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BA, AAL, ALK, DAL, LUV, UAL: Airlines & Rising Oil Prices - YouTube
Channel: TD Ameritrade Network
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get right to colin scarola
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equity analyst at cfra thank you so much
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for being with us so we want to talk all
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about the pent-up travel demand that
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folks are anticipating during the
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holidays i mean if you look there's no
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cheap trips i'll tell you that
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yeah it seems to be a
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kind of a tale of
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two different markets for airlines
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domestic leisure
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demand is really booming
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i wouldn't be surprised if it's already
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above 2019 levels here in mid-november i
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think it's going to go well above
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through the holiday season
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but obviously a different story still
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for business and international travel
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well let's start with the good news the
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airlines and the holiday travel the
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consumer is feeling hot spending getting
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out there
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when you look at the airlines do you
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think that something like love might do
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better because it's more domestic or is
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it the international players trying to
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get to the caribbean or whatever
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as far as the holiday and leisure travel
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tell me a little bit about the airlines
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and what the good news is
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yeah i think companies like southwest
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like alaska
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jetblue the ones that are historically
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focused more on the domestic leisure
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traveler they're certainly going to be
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closer to a pre-pandemic earnings level
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this quarter than united american delta
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but
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that's not to say that those major
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airlines won't also be doing better
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because they've
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all three of them have really built out
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their schedules to focus more on
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domestic leisure travel during the
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pandemic so they'll they'll be able to
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capture this sort of resurgent domestic
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traveler as well i think a big part of
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it
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it's not only the pent-up demand that
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people haven't been able to travel
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everywhere they wanted to for a while
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it's also you know the employment
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numbers the the wages now people are
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people who are working
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they're generally making more than they
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were
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you know a year two years ago with the
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rising wages so i think a lot of that's
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flowing it's kind of an extra tailwind
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with the pent-up demand to get back in
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the air again
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yeah and at the same time that exact
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story could be a headwind right when you
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talk about a tight labor market and
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having to pay more and get flight
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attendants and baggage handlers and many
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others who need to get the plane from
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point a to point b
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um finding staff is difficult i'm sure
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jet fuel has not been this expensive
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since 2014 and as you know today colin
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they're they're not getting the business
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travelers back at least not so fast
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right so
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the the inflationary pressure is
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especially acute on the labor costs so
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we saw in q3 already a lot of the
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airlines labor expenses were already
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coming in line with 2019 even with the
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schedules they're flying significantly
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lower still so that tells you how bad
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the labor inflation is and that explains
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those major disruptions we've seen over
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the summer and fall whether it's spirit
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american
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southwest
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you know trying to get back to a 2019
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level operating schedule when your labor
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force is still significantly smaller
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it creates major problems and we've so
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we've seen them
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now trying to correct and they're
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keeping their schedules a little smaller
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than 2019
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but some of the good news on inflation
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yeah
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i think well i was going to say should
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we expect to see lower numbers
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overall i don't mean to interrupt you
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but i just i'm curious because delta
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last month said the fuel prices are
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going to weigh on the bottom line
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frontier airlines forecasts a loss um
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november 10th we're up 25 from three
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months earlier as far as jet fuel so do
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should we expect that these airlines
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will come in with lower numbers overall
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and could that hurt the stocks
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well it's amazing how fast things can
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change
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so just go a month back to mid-october
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oil was pushing 85 dollars per barrel
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all of a sudden you know you had the
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airlines adjusting to that with their
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guidance and forecasting
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much lower margins for q4 and 2022
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now all of a sudden oil is down to 78.79
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a barrel
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and
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so it's about a 10 drop in the oil price
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in the last month
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and a big part of that is you've seen
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drilling activity pick up
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big time from september to october so
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energy producers are responding to those
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high prices
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we do think that you know it's changed
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rapidly it could go the other way again
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we don't know for sure but we do think
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the market is starting to find some
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balance on oil so we think that's going
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to be less of a headwind than was
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thought just a month ago
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and then where does boeing fit in this
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boeing is one's big 737 max orders in
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dubai
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right the boeing story obviously a big
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one at that airbus still dominates that
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show but i think people viewed that as
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some good news for boeing right
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yeah certainly getting
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getting a foothold in a
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huge growth potential market like india
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is a very good thing for boeing
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but
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i think the the positive reaction in
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boeing and this week it's really less
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about that air show it's more about the
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regulatory news out of china so they
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kind of gave their first hint that
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they're
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feeling comfortable with the 737 max
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flying in the chinese market again
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so that's a market that that's where up
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to 25 percent of
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boeing deliveries were going prior to
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the max crashes
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so you really can't have a healthy
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thriving boeing again until the chinese
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market is back open to them
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and my my take on this last week with
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boeing stock trades is really that
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that's the key driver it's less about
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the orders coming in at the dubai air
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show
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much more about reopening that chinese
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market i think that's that's going to be
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a huge win for them and it looks like
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it's around the corner now
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all right colin thank you so much great
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to chat with you about all of this
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collins corolla of cfra thank you very
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very much a good look there at the
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airlines people flying domestically how
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about some ski trips not just hot trips
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right
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you
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