| Sam Volkering | 02 Dec 2020 |
Ever had a $40,000 olive?
In today's Exponential Investor…
- Please summer, come back to us!
- Ultimate corporate weight loss
- $40,000 olives and $500,000 limes
As I look outside the window today I find myself somewhat daydreaming of the summer to come next year.
I will be the first to admit, 2020 has been a big steaming pile of… you get where I'm going with that.
Now that December has set in and the cold is fast creeping in, I – and I'm sure you – long for the summer to roll back around.
I do love Christmas, I do actually like cold weather (yes, you heard correct, an Aussie that loves the cold) and I wish for snow, but really, nothing quite beats the summer.
One of the things l love about the summer is just sitting in a beer garden with a cold draught beer and a bowl of olives. Whether it's here in the UK, on the terrace of a trattoria in Italy, or a beachside bar in the South of France, give me a beer, some olives and a setting sun on any day of the week when the weather is warm.
How I long again for those days…
Hopefully those days will be upon us again by next summer and as I expect, normality can once again exist in our world.
If that is the case, as I expect, then (as I've written to you before) there's a long view to be taken with a number of the world's airlines. That long view could potentially be a smart investment idea if you pick out the right ones at the right time that have that "bounce-back" potential I talk about.
However, while airlines right now has the potential to be a long investment idea, you've also got to properly understand just how precarious an industry it is. Get it wrong, and you could be in a spot of bother.
Squeeze it all out Yesterday I was reading that easyJet (LSE:EZJ) has decided to get a little more restrictive on its baggage allowances on its flights.
It sent social media into a frenzied meltdown.
Apparently the only passengers who've bought a front seat or extra legroom seat will be allowed cabin baggage for the overhead lockers.
Everyone else in the "cheap seats" gets a bag that must be able to fit under the seat in front of them.
I used to fly easyJet because of its normal baggage allowances. The fact that you didn't have to pay extortionate fees to have baggage for a trip was a big selling point for me if I was hopping over to Europe for a conference or meeting.
Now, well, it's just become the same as the rest of the low-cost airlines.
But do I now begrudge them for it? No, not at all.
You have to understand that airlines are big business, but they're a bloody hard business. The overheads are extraordinary. To get those giant flying buses up in the air costs a heck of a lot of money – much, much more than people probably realise.
Furthermore, the fact airline tickets have become so cheap is something that people also probably forget. When flying overseas costs about as much as a bus fare, you've got to ask, how that's even possible?
Well, it's the proverbial race to the bottom. Airline competition at least for short haul is about volume, and it's the cheapest that usually get the bulk of the consumers – particularly in a world where everyone needs to tighten the belt.
Hence it's a game of who can stay alive whilst being the cheapest, and operating on the thinnest margins.
Airlines operate on margins that are stupidly thin. And in absence of those margins getting squeezed even more, they have to look at other cost-cutting exercises without falling below the waterline.
For example, over the 2016, 2017, 2018 and 2019 financial years, easyJet's operating margins were 0.11%, 0.08%, 0.08% and 0.07% respectively. See a trend there?
It can't squeeze things much lower.
For comparison, Ryanair's (LSE:RYA) operating margins were 0.22%, 0.23%, 0.23% and 0.13% over the same periods.
These airlines barely make a buck on the delivery of their services, that's why volume to them is so important.
It's also why when things are tough, as they are now, they need to find inventive ways to cut costs.
You may be interested inBetter than 2 for 1 – by HALF!
My name is Paolo Cabrelli and I am the publisher here at Southbank Investment Research.
And I am here to make you the best introductory offer I have ever made…
The Fleet Street Letter Monthly Alert and Frontier Tech Investor are two of my flagship investment advisories. They are popular for helping investors understand the bigger picture – and providing them with specific opportunities to potentially protect and grow their wealth.
Here's what readers of both have said:
"I don't think anyone does a better job. Clear, concise information that is not published anywhere else." –JS
"As interesting as it is profitable." – GB
As you have yet to try our work, I'd like to offer you both – at an extremely generous discount.
Initially it was going to be two for the price of the less expensive one.
Except I have decided to HALVE that as well… and throw in two FREE bonus gifts as well.
If you'd like to take me up on it, please click here by 11.59pm on Friday, 4th December.
Capital at risk |
The Olive Trade Famously back in the 80s American Airlines was looking for ways to trim operating costs of the airline. The head of the airline at the time, Robert L. Crandall, came up with a glorious idea…
They were going to remove one olive from every dinner salad served to passengers. Just one olive.
Sounds ridiculous doesn't it? Well that one, small, penny-pinching idea saved the airline $40,000 per year in costs.
There's also a story that Northwest Airline had done something similar with the food on its flights. Apparently Northwest used to cut its limes into 16 pieces. Hence one lime would serve 16 drinks requiring a slice of lime as opposed to an airline like Delta that used to slice their limes into ten.
However, it's believed that by slicing limes into 16 slices instead of ten, Northwest was effectively saving $500,000 a year in costs.
Delta looked at this before its merger in 2008, but while it continued to slice into ten, it did end up carrying less limes and saving that way.
That's how much (and for how long) airlines have been scraping the barrel looking for ways to cut costs.
There's a reason why easyJet and Ryanair tickets are so cheap. There's no limes, olives or fancy drinks and meals served on their routes. Those are something from a bygone era, not fit for purpose on a low-cost airline.
Ed note: thankfully the well-funded, because it's state-backed, Emirates which I fly regularly back to Australia is still happy to oblige me with a beer and olives when I fly with them, phew!
That's why when I see easyJet deciding to cut baggage, it makes perfect sense. Frankly people have had it too good for too long. Less baggage on an easyJet flight will mean a lighter plane, and even small gains on the volumes add up to big savings.
It's the olive trade all over, except with people's baggage instead.
Expect more of this in the coming years as the airlines look to bounce back to their previous volumes and operating conditions. In fact, if they weren't making changes like this I'd be worried.
Thin margins and tough trading conditions mean their viability is constantly in question right now. But with little and smart moves, the ability to weather this storm, and again it's a sign that perhaps they do know what they're doing and that long-view investment idea is one to consider.
Regards,
Sam Volkering
Editor, Exponential Investor
   |
|
Tidak ada komentar:
Posting Komentar