THSCC Forums

Why is everyone so upset about oil companies making record profits? Any good company will report "record" profits quarter after quarter every year.

Is XOM's profit rate too high? Check out the earnings statements for a typical drug company or large financial. It's not out of line in the grand scheme.

And what does Exxon do with all those profits? Well a lot of things, including those mentioned above, and including reinvesting in the business. Read: Oilfield discovery. I don't think they're "saving" too much. If they can make so much earnings they are incented to reinvest profit into the business.

BTW, since I work with unprofitable businesses (supply chain partners) all the time at work, I would always much rather be reliant on a good profitable business than one in the red. When times turn tight the unprofitable businesses fold.

Record profits in oil just means that we're going to have good fuel supplies for a long, long time.

Quit whining about high gas prices and go buy some oil company stocks so you can get some of your dollars back in dividends and capital growth.

_________________
Mike Whitney
whit32@gmail.com, 919-454-5445
V10, V8, V8t, I6, I6, V6, F4t, I4, I4, I4, I4, I2, 1, 1

I'm not talking about the local level BS going on at all...if your opinion of zero shortage of refined products holds water, put your money on it then. The crack spreads are so crazy right now exactly for the reason that refineries are running flat out and because there are a number of refineries down. We are right on the marginal limit here in the US with refinery capacity, and there have been regional shortages of RB due to local blend demands as a result.



Exactly. It is amazing and sad to see the media headlines simply repeated without any insight into what "profits" mean, no contextual comparisons, etc. It's pointless actually unless you are a politician and intend to incite a riot to keep your tail in Congress by an uninformed and easily influenced voting public. Just like all the talk of a "bad economy" that the media and one side of Congress has been harping on for years now...meanwhile, we experience one of the most prolific periods of growth in our history (i.e. reference the record profits many companies have been making and the unemployment rate that is below the average rate of any decade in history). This was the perfect media backdrop that kept the "uninformed and easily influenced" public significantly underinvested in the stock market on a continual basis in the past 4 years while things the S&P500 index have almost doubled in value.

Hey, if you want something to worry about, check out the US Dollar. It is getting close to testing the lows of the past couple of years -- whether it finds support near here or at those levels or breaks down is likely much more important, long term, to our economy. There is a strong incentive for oil producing nations in the Middle East to switch to Euros as settlement for oil, and you can bet the US is doing everything it can to prevent the loss of stature of the US Dollar.

_________________
Current stable:
2019 BMW M2 Competition slicktop 6MT
2011 BMW M3 sedan slicktop 6MT
2007 BMW 328i wagon (slushbox for now)
1975 CanAm 125MX2

As someone who's entire industry is driven by the price of a barrel of crude, I HATE seeing prices go through the roof. It is bad not only for the industry but for the passengers too. As the price of fuel goes up, airlines spend more on fuel, thus they have to save it in other areas.

You guys tell me where you want that to be. Here are your options...

1. Cut cost by getting rid of the old, experienced, high paid pilots and replace with a 21 year old fresh out of flight school.

2. Cut cost by getting rid of the old, experienced, high paid mechanics and replace with a 21 year old fresh out of Embry-Riddle.

3. Cut cost by eliminating flights, thus making some markets served by only one or two airlines. Airfare goes up due to lack of competition.

4. Cut fuel consumption by parking older, inefficient airliners and replace with much more expensive, more efficient planes. Good in theory, but very costly in the long run. Airlines typically replace older airplanes as they reach the end of their service life. Northwest Airlines fleet is currently made up mostly of aircraft made in the late 60's to the early 70's (they fly the largest DC-9 fleet in the world).

5. Allow airlines that are struggling, i.e. legacy carriers such as Delta, USAirways, Northwest, and Continental, to fold thus creating an industry filled with airlines like Southwest and jetBlue. Only they will no longer have the competition and can raise their rates accordingly.

Even in the corporate aviation sector we see problems ahead. As the price of Jet A goes up, currently $4.50/gallon retail (that price gives us a $.90 margin per gallon to cover our costs), Corporate flight departments stop flying so much. The BOD of the companies start parking or selling off aircraft. We are already seeing General Parts (CarQuest) and SAS not flying as much. It happened to Glaxo several years ago. They used to have 6 aircraft based in Raleigh, 3 in Europe and 2 in Asia. Now they only have 2 planes world wide. Corporations use aircraft as a time savings machine. They can travel when they want, where they want and without the hassles of airline travel. When fuel costs go up, the BOD weighs the cost against the time savings and cost always wins.

Personally, I like my job. I NEED my job. I don't want to see another down turn in corporate and commercial aviation like we had in the early 90's. People in jobs like mine, and the consumer, are the ones who get hurt.

_________________
Todd Breakey
STS 42 - 1992 Sunburst Miata
Dammit!
"You souldn't play leap frog with a porcupine. You might get hurt." - Eliza

There is no easy solution to situations airlines continually find themselves in it seems. You know the old saying (can't recall who coined it), if you want to be a millionaire, start with a billion dollars and open up an airline.

