Things in the Sky

The ATA has released its latest yield data, and year over year change has reamanted fairly steady. We’re still seeing big declines, but at least things appeared to have stabilized a bit. On the bright side, yields in August improved from July for all areas except the Atlantic, and all areas are improved from June levels.

Click to enlarge.

For the heck of it I wanted to compare GDP to airline industry performance, but I wasn’t really sure how. Then I found this handy chart from the ATA that has operating revenues for passenger airlines, which made it pretty easy. So a graph of the data looks like this:

Click on the graph for a larger version.

They seem to move pretty well together, as I got an r-squared value of about 0.90. Then, I decided to take out 2002, because I think it’s fair to say that the airline industry was hit harder than other areas of the economy – then r-squared jumped up to 0.935. Not bad! After playing around with the numbers a bit, I can estimate that a one billion change in GDP will go with a change in airline revenues of about $8.5-8.7 million.

Now, we’ll have to see what happens this year when both GDP and revenues have been hammered.

We saw the end of the second quarter last week, so I thought I’d post some airline stock performance. If I copied down the numbers right, the results are pretty interesting.

The trends make sense, since the market as a whole bottomed out in March and a bit of a recovery followed (not sure how much of a recovery it is compared to where we were a year ago).

United and US Airways were both hammered – it appears that the Street is the most concerned about their future financial health. American was slightly above those two, and Delta and Continental were treated a bit  better by investors.

The fact that AirTran was positive is also not surprising based on the carrier’s first quarter results. The same goes for Pinnacle, but I am wondering why it went up so much. And I think Hawaiian’s first quarter profit can help explain why it’s decline for the first half was only a modest one.

What did surprise me is that Allegiant was hammered a bit. The best reason that comes to my just-completed-freshman-year-of-college-mind is that maybe investors thought it was overvalued, as the stock did have a nice little run before 2008 closed (and maybe after that run up, some decided to take their profits and sell).

Anyway, just something I found interesting. Of course, this post should not be seen as any recommendation to buy or sell any stock.

We’ve been hearing about how the rise in oil prices can potentially be due to the devaluation of the dollar. And I think it’s a convincing case, at least for some of the increase.

Oil is priced in terms of dollars. So let’s say the dollar depreciates against other currencies – to compensate for that, the price of oil goes up. The dollar did strengthen against other currencies at the end of last year, mainly due to the horrific events in the financial markets. One reason for this is that people fled to some form of financial safety in the United States. That increases the demand for dollars, which increases their price in the form of the exchange rate. This urge to find safe investments is the same reason why we briefly saw negative treasury yields.

But, while currencies like the euro are nowhere near their highs, they have been gaining some ground. The Euro, for example, hit a low period in late February and early March, but is now essentially flat for 2009.

So, basically, if the devaluation argument holds, then any increase in oil prices should be less in currencies like the Euro that it is in the dollar. I decided to graph these prices from February 12, since this was the lowest spot price I found for oil in the EIA data I obtained.

And, if my calculations are right – in dollars, oil has increased 107.08% from February 12 to June 16, while it has increased 91.32% in euros. That’s still a big increase, but it’s a difference of 15.72 percentage points, which is pretty significant, I think.

Meanwhile, I saw a graph like this on a Financial Times blog, and decided to make my own graphing the price of oil and the value of the euro in dollars.

It’s actually a pretty decent fit. For the statisticians out there, I got an r-squared value of 0.83, which isn’t too shabby.

This suggests to me that indeed the devaluation of the dollar has an effect on the price of oil, whether it be current moves in currency markets or future inflation expected by traders.

And while we’re on the topic of the dollar and inflation, I once again present the scary graph of the monetary base. But this only tells half the story. The other half is the velocity of money, and you can see a graph of that here. Basically, once that picks up, well, it cold get messy, depending on what the Fed does

Anyway, more on oil later.