re taxed again. Getting rid of this double taxation is key.
It’s generally a good practice, you just shouldn’t waste copious amounts of money if you have like zero profit margins lol
That’s why I still fly Pan-Am...
🤣🤣🤣😁🙏
*funeral march plays*
Nah you should go to trans world that’s better
pfft, NorthWest is clearly better
cattleNhay (aka Eggman) rip
A stock buyback raises the price of shares because they just made a portion of their stock disappear. As a result, any remaining stock represents a large portion of the company.
It's largely done to juice earnings metrics to which executive remunerations & bonuses are often tied....so of course those who call the shots blow the firms money on buying their own shares at sky high valuations with little sustainable or operational logic, to boost their own pockets. It's become way worse since 2015.
Agree regarding the stock buybacks problem, and this has become worrying in other types of businesses as well. Great work with your site.
thanks!
...yeah that's where much of the corporate portion of that 1.5$ trillion tax cut in 2017 went to. Wages for the most workers remained low, a few companies handed out one time bonuses (that are taxed at a higher rate than wages), while shareholders along with CEOs (who's salary and benefits packages include shares in the company) were the real ones to benefit.
As to the big three, I would not be surprised to see another major consolidation (as well as a few others among smaller carriers) when this is over, particularly as American has not been doing all that well financially.
@@SaintCergue And then the American taxpayers bail them out via the federal government when they are in trouble!
Even as a non-US citizen myself, I find it even harder to realize that those that bail out these airlines (i.e., the American taxpayers) are also their underserved passengers. Now where is justice in all of that?
Coby, please explain!
@@SaintCergue The problem is there are legitimate reasons why you do stock buybacks aside from pleasing current investors. You actually want to be able go reissue them in the future when you need to raise cash.
It makes no sense to give companies the ability to sell stock and not have the ability to buy them back. Otherwise all you do is continuously dilute the shares when you issue new ones to raise capital. There Wong be a reverse mechanism.
@@SaintCergue You do realize that upper managers ultimately answer to the board right? And who appoints the board? The shareholders, the people who bought the company. Managers ultimately answer to them. There's another words for shareholders: owners. Cos they actually, you know, own the company. And if the company fails, too bad for the shareholders. Someone else will start their own airline, cos those planes will still be there.
There are market failures, but this isnt one of them.
Did anyone else notice the quick Netflix flash?
Yes
Did you not understand why it was there?
Shabbii I did, lol
Yep. Right as he said 'acquisition' lol
3:37 Saw what you did there with the Netflix logo🙃🙃
Lol haha
Yeaaaaaa......heeeeeehe
There are a few issues with this video:
1.) The title is misleading as it does not even talk about why the big 3 are "designed" to fail. Airlines overall are thin margin businesses due to high capex costs of quipment, dependency on oil prices and unionzed labor which provide little flexibility in cost structure and essentially compete as commodities vs other airlines. Look around the world and you'll see it isn't only the Big 3 asking for help. Any business with zero revenue cannot survive and it is silly to expect companies to pay employees out of savings as any owner in that situation will just fire the employees and just keep the money for themselves.
2.) There is generally this view that stock buybacks are bad which is silly. Stock buybacks are just another way to return profits to owners. It is no different for a small business owner to withdraw earnings from his/her business than for a big business to buy back stock. It's the same thing except stock buybacks are done only for companies on stock exchanges which mean they are generally viewed as "the big bad corporation" in the eyes of the public.
3.) The comparison to Apple saving money for a rainy day is COMPLETELY INCORRECT. The do not have hundreds of billions in their bank account b/c they want to have a good amount of savings, but rather most of that money is earned offshore (ie selling iphones outside the US) and to move that money back to the US would incur taxes from the government so they would rather just leave the money offshore. In fact Apple borrows money by issuing bonds in order to conduct the stock buybacks mention in the video.
Eaton Zhou Thank you for adding your comment. This video only shows just a part of the financials of an airline. There are many more things at play.