My "theory":

The unfortunate fact of human nature is that we as a whole take the most recent past and linearly project that experience out into the future. As long as small changes in time occur, that psychological projection is often useful and accurate; hence, it is strongly reinforced through conditioning we receive from the environment around us.

The problem with linear projection is that we live in a world that is highly non-linear on the larger scale and is filled with random events and, more importantly, abrupt discontinuities. Those discontinuities, the outlier events, occur much more often than a normal distribution would indicate. I'm primarily speaking about free capital markets here, but I believe it applies in all areas of life.

Let's apply this thinking to the aircraft industry or any industry that is tied to the price level of a commodity. Why would they find themselves in a pickle at this point in time? You can either blame the commodity or you can blame the business plan that contained predictions about the future prices of such commodity.

I'm reminded of the huge run in corn that occurred in late 1995, and grain elevator operators were going out of business right and left since they had sold corn futures based on their expected future sales; however, in the short run they did not have the huge funds required to maintain the open positions, which are marked to the market every day, as prices went up and up and up, and they had to fold...which of course meant more futures buying, higher prices, and then the folding of the next worst case concern. It fed on itself until the process had run its course. The majority of the affected blamed the price of corn, the "speculators", the end users (i.e. big food companies), etc, everyone BUT themselves. Guess where that gets them -- they get to repeat their mistake in the future since of course they were "not wrong".

The airlines are similar in some ways; however, the net I would take from the experience of airlines in the US history, is that it is not a "robust" business model. History has proven that. There have been huge bets made and lost on airlines for decades. So given that one operates within a non-robust system, you have to expect the road to be VERY bumpy at times...usually those times when a discontinuity appears in some part of the business model. I blame the basic business model and the business plans of the airlines coupled with the huge quantity of money people have been willing to lose all along the way. It is unfortunate when many are caught in such business models.

_________________
Current stable:
2019 BMW M2 Competition slicktop 6MT
2011 BMW M3 sedan slicktop 6MT
2007 BMW 328i wagon (slushbox for now)
1975 CanAm 125MX2

Re: Airlines

Todd, you forgot to point out option #6 (something Chuck alluded to).

Stop running a money losing business. Don't fly most of your flights at an operating loss. Ticket prices should be set at a sustainable level, not the bare minimum to keep from losing money on all but the most overbooked flight.

Keep prices at a sustainable level and differentiate your flights with some other services. I've been known to pay more for good service in the past and will do the same in the future.

Regardless, I think the airline industry needs a whole bunch of consolidation, and thus less competition. That should result in a requisite price hike and open the door for new ideas and other "discount" carriers.

I never said I was upset. Nor have I complained about current fuel prices. In fact I've said before in this thread that our prices are actually cheaper than we perceive them to be.

What I do not like is how many companies drop a press release citing the "woes" of the industry to justify price hikes rather than just coming out with the truth. They hike the price because the demand is there. We'll pay it. I'm surprised it is not over $4 per gallon by now. There must be some sense of guilt there or they would not try to spin it and candy coat it every quarter. And no. That ethical debate is not limited to the oil industry.

I think the oil industry's challenge is growth. Everyone drives. Where will they find the next big boom for profit? Hopefully they are looking at how to deal with that possibility of a market ceiling.

I'm not complaining about the high gas prices either. I am unconvinced that the high profits will be used for "exploration of new oil fields" instead of just buying your competitor so you can corner the market and raise prices. I too would much rather buy from a supplier who I can count on to be there in the future and who makes the profit to be there, I am just unconvinced that most industries are funneling back a percentage of their record profits into their business ( AND rewarding the execs AND workers who got them there. The same could be said for the pharma industry. When I see another ad for damn ViagCialLev and every other drug, it makes me think of my co-[pay increase.

...This land is my land, this land is your land....

Unfortunately deregulation of the airline industry in 1978 made the public demand lower prices with the same standard of service. Thus creating the money losing venture. Before 1978, airline tickets were expensive and were not available to everyone. Airlines offered full meals on transcon flights and short meals on local flights. Everyone was happy. Except airlines like Southwest, which were bound by the Wright Ammendment to fly only in designated areas. It meant something to be called a "Flag Carrier." These were airlines who were not bound by borders, these are now the legacy carriers.

I'm not saying that deregulation was necessarily a bad thing. I worked for Valujet for a while and we were able to give people a $100 option to fly to Orlando and back. That is $100 round trip!!! That would not have been possible in the pre-deregulation days. The problem was, people still demanded the same service that they got with the legacy carriers that were charging $400 for the same flight. But because of our cheap fares, USAir and Delta started offering the same prices. This created the downward spiral that we are in now. Low fare carriers have gotten the price per seat mile down to a point where the legacy carriers can't afford to do business. Unfortunately for them, the customer won't fly on them for the old prices anymore and the price of doing business keeps going up.

Deregulation was good for the everyday consumer who wants to be able to travel by air for bus prices.

_________________
Todd Breakey
STS 42 - 1992 Sunburst Miata
Dammit!
"You souldn't play leap frog with a porcupine. You might get hurt." - Eliza