Lost your password?

Since we’re not going to be moving around the world, I wanted to take a look at the financial conditions of some of the companies that we use to get around. I call this the “Week in Travel – Survivor Edition.”

Please note: While I do reference stocks and prices in the article, nothing in here represents a recommendation to buy, sell or do anything else with a stock. The only stock tip I’ll give you is never to get your investment advice from a guy writing a travel blog.

Week In Travel – Survivor Edition

Airlines Will Survive, But Not Without Help

Without help, the airline industry would be gone. They could last a few months, maybe even a little longer, depending on the benevolence of their creditors, but it would get ugly quickly. Delta just announced that they are burning through $100 million per day and are hoping to get that number down to $50 million. And they’re one of the good ones.

But don’t worry, the lender of last resort is stepping in to provide financing. The government is stepping in to provide grants and loans, and they probably won’t get a lot out of it. Personally, I think that they should demand 25% of the airline in return (Feel free to insert your own number.), but they probably don’t have as much leverage as they think they do. When 9/11 occurred, there were seven major airlines in the United States. There are now four, who control well over 80% of domestic capacity (and more into/out of the US). Losing an airline would drive prices up bigly. And while bankruptcy doesn’t necessarily mean going away entirely, several industry bankruptcies would throw it into turmoil.

Of course, it would be unfair to say that the entire would go away. Southwest Airlines, the most financially conservative company in the industry, would eventually flourish, since it would be the only airline left with the possibility of somebody like Delta picking up the international business and serving as Peeta Mellark to Southwest’s Katniss Everdeen.

Want a bit more info? Feel free to peruse my article at NerdWallet.

Act Fast!
Rakuten Shopping $30 Bonus Plus Rebates For New Sign-Ups
(How Shopping Is Like A Casino Bonus)

Lodging Companies: The Big Guys Will Be Bruised But Recover

Hilton, Hyatt and Marriott have one big thing going for them: They don’t actually own a lot of hotels. Most of their properties are help by franchisees, who pay them management and/or franchise to use the parent company’s name, reservation systems, etc. Kind of a nice business, just sitting there and collecting cash flows.

Hotels have been spending the past few weeks borrowing money and speaking to Wall Street about their prospects. And they look pretty good (relatively speaking, of course). Some of what we’ve heard:

  • Hilton sold $1 bn worth of rewards points to American Express, giving them almost $3 bn in liquidity. JP Morgan believes that they could last for almost two years in a zero-revenue environment.
  • Marriott recently added a $1.5 bn credit facility to its financial quiver. They had to tighten some of the cash flow restrictions on their current revolving credit line, but they have plenty of cash to survive.
  • Hyatt already had a relatively conservative balance sheet and an existing $1.5 bn line of credit. It added another $500 mn, offset by the $350 mn that they had already drawn down. Huh? They have $1.3 bn in cash and the ability to borrow up to $1.65 bn if they need it. JP Morgan estimates that it has the ability to survive three years in a zero-revenue environment.

I’ll pimp another NerdWallet piece if you want a few more industry details.

It’s going to be a lot tougher for casinos, since their balance sheets are a little worse and they generally don’t have the flexibility that the hotels do. Macau’s global gaming revenue was down 60% in the first quarter and should still be down significantly in the second quarter, even with potential re-openings. There were no major bankruptcies in the Great Recession of 2007-2009, but a couple of companies, including MGM and Las Vegas Sands, came close. The structure of the industry has changed since then, but the casinos still have a lot of costly assets.

The market has caught on to the various companies’ financial prospects: Marriott’s stock, for instance, is down about 46% year-to-date, but that performance looks absolutely heroic compared to MGM, which is down about 58%.

Further Reading – Points & Miles

Cruise Lines: Your Guess Is As Good As Mine
Week In Travel – Survivor Edition

Here’s where it gets interesting. The cruise lines have a lot of factors working against them:

  • Cruise line passengers are already concerned about norovirus, so having become the poster children for COVID-19 contagion won’t exactly get people back on the ships.
  • The cruise lines can’t come back until the airlines and the hotels do. People need a way to get to the port and a place to stay the night before.

But worst of all…

  • Cruise lines are not American companies and can’t expect government aid.

The major cruise companies fly “flags of convenience,” which means that they are registered in countries other than the US, allowing them to avoid paying US taxes and labor laws. Last year, the three major cruise lines paid tax rates of about 2% each.

Needless to say, those facts make it a little bit awkward for the cruise lines to approach Washington, essentially a foreign government, for aid to get through the crisis. The only thing more awkward would be the US trying to justify giving them significant financial assistance.

I wouldn’t count it out altogether, though. The cruise lines all have their corporate offices in Florida, and I’m told that this is an election year. The administration will want every vote that it can get in that key state. Wall Street has already provided financing. I’m curious to see what Pennsylvania Ave will do.