I agree that there is more to stock buybacks than just "greed." It's a complex issue.
Airlines might be a bad example to prove how silly stock buybacks are. For example, let's say Apple, which is also borrowing money to buyback its own stocks. Instead of buying its own stocks, there are tons and tons of things Apple can do, how about setting up factories here in the states, how about refining supply chains here.
The point is, buyback is not just done by a few companies, every company is doing it. Companies are borrowing large amount of money to do essentially financial short cuts, instead of investing in manufacturing in the States. What could be better allocation of resources should be putting money into training people to learn new skills, for companies to investing in new equipments, in upgrading infrastructures, in building factories, in creating an environment that will attract and bring back manufacturing. But no one is doing this, and if this way of economic growth continues, manufacturing will never come back, and the poor will get poorer, the rich will get richer.
obstinatejack your argument relies around this belief that “bringing back manufacturing” is what a company “should” do. No - company should maximize profits, Apple is no different....why spend more money and make less money by making it here in the US? China has the manufacturing of electronic gadgets down to a science and they have cheap labor. Plus if you really see how mundane and low paying these Apple manufacturing jobs are there will be nobody here that would accept this type of work environment.
Ah geez we get it, you don't need to write a whole essay
Having worked for an airline
years ago which is no longer in business,the ones flying today have no one to blame for their ills except themselves. They nickle and dime the flying public to death,cram in too many seats on an aircraft,hence the high rate of air rage. Plus years ago,good old Delta,decided to do away with travel agent commissions. Of the 3 mentioned in the video,if 2 stopped flying tomorrow I would not shed any tears, they will have gotten what they deserved. They dont deserve any bailout money,let them sink
then let all those employees lose their jobs and not work, let people not travel, and let the economies of many areas that depend on tourism fail....yeah, good idea.
@@zgaviation6481 you're assuming there won't be any investors who can start new airlines to take the place of the failed ones.
@@zgaviation6481 ---- I agree with Sparrow. To me the logical thing to do is keep Delta and let United and America go out of business. Two things could happen in the future. Investors could buy American or United assets like aircraft and routes and revive those airlines. There is also a very big opportunity for carriers like Southwest and smaller airlines to take advantage and grow quickly. In the long run there is no rule that would dictate how many airlines there must be.
Well if you and your family were still working for the airlines....you probably would have a different opinion. Count up all of the jobs associated with that business....and the support / supply businesses.....it would be calamitous to let them fail.
The airlines stopped travel agents commission because people can buy their tickets on the internet, not because of greed.
Was that Netflix I saw?
I caught that too! Subliminal messages 😁
Right after they said "acquisitions" ?!
nrh 1120 Yes it was a Netflix logo I saw it
I didn’t saw it at first...I’m intoxicated....
Congress: if you want the bail out money, you've gotta stop your buyback.
Airlines : no way. Are you sure you want to see all the airlines collapse?
Boeing : we've got other alternatives.
Congress : Fine! You win! You can continue your buyback with taxpayers money...
Ching Wei Xion except the loan package specifically does not allow for buybacks. In fact this video even mentions that...
@@tl5606 yes. But the airlines can refuse the aid with the strings attached. If all the big 3 carriers refuses the aid, the Congress will have no choice but to withdraw the buyback limitations that is a big turned off for the airlines. That is exactly what boeing is doing. They are refusing the aids that comes with strings attached. Bottom line is America cannot afford to let boeing fail. Knowing this, Boeing is bargaining for terms free aids.
@@chingweixion621 If the airlines can refuse to take it that means there aren't that much trouble then.
Great video as always love the new background
Love the clip of OBJ giving bonuses 🤣🤣
Wasn't sure anyone was gonna get this reference XD
I learned a shit ton from this vid. I work for a legacy carrier and the un-predictableness is really causing us alot of anxiety. I had no idea about the stock by backs by the company itself, artificially drives the stocks prices up. Interesting to think that my airline should could potentially had alot more in savings if they would of focused on that instead of buybacks....Gonna look more into this. Regards.
