Given strong refiner demand and more robust economic activity in the U.S., WTI had been supported lately. This trend has led to the WTI-Brent spread staying relatively narrow, at around $5.
WTI prices fell from a two-week high of $94.88 per barrel on Tuesday to $94.42 per barrel on Wednesday—a ~0.5% decrease—due to bearish inventory data.
Crude stocks at Cushing, Oklahoma, decreased by 357,000 barrels—to 20 million—in the week ended September 12. Cushing, Oklahoma, is an important hub where West Texas Intermediate (or WTI) crude oil is priced.
Distillate inventories, which include heating oil and diesel, increased by 0.3 million MMbbls (million barrels) last week versus analysts’ expectation of a 0.8 MMbbls increase. The rise was the fourth consecutive weekly increase.
Last week, gasoline inventories decreased by 1.6 MMbbls (million barrels) to 210.7 MMbbls. Analysts were expecting inventories to decrease by 1.2 MMbbls.
U.S. crude oil refinery inputs averaged over 16.3 million bpd (barrels per day) during the week ended September 12. Input levels were 28,000 bpd fewer than the previous week’s average.
On September 17, the U.S. Energy Information Administration (or EIA) released inventory data for the week ended September 12. Crude inventories increased by 3.7 MMbbls versus analysts’ expectations of a ~1.5 MMbbls drop. The rise was the first in five weeks.
Analysts had expected a drop of 1.5 million barrels (mmbbls) in crude inventories last week. The following parts will cover actual changes in inventories.
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.
In 2014, Alaska was upgraded to investment grade with a rating of BBB- provided by Fitch ratings agency. After the upgrade, Alaska (ALK) was the second U.S. airline with an investment-grade rating after Southwest (LUV). This was possible due to the company’s strengthening balance sheet. It also had steady earnings growth over the years.
Alaska’s capital expenditure (or capex) mainly includes investment on aircraft. It increased since 2010. In 2013, ~80% of the total cash used for investing activities was on capital expenditure. The total capital expenditure was $566 million. $487 million was on aircraft and aircraft purchase deposits. $79 million was on flight equipment and other property and equipment.
In 2013, Alaska operated a fleet of 131 Boeing 737 jet aircraft. It had contracts with Horizon, Sky West Airlines, and Peninsula Airways for regional capacity. Horizon operated 51 Bombardier Q400 turboprop aircraft. It sells all of its capacity to Alaska according to its capacity purchase agreements.
Aircraft jet fuel is produced by refining crude oil. As a result, fluctuations in crude oil prices and refining margins have a significant impact on airline profitability. Alaska reported that a 1% change in fuel price per gallon results in a $4.5 million per year increase in total fuel expense. Alaska’s fuel cost as a percentage of total operating expense was 34% in 2013—up from 21% in 2009.
Alaska’s fuel price per gallon decreased by 3.6% to $3.19 from $3.31. The decrease was due to lower West Coast jet fuel prices. This was despite a 4% year-over-year (or YoY) increase in crude oil prices. The decrease was primarily due to a 26.7% decrease in refining margins.
Controlling cost increases is crucial for airlines. Margins are low. Even small changes in the cost can negatively impact the airlines’ profitability. Alaska is one of the legacy carriers. However, its unit cost is closer to the low-cost carriers. Alaska’s (ALK) operating cost per available seat mile (or CASM) was $0.1282.
In 2013, Alaska faced stiff competition in Seattle—one of its major hubs. It faced competition from Delta Air Lines. Delta started to launch services to Alaska’s key markets from Seattle—Los Angeles, San Francisco, and Las Vegas. By the end of 2014, Delta and Alaska will be offering 13 overlapping city pairs from Seattle.
Alaska Airlines (ALK) has the lowest yield of $0.148 among all its peers. Its peers include Delta (DAL) at $0.1689, United (UAL) at $0.1614, American (AAL) at $0.1622, and Southwest (LUV) at $0.1602. Revenue management is essential for the airline industry. The industry needs to maximize revenue by selling the most aircraft seats possible to customers at the best price.
Global growth Navios Maritime Acquisition’s (NNA) management cites the International Monetary Fund’s (or IMF) projected growth for 2014 and 2015 at 3.4%, and developing markets growth of 4.6% in 2014…
In the product tanker sector, demand for transportation expressed in terms of ton miles for the period 2004 to 2013 increased by almost 77%.