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Ryanair has purchased 7m of its own shares at 3.07c for cancellation. That equates to 0.47% of the shares outstanding
Posted: 05 August 2011
The Chief Executives of IAG and Ryanair are not, last time we peered out of the bunker, retiring types. They tend to engage actively with counter parties that threaten shareholder value within their companies. Hence, regulators, airport managers, OEMs and trade unions often end up in cage fights designed to halt the seepage of equity value away from the carriers. Given the hopeless record of many global airlines in protecting their shareholders we fully support their stance.
However, we note one major threat to shareholder value does not receive the same level of verbal violence. It absorbs huge resources and regularly undermines other hard-won gains in managing an airline. Yet, it is treated primarily as an exogenous shock that cannot be influenced by a hefty bout of senior hurling. That input shares similar traits to other key cost items such as; (1) having an oligopolistic structure; (2) imposing unpredictable price pressures and; (3) ignoring economic realities. That input is - kerosene.
Oil is built on top of a cartel and is distributed globally (on financial markets) by a disturbingly small group of investment banks. It deserves to be attacked with the same vigor deployed against other drags on airline profitability. It is, manifestly, the subject of actions designed to maximise its price without much consideration for the collateral damage to airlines and consumer demand. Therefore, it should become front and centre a subject of relentless criticism and questioning by our most high profile chief executives.
Our Charter of Offense against the jet fuel industry would include; (1) a spotlight on what share of the global oil market is run by a handful of investment banks; (2) press conferences to expose how much of the oil market is derivative compared to physical; (3) funding a study on how much physical oil is held in storage by investment banks; (4) publication of a league of prices between the various suppliers to endlessly show how concentrated the "competition" actually is, and; (4) lobbying the political system to force changes in the way oil is priced.
By adopting a sustained and aggressive campaign against the oil complex airlines might achieve as much, if not more, than they get by fronting up to other cost drivers in their industry. It is a short ten years since oil traded close to $10 a barrel, and there were rational voices arguing even then that lower prices were warranted. A decade later the world has allowed itself to be suckered into a financial markets driven mania supported by spurious end-of-the-world campaigners and latterly QE2. All that bought us $100 oil.
Taking down the oil market, aside from upsetting oil producers and "traders", would be an unequivocal shot in the arm not just for airlines but for all their customers too. It just needs a few combative leaders to take up and administer the cudgel – repeatedly.
Ryanair has purchased 7m of its own shares at 3.07c for cancellation. That equates to 0.47% of the shares outstanding.