They used to be illegal because they’re a form of market manipulation. Then the corporations lobbied (bribed) members of Congress to make them legal. And now we’re in this mess. We should make them illegal again!
I now understand how "buy-back" and "share-dilution"(for research and development) works--- what you have shown us-all is very important in understanding company activity, sofar as share dealing is conserned. THAN YOU excellent video!
Big 3: struggling
Big 3 again: *i once again ask for your financial support*
Lmao
Southwest:
Coby: Big 3 is AA, United and Delta.
Southwest: Am I a joke to you?
@@gerrycorbino66 Yeah of course😁
Yep what Gerry said, but of the bunch I much prefer flying Southwest
AA (American Airlines), DL (Delta Airlines) and UA (United Airlines) are the last remaining US legacy carriers.
The big 3 for China are Air China, China Southern, China Eastern
The big 3 is Delta, American and United. Southwest is a fraction of the size, with a fraction of the value and a pipsqueak fleet compared to the big 3. Doesn’t mean those three are better than Southwest (wouldn’t know because they operate 737’s exclusively and those planes are the most uncomfortable planes in the sky. I purposely avoid any route with a 737 and that was well before the Max). Of the big 3 I will say Delta is well above the rest.
Loved this video! Easy to understand and follow through. I had always heard about Stock Buybacks, but didn't know exactly what was their purpose. Good job!
Well explained for the layman, Coby. Thanks for uploading this.
no problem!
You explain clearly, and you talk relaxed and good to understand
Glad you think so!
You also forget to mention that the management gets paid according stock performance, at least in part. Or whether any company should be allowed buybacks.
loved that innuendo at @ 3:36
here since the 10.3k subs mark, more than happy to be part of the journey towards more successful milestones, not that we're almost at 20k ^^
Great content. Earned your self a new sub
In the overall picture stock buybacks should probably be illegal. When a company issues stock it is basically saying: "if you give us money we're going to invest it in the business" to the tune of whatever the issue price is and that will increase the value of the overall company and the value of ALL of the stock out there. When a buyback happens there's NOTHING in it for the company. The investors get more value of the stock they already paid for but the company doesn't benefit in any way that I can see. In fact, it loses - the company now has LESS money in the bank. The CEO, the Board and the company officers make a killing because most of their compensation is in stock. Stock buybacks and short selling should be illegal - they both add NOTHING to the value of the company.
Maravilloso video, como siempre, aprendo mucho con tu trabajo, gracias.
A big piece you’re also missing is why would a company choose to buy back stock and why they issue stock in the first place.
Airlines issue stock to finance their asset purchases like buying rights to routes, new aircraft, etc. Instead of getting a loan, which would be too expensive, airlines opt for stock and pay back with dividends. The difference between stocks and loans, stocks don’t hold the company liable to pay stockholders dividends. Conversely, debt financing legally obligates the company to pay interest and return the original borrowed amount at the end of the debt period.
Common stock falls on the Liability/Equity side of their balance sheet. Meaning these are obligations that the company has outstanding and will need to be paid out should the company go under. After the assets are sold, debtors are paid first followed by stock holders.
Buying back stock is essentially reducing their equity obligations, just like paying off the principal of a loan. Buying back stock opens up the market to more equity financing in the future. Should the company need more financing, the company can issue stocks again then they need to buy a new plane or finance an expansion of sorts. I wouldn’t say that stock buy backs are good or bad, they’re just a misunderstood financing mechanism.
Thanks for that!
Yes and that is why they can sell that stock again to raise more capital which United just did.
That's true. Buybacks aren't inherently bad all the time- but they're also used far too often. Companies like GM and Ford for instance, are absolutely up to the gills in debt- and yet they still engage in stock buybacks. The problem with taking out more and more loans to operate is that that debt gets more expensive as time goes on. If it wasn't for the occasional government bailout, the U.S. wouldn't even have a car industry. It's just not a sustainable model to accrue lots of debt, then never pay it back.
