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Must-know: Consistent 5-year and 10-year VLCC prices
Five-year very large crude carrier (or VLCC) prices remained consistent at $75 million—last month’s levels. On year-over-year (or YoY) basis, prices increased by 36%. Besides, ten-year VLCC prices stood unchanged at $48 million. They increased by 41.2% YoY.
Newbuild very large crude carriers (or VLCC) remained consistent in August 2014. The data was provided by R.S. Platou—a leading international ship and offshore broking company. August 2014 newbuild prices for VLCCs—the largest common ship used to transport crude oil over long distances—remained consistent at the July 2014 levels of $97 million.
According to the U.S. Energy Information Administration (or EIA), for the week ending September 12, 2014, U.S. crude oil imports from Canada hit a record high of 2.99 million barrels per day (or bpd). This was a 20% increase from the same period last year. Meanwhile, the four-week average on September 12 was 2.93 million bpd.
According to the IEA, the last four-week average for crude oil imports into the U.S., as of September 12, 2014, stood at 7.8 million barrels per day (or bpd). This is 3.7% less than same period in 2013. It clearly indicates that the U.S. is relying on domestically produced oil instead of imports.
China has a rapidly growing economy. It has a large population of 1.35 billion people. As a result, China’s energy demand is rising significantly. It plays a major role in the crude tanker industry. Economic activity and industrial output are expanding quickly. China needs to supplement domestic energy resources with imported supplies on an ever-increasing scale.
In order to assess the industry’s fundamental outlook, managers use the oil tanker orderbook. It’s an important yardstick. It includes the number of ships that have been ordered and the number of ships under construction. A rising orderbook usually suggests that oil tankers have a better expectation for future supply and demand dynamics.
Automobile sales support the shipping industry. When automobile sales grow consistently, it provides a cushion for the shipping industry. This drives oil demand. When China’s consumers’ purchasing power increases, it also supports industry growth. High demand is keeping the country on track to overtake the U.S. this year. It will become the top oil importer.
Analysts and money managers follow the Baltic Dirty Tanker Index (or BDTI). They follow the Index to assess the crude oil shipping industry’s revenue and earnings potential. The Baltic Dirty Tanker Index decreased to 699 on August 29, 2014. It was 826 at the beginning of the month.
Compared to its peers, Alaska’s margin was the highest. Delta’s (DAL) was 17%, Southwest’s (LUV) was 15.5%, American’s (AAL) was 12.3%, JetBlue’s (JBLU) was 9.4% and United’s (UAL) was 8.8%.
CASM (or cost per available seat mile) excluding fuel cost increased to 8.36 cents in 2Q14 (or the second quarter of 2014) from 8.321 cents in 2Q13. The increase in non-fuel cost was primarily driven by expenses related to employee wages, benefits, and variable incentive pay, which together comprises ~40% of the total non-fuel expenses.
Alaska Airlines’ (ALK) second quarter results have exceeded consensus estimates. Its share price adjusted for stock split was $46.84 on September 18, 2014, ~29% higher than it was in the beginning of the year ($36.28). The following are the actual results compared to Wall Street analysts’ estimates for the second quarter.
Alaska Airlines (ALK) has fared well in reducing leverage as evident from a rating upgrade provided by Fitch. With a BBB–rating from Fitch, Alaska now falls under the same investment grade category as Southwest (LUV). These two are the only airlines in U.S. to achieve this. All the others fall below investment grade.
Alaska’s cash and marketable securities balance increased by 13.5% to $1,510 million in 2Q14 (or the second quarter of 2014) from $1,330 in FY13 (or fiscal year 2013). Out of this, cash and cash equivalents decreased to $22 million in 2Q14 from $80 million in FY13 and marketable securities increased to $1,488 million from $1,250 million.
Alaska’s total cost per available seat miles was decreased by 2.3% primarily due to the decrease in fuel cost. Alaska managed to reduce its largest cost by 8% despite the increase in fuel cost. Fuel cost increased by 2% from $3.07 per gallon in 2Q13 (or the second quarter of 2013) to $3.13 per gallon in 2Q14 mainly due to the 9.4% increase in crude oil prices.
Alaska Airlines is facing increasing competitive pressure from Delta, as it has recently added new routes and expanded capacity in Seattle—Alaska’s major hub.
Alaska’s passenger revenue increased by 7.9% during the second quarter due to an increase in both traffic—or revenue passenger miles (or RPMs)—and yield—or price paid per passenger per mile. Alaska was able to serve more revenue passengers due to an increase in capacity.
In 2Q14 (or the second quarter of 2014), Alaska derived 86% of its total revenue from the passenger segment, 2% from the freight and mail segment, and the remaining 12% from other sources including revenue from the mileage plan, baggage fee, ticket fee, and on-board purchases.
Alaska Air Group (ALK) was incorporated in 1985 in Delaware. It’s a holding company for Alaska Airlines and Horizon Air. It’s the seventh largest U.S. carrier providing passenger and cargo transportation services, one among the top ten airlines comprising almost 85% of the domestic market share by revenue passenger miles (or RPM).
Alaska’s operating margin increased to 16.3% in 2013—from 11.4% in 2012. The net margin increased to 9.9% in 2013—from 6.8% in 2012. It also achieved an after-tax return on invested capital of 13.6%. This exceeded the 10% goal for the fourth consecutive year.
Increases in share prices and dividends provide direct benefits to shareholders. The increases in share prices give better returns. Share repurchases and stock splits provide indirect benefits. Share repurchases lead to a reduction in outstanding shares. This results in increased EPS.