Monday 29/04/19

  1. In AIRLINE NEWS, we see how the industry is being affected by oil, the Boeing 737 Max groundings and Boeing’s new admission
  2. In OTHER INDUSTRY NEWS, US meat companies gain from China’s hog cull and the music industry seeks more royalties from Fortnite
  3. In INDIVIDUAL COMPANY NEWS, we look ahead to Apple’s results, JLR’s potential offer for Addison Lee and the success of the Ivy Collection restaurant chain
  4. In OTHER NEWS, I bring you a bad breakfast. For more details, read on…



So airlines suffer from high oil prices, the Boeing 737 Max grounding and Boeing’s failure to notify…

Airlines facing a £900m hit from the rising price of oil (Daily Telegraph, Oliver Gill) takes a look at the finances of some of Europe’s biggest airlines and concludes that they could suffer a £900m profit squeeze for the first quarter of this year because of continued high fuel prices. According to its analysis of analyst forecasts, International Airlines Group (which owns British Airways) is expected to be hit hardest as its fuel bill shot up by about €250m in the quarter, eclipsing Lufthansa’s recent announcement of a €201m fuel bill rise. Air France-KLM is projected to be hit by a €174m hike and EasyJet by €72m. Basically, this has happened because oil prices have vacillated between $50 and $85 a barrel in the last 12 months and the airlines’ hedging strategies haven’t been sufficient to cover this.

The industry is also likely to be hit with other recent developments as per Airlines face profit hit over Boeing 737 Max grounding (Financial Times, Patti Waldmeir and Josh Spero) where a number of US and European airlines have said that the grounding of their respective 737 Max fleets in the wake of the recent air crashes will make a big dent in their profits. This will inevitably lead to big compensation claims from the airlines to Boeing, but it is

more likely that the company will offer it in the form of discounts for future aircraft purchases and/or agree to defer purchases rather than giving them cash. All Max aircraft have been grounded globally since March 13th.

Boeing is going to have a very fiery annual meeting today in Chicago, especially considering that Boeing didn’t advise airlines, FAA that it shut off warning system (Wall Street Journal, Andy Pasztor) is the conclusion being reached government and industry officials. This meant that the manuals for the aircraft were incorrect! * SO WHAT? * Boeing is already in deep sh*t and this sort of revelation isn’t going to help it. However, it seems to me that everyone (including President Trump) has been trying to brush this under the carpet – you’ll recall that the US was the last to ground its fleet. However, when your own investigators come up with stuff like this, you do wonder how Boeing will get out of the situation. As for not offering cash payouts, I suspect that airlines will not be amused. If they are facing pressure from higher fuel prices and a global economic slowdown (that usually leads to less people opting to fly) then you would have thought that they won’t be interested in getting discounts or the option to defer as some of them might not be around in a few years! I suspect that Boeing will just try to front it out for as long as it can (and this might work given its size) and it may well be able to cope with a few compensation claims in cash – but if everyone tries it, they could be in trouble. What Boeing has done, however, is despicable. It just remains to be seen whether it will continue to behave in the same way.



The US meat industry is benefiting from the Chinese hog cull and the music industry seeks out more royalties…

In US meat companies gain from hog culling in China (Wall Street Journal, Jacob Bunge and Kirk Maltais) we see that the recent outbreaks of African swine fever that have resulted in the mass killing of pigs in the world’s biggest pork market is benefiting US meatpackers and farmers by hiking the prices. * SO WHAT? * The latter have been suffering of late because of record meat production and China’s tariffs on US meat but hog carcass prices have shot up by 40% in the last two months! China’s agricultural ministry recently said that the country has 19% fewer hogs in the country than the previous year – which is incredible when you think that it is home to around 50% of the world’s pig population. Companies like Tyson Foods are trying to get in on the export action and Smithfield foods, owned by China-based WH Group, is now reconfiguring some of its plants to ship more product to China. Poultry processors like Pilgrim’s Pride Corp will also benefit as the shorter lifespan of chickens means that they can up production

quite quickly as consumers feed their meat cravings with with more poultry. Another interesting thing to note is that China is starting to place orders for entire hog carcasses rather than the feet, hearts and heads they have been buying in the past. This could mean that prices for bacon and sausages will go higher as China buys more different cuts of meat, but they haven’t yet “fed” (see what I did there) through to higher prices at restaurants and supermarkets.

Music industry takes aim at Fortnite over song royalties (The Guardian, Mark Sweney) highlights a new trend where songwriters and composers are looking to use new copyright laws to get royalties from music featuring in online gaming. PRS for Music, the body that ensures 140,000 songwriters, composers and publishers in the UK get paid royalties when their music is played, reported a 4.4% rise in music royalties as it included its first revenues from licencing deals with the likes of Facebook and Instagram. The new laws will mean that companies such as Google and Facebook will be forced to seek licences from press publishers and the music industry to use their content online. * SO WHAT? * This is a very interesting new area that is clearly attracting attention as games like Fortnite attract millions of users around the globe. If this can be properly monetised, it could prove to be a very lucrative revenue stream for artists. No wonder the platforms are objecting!



We look ahead to Apple’s results, JLR’s potential purchase of Addison Lee and the success of the Ivy Collection…

Apple set to boost buybacks as iPhones falter (The Times, Simon Duke) attempts to second-guess what might happen at its annual results, to be announced tomorrow. Basically, analysts expect Apple to use some of its $130bn cash pile to do some share buy backs as there’s probably not going to be much in the way of iPhone sales boosts to get excited about. The company is trying to put increased focus on the growth of its services business – which includes music streaming, photo and document storage and its app store – and although it’s growing, it’s not growing anywhere near fast enough to compensate for maturing iPhone sales.

Jaguar Land Rover ponders bid for minicab firm Addison Lee (The Guardian, Gwyn Topham) shows that JLR is seriously considering buying private hire firm Addison Lee as it tries to broaden its outlook and position itself for a

future of shared ownership and driverless cars. Addison Lee is currently owned by American private equity firm Carlyle Group, which is trying to offload the hire firm for over £300m. JLR is just one of a number of others in the current bidding process. * SO WHAT? * This looks like desperation to me. The company is getting pasted at the moment from having too much exposure to the wrong tech (diesel) and falling demand in its largest market (China) and has announced some big job cuts as a result. Although things like having a contract with Waymo to supply 20,000 self-driving I-paces are nice, a purchase of Addison Lee sounds to me like it could be a massive waste of money at a time where it needs to concentrate on its own offering rather than tinker around with peripheral stuff.

Ivy Collection climbs while peers hit the wall (The Times, Dominic Walsh) heralds some rare good news for casual dining as a mix of Ivy Brasseries and Ivy Cafes is proving to be a hit up and down the country. According to a filing at Companies House for the year to July 29th, turnover is up by a whopping 124% following 14 openings and underlying earnings have shot up by 145%. * SO WHAT? * This just goes that you can still be successful in the restaurant business with the right offering and proper execution – even against the current economic backdrop.



And finally, in other news…

I’ve talked today about pork – so I thought it only fitting to bring you a pork-related story to end on today in Man mocked for ‘shameful’ breakfast with ‘worst fried eggs in the world’ (The Mirror, Zoe Forsey It’s not good.

Some of today’s market, commodity & currency moves (as at 0830hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq *DAX *CAC-40 *Nikkei **Shanghai **
7,428 (-0.08%)25,543 (+0.31%)2,940 (+0.47%)12,315 (+0.27%)5,569 (+0.21%)22,259 (-0.22%)3,083 (-0.11%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)