It's crazy that just a month ago regional airlines were offering massive sign on bonuses, and United saying they needed to hire 10,000 pilots in the near future. From a hiring frenzy (pilot shortage), to furloughs in just one month...
That's the airlines for you. I said to myself my career looks good as long as 9/11 doesn't happen again. Well...it happened. And now I'm probably it's probably going to another 15 years by the time I get to become an airline pilot. I'll be 42 as a First Officer in a little jet. So much for one day becoming a Wide body Captain. There's just not enough time left. And honestly I think I'm just going to start a family now. I'm tired of waiting.
@@TrainerAQ way out of proportion, all the baby boomers still need to retire, and we haven't even hit that peak of retirement yet
A great host. A lovely video. Coby, a nice fun-pun : "Explanes"!
:)
I like the new bg but where are the planes ? :D
They don't really want to stay attached to the new background unfortunately haha
@@cobyexplanes I have 2 other questions: 1. Why has Airbus not produced a DC-9? 2. Why have there been no U.S. made regional jets?
@@shreddder999 there is a plane in the making by airbus and rolls royce. its an electric verision of the bae 146.
Let them go under. Any money spent on bailing out an airline should instead be diverted to providing unemployment benefits to the employees. A big airline may disappear but the demand for travel (once Covid-19 is over) won't disappear with it and neither will its aircraft and other equipment. Someone else will buy up their planes and landing slots and start flying passengers again.
Great video. Thanks for the info and for sharing ! Stay safe
thanks! you too
I like the way you talk. Very slow so it's easy to listen too.
Stock buybacks never made any sense to me. If you want to reward your investors, pay a dividend, don’t buy the stock.
Bitcoin Motorist ceo often get shares, share buybacks raise the share price, ceo sells shares for huge profit. Simples.
Buying the stock pushes the prices up, thus giving the investors that they have a better dividend. One of the issues with this practice is that it makes it more difficult for a smaller investor to get skin in the game, which has the net effect of the rich getting richer.
I might make an argument for CEOs to be paid solely in shares, thus linking their pay to the profitability of the company they're running. Then if it goes down the shitter, they get what they deserve - nothing.
Except US tax laws taxes dividends as ordinary income while increases in asset value are taxed at much lower capital gain tax when the asset is sold. Stock buybacks/capital gain tax encourage long-term investments. Also when a wealthy individual passes away; his heirs get a capital step-up. For example, say someone bought some stocks for $10k ten years ago. They are now worth $30k. If he sells them then he will taxed at 15-20% on the gain. But suppose that person dies and his spouse inherits the stock and sells them the next day? She will pay no taxes and keep all the gain because of the capital basis step-up rule.
@@sexysilversurfer Think some executives have their companies' share prices as 1 of their KPIs too?
Excellent explanation. Actually, this strategy was applied by Previous Boeing CEO which at the beginning it was successful and pointed out as a brilliant financial strategy. However, in order to succeed in the long run as a company you need to manage the risk. Not having a good ratio between your cash reserves and the money you are investing on buybacks is going to increment the risk.
Great information
I find it fascinating that stock buybacks are all of a sudden seen as some kind of pariah. When a company has excess cash they can either 1) Invest the cash into their business 2) make acquisitions 3) return it to the shareholders in the form of dividends and buybacks. Oftentimes acquisitions turn out to be destructive as does unnecessary reinvestment. The only other option then is to return the cash to the shareholders. The irony is that investors who believe an airline's shares are undervalued are seen as smart if they purchase the shares at a discounted price but the opposite is true when a CEO decides his own company's shares are undervalued and buys back the shares for the same price and at the same time. Further, prior to this unforeseen crisis (which is NOT the airline's fault) many of those complaining about such buybacks have also been the recipient of increased share price appreciation of the airline shares owned in their 401K's. Again there is nothing wrong with buybacks if the company believes that the shares are trading below their intrinsic value, any more than there is if you or I choose to do the same. At one point even Warren Buffett believed LUV and DAL shares were cheap. I think those who complain about buybacks are just ignorant or have no understanding of the principles of investment and I do hope that the lynchmob of uninformed and uneducated complainers don't have their way just because their voices are louder than those who understand.
