Will they, won’t they?

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By TESTCustomwebLP TESTCustomwebLP January 31, 2014 20:40

Will they, won’t they?

While the debate over ETS rambles on in Europe (with very few knowing what is really going to happen), over the pond in the US it is all about oil and the lifting of the US oil export ban. Delta Air Lines has urged US senators to resist calls to end the 40 year ban on most US crude oil exports, while oil producers, especially fracking companies, lobby Washington hard for a lifting of the export ban. The argument came to a head after the US Senate Energy Committee had its first hearing in 25 years yesterday on whether the ban should be lifted.

Delta Air Lines argue that lifting the ban will force US crude out of the domestic market and into the global market, in the process lifting US oil prices. Of course if this course of action were to take place then one could assume that global prices would fall.

Delta argues that OPEC would reduce supply to maintain price levels. The United States’ use of homegrown oil would then diminish and prices in the US would rise to match the higher global price. Logic and all brokers we have spoken to agree that this is the most likely outcome, but they argue that global prices would weaken while US prices would strengthen. The US ban and the mass of fracked oil on the market in the US has indeed created a very nice situation for US airlines and the lifting on the export ban could yet put many airlines in the US under pressure of increase costs.

As this debate rumbles on investors are already seeing problems ahead for the mighty Allegiant. Shares of Allegiant Travel, parent of Allegiant Airlines, fell 9% yesterday after aircraft maintenance, pilot training, and new aircraft introduction costs all increased sharply on the books. With the monthly maintenance bill topping $100,000 for each of its 53 MD-80s. It is true that Allegiant will spend a great deal in the near future on scheduling and sales platforms but the pilot training and aircraft introduction costs will not continue to mount but will dissipate. As all those with access to the AE Dublin fleet managers panel will note from what Delta, AA and Allegiant said on stage: An MD80 might well have high maintenance and running costs but the overall cost is far lower than new aircraft spend and the economics are sound. The problem for Allegiant right now is that it does indeed have new aircraft costs running through the books.

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By TESTCustomwebLP TESTCustomwebLP January 31, 2014 20:40
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