Well, the vital point is the amount of money a company is using for buybacks. It's nothing wrong with buybacks if a company has sufficient financial reserves. Thing is though, companies like Boeing or the United never had such big financial reserves, compared to the amount of money they spend for buybacks.
Also because the board of directors of such companies is often made up by major shareholders of the company, the whole thing can get fishy very quickly. Basically they can use the companies money to make their own shares more valuable. Honestly this isn't far of from insider trading.
Hey, whats the oval thing on top of the plane at 00:22? Never noticed that b4. Thanx!
That's the satellite receiver that allows you to access in flight wifi
@@cobyexplanes Wow, gee-wizz stuff. Thanx!
That Delta Airbus is stunning.
So much was left be out of cost figures. Back in my day with a one on one chat with Bob Crandall he told me airline stock is a foolish stock to buy. So I have never bought in to any airline.
This needs more subscribers!
share with your friends :)
@@cobyexplanes I will!
Thanks for the video ... One comment: Buybacks increase share prices less because of supply-demand unbalance in the market but more because when companies buyback its shares, they reduce the total number of outstanding shares and therefore increase the earnings per share (since there are less shares than before the buyback).
You make a good and accurate point. At risk of not making the video too finance-heavy I chose not to include this detail as the video might already be confusing to some. But perhaps I'm underestimating my audience - you guys seem to be a smart bunch!
A savvy investor/government would have included a convertible stock option in the deal, at the depressed present share price. Then in addition to the loan interest the gov would be able to sell those options later at a profit (if the airline survives).
Coby: aviation has been hit hard due to #####
Me: hits an ultralight
I invested in Delta, AA, United and Jet Blue in March
Interesting video 😀
In many, if not most, cases corporate executive compensation is tied to the corporation's share price. Executives use the stockholder's cash to buy back shares in the company, raising the share price and therefore raising their own compensation (again using the stock holders cash). This is a perverse incentive to think for the short term rather than the long term. Thank you, Carl Icahn!
What would have made this better, IMHO, is knowing just how much the airlines have spent buying back their stocks in the past decade. Since there is historical pattern of airline industry bailouts, maybe lawmakers should reduce any future bailout by the amount an airline has spent buying back its own stock.
$36 billion in the past 5 years
Whoa whoa!! What was that nextflix flash all about?! 🤣
If the legacy airlines fail new players will take their place as long as there is a market in aviation.
I like what you did with that quick Netflix flash! As far as the airlines? It's just (plane) GREED!!!
That aluminum 777 is bomb.
Subtle hints 😉
Thanks for the explanation of airlines buying back their own stock.... this is something I've not been able to understand.
Glad it was helpful!
What about other airlines like jetBlue, Southwest, Spirit, Frontier, and etc... Same story just not as bad?
Pretty much, they're all facing trouble though. The legacy carriers are getting hit hardest though because they *should* have the reserves to weather to storm because generally theyre the most profitable of the bunch (except for perhaps southwest)
The Big Three got hit harder cause they fly to China and Europe so they have been dealing with the reduced flights for longer than Spirit, JetBlue or Frontier which are mostly domestic.
Very well explained , The reason why companies buy back their own stock is normally to reduce their dividend payments which is an expense to the company saving them money. Neither of the 3 major airlines pay dividends . So why buyback your own stock you may ask? As was so well explained in the video, if a corporation buys their own stock back, it results in less shares outstanding . It artificially inflates the value of the share price . At the same time, it causes the share price to rise. This is a quick way to increase the per share price and at the same time, dilute working capital which is used to pay expenses.
Aren't the stocks they bought back still there to be sold? In other words, instead of it being cash on hand, it's equity in their own stock? They could sell the stocks and get some of the money back (probably at a loss, but still).
Wouldn't stock buy-back be considered a form of price gouging?
Maybe some changes in anti-trust laws could make a difference... Would love to hear thoughts...
You should make a video on your predictions about the coronavirus aftermath. What do you see happening with airlines for the rest of 2020 and 2021??
Stay afloat? You mean stay airborne, right?
lol you're right....
@@cobyexplanes this is a great video. Very interesting.
Now I wonder about the cruise ship companies, if they will SINK during this pandemic ?
Usually I like your videos a lot Coby but if you are trying to give a finance-101-lesson here please do better research beforehand! Stock-buybacks are very common for every big US-companies and vary a lot how effective they are (= how big there return on investment is). Timed correctly they can be a good alternative to paying out dividends to investors. I don´t see why that should be different for the airline industry! Bailouts are another difficult economic problem to discuss. A lot of industries operate on minimal profitmargins (Walmart is a prime example) but are just less effected by the current crisis. "System-relevancy" is the problem to take into account here...
Common doesn't mean prudent. I say every CEO that decides to buy back stock instead of paying a dividend is an idiot no matter how common it is
Just what Netflix needs, more movies about the founding of Apple!! lol
NOT ONE PENNY. Not one.
Former Vice Chairman of an Asia-based airline... The airline business is certainly not as it was when I grew up in the 1960's. Deregulation brought a great deal more competition and many city pairs, but the overall quality of the flying experience, for the most part, has continue to decline. Not to sound snobbish, but when fares were higher, passengers were a higher grade of client. It was an experience. Top quality cabin service was expected, and passengers did pay for the privilege.
Unions have long been a huge issue for airline management for several decades as present and future costs are enormous, not for the faint hearted. Along with fuel prices, labor costs and unions demands, not only for pilots, but flight attendants and technical staff, combined there are a wildcard for those charged with making a profit. Little items add up quickly.
Keep in mind, the amount of costs involved in airline operations is far more complicated than this young man is illustrating here. As head of fleet technical, the cost of purchasing/leasing various airframes and matching them with profitable missions is a huge challenge for profitability. The cost of new aircraft is staggering, and the spares provisioning required to maintain a diverse fleet is an enormous financial chessboard that relatively few in traditional industries can truly appreciate. Landing costs and depreciation must be figured in each passenger fare as well as increasing security costs, insurance and basic operations. All told. in almost all cases, the airline industry has evolved into an essential part of the world economy, although most struggle through with a relatively meager profit. Governments, manufacturers and others take their share. Shareholders are often left holding the bag should an airline face insolvency. I should know as I have experienced 2 carrier failures in my career. One legacy airline of 71 years gone, and a new start up with only 5 years under its belt. In short, the airline business is not for a person with a weak stomach. I believe it is one of the most brutal industries on Earth. When a carrier runs right, with the right people, it is like a fine watch. When the watch gets clogged up with dirt, even at the slightest amount, it will start its inevitable decline to fail. I am glad I am retired.
Apple is a far simpler business model than any contemporary airline. Apple is primarily about producing a physical product. Any attempt to compare the two is folly. Should we bail out airlines? Frankly, I am in favor of partial nationalization for a short time to ensure their continuation. The funds contributed would be used to continue service and provide for a reasonable level of expected profitability. At a date certain, the government's share of the company would be liquidated by sales of shares back into the market. This way, the taxpayers are protected and this would not be a one-time, one-way bailout.
All i'm reading here is a bunch of reasons why airlines should be public utilities (nationalized) and not run for the profits and interests of the shareholders. They are a public good being run as an ATM for the executives and speculators. All their profits come from cutting and inconveniencing fees bilked from passengers via baggage fees, reduced legroom etc.
One BIG THING you left out of the equation was CARGO REVENUE. A lot of flights the big four US carriers fly around, (domestic AND international) is FULL OF CARGO. On more than just a few flight for each of these four carriers, cargo alone pays a high return, and any seats sold in the above cabin is just icing on the cake.
I thought the main reason apple is holding so much cash is because they don’t want to onshore cash which they have to pay tax on. But seriously. Surely if the government used the bailout to buy new shares issued by the companies. Then that puts the shareholders on the same place. Wipe out senior management stock options. And these can be released back into the market at a later date.
I found your channel a couple of weeks back and have been watching a lot of them. I can say that you must spend a lot of time and effort into each and every video. They are very informational and very concise as well very well done. Thanks for these videos and keep up the Good work. In terms of this video I can understand why political ideas destroy everything. I personally feel that the government SHOULD help to let airline travel continue in business - BUT I am not a fan of airlines using the money that is intended for the people (meaning us travelers as to stay in business so we can get where we want to go) so that their CEOs can have bragging rights about high stock prices- personally if I want to travel I don't care what the stock price is - as long a there is a plane that will get me to where I want to go- I agree with you. KEEP UP THE GREAT WORK and stay safe- Thanks!
Thanks, glad you're enjoying the content! You're right I do put a lot of effort into each, glad that that's evident :)
Still waiting for the failures. Any updates?
I have not paid for a flight since 2010... reason I gave up one of my favorite means of travel is down to basic customer service. I was waiting to check my bag at Huntsville AL, I and everyone else on the plane, had been told, 1 carry on, 1 checked bag, no charge. Come to find out.. nope.. all had an additional cost. While I was moderately annoyed I could handle it. However, watching several members of the armed forces, just coming home from duty overseas, being charged $100 for bags was just plain evil by the airline. I informed the airline this was the last time I would ever do business with them, in fact, it's the last time I ever flew. Let the pandemic take them down.
Over the past three years, the major airlines have spent 96% of free cash flow on buybacks.
Peter Kacandes Do you have a source for that claim?
My biggest problem with government bailouts is that it easily disincentives good financial behavior from the companies that get bailed out. Plus, in a capitalist system, government interference in the economy makes it less capitalistic. Many regulations are a good thing. And some are necessary for a capitalist system to exist. Giving money to companies that couldn't have good financial practices is not necessary.
Share buy back should not effect the share price. By declaring a buy back before it happens, the makets should freeze the price for a set period of time, so to deter buy backs but still gives the option of buy back to companies. And set a max limit of spending on buy backs as a percentage of reserve cash in a business.
Stock buybacks are used in the same way dividends are: to distribute profit to shareholders. All the shareholders’ portfolios increase as the result of a buyback.
As a responsible adult, I maintain an emergency fund to pay for unforeseen circumstances. Why do we expect anything less from our business leaders?
If we bail out bad companies, then we will only get more bad companies, who will expect bigger bailouts in the future.
Coby: says coronavirus in video
RUclips: dEm0n1tIz3d
So why even offer an damn IPO in the first place? Is there anything to suggest that for example, Delta might do better if it didn't have stocks to sell? I just don't get why some companies are so desperate to go straight to IPOs.
The big 3 went after the Gulf carriers" Emirates, Ethiad, And QATAR Airlines " hard and accusing them of taking in government funds and not playing on the same ballfield. The real reason is the Gulf Carriers are providing the best cust. service -food-etc. with cabins that are impressive. WOW how the tables have turned. And to my OG comment, I edited, I would love to start an airline with you Cody as your the brains and I am a customer service individual all day with brains of course but something like Virgin America to stir the industry up. If you look at the story behind Virgin America you'll find the big three did not want a European owner having an airline in America. "WHY"? Competition real competition because the big three skim every penny for profit rather than provide you with the service you should get. They could be more profitable if they just pull their heads out of their ass's...
i have been hearing and reading about this whole stock buy back scheme from all sorts of sources, seem like a giant bubble waiting to burst
Hmm I looked up and saw my sealing nothing but sealing 😭
:(
A stock is part of the company sold to generate cash. A buyback is just the reversal of that process. The only reason it is controversial is because it makes the remaining stock holders richer.
To prohibit buybacks means the only people who can buy part part of a company is other companies, or individuals. How does that make sense?
1:!2 Terrible example (at least for the current situation). Those are both variable costs. They don't need fuel or many wage and salary staff if there's no customers. It's the fixed costs that are the real killer - the capital expenditure repayments or leases which continue even if there are no customers.
They shouldn't have been bailed out. They are being rewarded again for bad decision making. The airline industry has recorded huge profits in the last decade, in the tens of billions. Where's the money gone? If the big 4 all went to the wall, what would be lost? The airline industry is a vital part of the economy with unending demand. All the hardware, planes, airports, ground equipment, highly trained staff etc will still be there. All we would lose is badly managed companies and their shareholders. New investors would see the massive opportunities very quickly and jump in. I read somewhere that Air Canada, for example, has a massive reserve fund, so it is possible to put some profits away for a rainy day. All the government should do is secure the pensions of the airlines that go down and look after their employees for a period of time (maybe 12 months) while new, more efficient companies start up and begin employing. As for shareholders, as the announcer says at the end of every ad: "the value of shares may go down as well as up'. Tough luck. A very rich man says it far better than I can ruclips.net/video/NGGH7Wktdh4/видео.html
What has happened to the air cargo demand???
Stock buyback increases stock price because it reduces number of shares, not because of reduced supplies. For example, let's say there is a company with 10 shares of stock total and you own 1 share which makes you a 10% owner of the company. Let's say the company bought 1 share back. Now there are only 9 shares left so now you became a 11% owner of the company. Assuming nothing else changed in the company, your stock is worth 10% more.
If you could save one of the 3 legacy carrier's which one would it be and why
Jimmy Max delta it’s the best one
Long story short: they care more about financial speculation than they do about "real" economy, which actually is the unfortunate trend contemporary (1990s onward) economy has generally followed...
Did you see the Flixnet flash
Stock buybacks isn't the problem (still part of it). Most companies, businesses and even people don't keep decent cash reserves anymore. Companies will often invest in non current assets instead, the problem is they are not liquid. Its more of a cultural problem but that may change going forward. Great vid.
The buybacks do nothing to reduce the number of outstanding shares, in fact the share float keeps increasing over time. Why? Because these companies keep issuing out new shares to their key people in the form of stock options.
Delta gave a huge bonus to employees months before the virus.
Airlines never buy back their stock at the levels other firms do. Your premise that all would be well if they never had buybacks is too basic. Apple and JPMorgan Chase don't have to worry about fuel prices changes.
3:35 Netflix lol really?!
Yes please bail out United, I need my points lol
Lol same
If every company horded cash just in case there was a global pandemic, it would grind most companies to a halt in growth. Though in hindsight, it looks obvious that they shouldn't have bought back stock. But in reality, Airlines are publicly traded companies and this means they are beholden to their shareholders in terms of maximizing returns. Like it or not, using what they thought was excess cash for buybacks is what shareholders would expect them to do. Keeping it in the bank earning no interest is not the best thing to do to maximize profits. Whether or not the gov't bails them out is another thing. But saying they were 'greedy' for buying back their stock with what they thought was excess cash is a major over simplification or just monday morning quarterbacking
Buying back stock is not growth. It's what you do when there isn't any growth. The company can reward it's shareholders by paying a dividend. Stock buybacks always look foolish in hindsight when the stock price dips
Yup saw the Netflix zap
To me it sound like stock buy backs were never the problem - not keeping emergency funds in the bank was the real issue.
290th MAY 05 2020 9:06 pm philippine time.thanks for your video sir
Kind of forgot about the maintenance and purchase of new equipment. So buyback is only a smaller problem
I have many friends who are 'new hire' first officers in the majors. It's not looking good at all.
Every single legacy carrier is plagued with greedy management. Stock buy backs are all about management performance bonuses. Instead of saving cash or paying off financed aircraft they wasted that money to benefit themselves.