[Micki]

Anything discretionary should contract.
i.e. gift items, movies, restaurants, garments, jewlery and so on.
Sports should chage a lot. Not just because of transport costs but cutbacks in advertisment spending.
For the same reason there will be less websites.

[VMarcHart]

Did anyone already mention taxi cabs?

By God I hope that dies, even if the entire US fleet goes hybrid or electric. It's a non-sense business. It consumes enormous amounts of resources, operates at less than 20% capacity factor, and has the worst customer satisfaction rate in the country.

[manu]

$this->bbcode_second_pass_quote('VMarcHart', 'D')id anyone already mention taxi cabs?
By God I hope that dies, even if the entire US fleet goes hybrid or electric. It's a non-sense business. It consumes enormous amounts of resources, operates at less than 20% capacity factor, and has the worst customer satisfaction rate in the country.

[hope_full]

$this->bbcode_second_pass_quote('', '2')030's
Gas prices run in the 20s for the most part with possible spikes to around 30. Demand destruction is taking its toll. Non-recreational commercial shipping feels the strain and moves to coal, biofuels etc. Commerical aircraft travel for vacationers and many business folks becomes prohibitively expensive.

[misterno]

I do not agree with the comments on airlines' fuel hedging strategy and Greyhound buses

8 years ago whan I used to live in Boston, there were buses operated by Chinese people in Chinatown, that charged you $15 to NY and $20-25 to Washington DC. I once asked the driver howcome they make money with these prices and accross the street in Chinatown busstation Greyhound was charging 5 bucks more. Driver said they are making very good money and planning to expand. The 4 hour ride to NY was extremely comfortable by the way.

I believe US will adapt bus transportation like in 3rd world countries because it is much cheaper than using airlines.

As for hedging; if it was such a smart idea Southwest would not be the only company doing it. They took extrme bold risks and they were lucky.

[MrBill]

Hedging is an effective strategy to lock-in costs, but hedging alone cannot lower costs.

There are practical limits to how much a firm can hedge its future costs. If they do so using exchange traded derivatives they need to post margin. The longer dated the forward hedge is the longer they tie-up their initial capital on which they have to pay interest. And they will have to continue to make margin calls during the life of the contract if the price goes against them. In this case down if they have bought forward.

If they choose to hedge themselves using an over the counter (OTC) swap they will have to have a credit limit with the bank or broker. Given the precarious nature of the airline industry banks would be very wary about extending long-dated swaps to them in case of bankruptcy. Would you take on ten-year airline performance risk? Certainly not in size.

Those on-balance sheet swaps also tie-up credit and can lower the return on equity. The airline (in this example) would have to sell jet fuel spot with the agreement to buy it back later at a fixed price. If the price in the future is lower they would obviously lose money on their hedge, but they would lock-in their operating costs for jet kerosene. The OTC swap would be cash and not physically settled. A contract for differences.

The third option is to buy an energy-linked note. The airline buys the note upfront for cash, and then gets a percentage of the upside in fuel prices to offset its higher fuel prices. It can be structured to provide a capital guarantee as well. However, the airline still has to come up with the cash to pay for the note in the first place, so again it would have the cost of carry for the duration of the note. And the risk that the price decreases and the note proves to be of little value as a hedge.

Lastly, the airline has the problem that even if it does hedge, and is correct if prices rise, they are only protecting themselves for the duration of the hedge. When the contract matures they then have re-investment risk. So they can cover their costs for one-year, but in one-year they will have to put on a new hedge at the then prevailing market price. Whether that is profitable for them to operate for them or not. Then again if they are right they live to play another day, and that performance is relative to their competitors that might not be around tomorrow.

Most firms tend to hedge about one-third of their expected needs forward. Usually buying forward on dips. There have been some spectacular stories of firms getting their hedging strategies wrong, and then losing when prices were dramatically higher or lower than they expected. For cash-strapped airlines the cost of hedging is also an issue as well as their access to capital. It would be very hard for them to lock-in today's prevailing prices say 5-10 years forward.

[phaster]

$this->bbcode_second_pass_quote('MrBill', 'H')edging is an effective strategy to lock-in costs, but hedging alone cannot lower costs.

[RogueEconomist]

You folks forgot to mention Space Exploration. Just how many gallons of rocket fuel do you think it takes to put a 2 ton satellite into geostationary orbit, much less drop a lander on Mars? NASA engineers can kiss their jobs goodbye.

However, though I am normally a Doom & Gloomer myself, since tthere are plenty of those around here I will paint the rosy picture of the future for you guys.

All the deserts of the world will be converted over to solar energy collection utilizing immense Stirling Engines. The Himalayas will become a huge Windfarm, and Yellowstone will be converted into a huge Geothermal Electric Plant. All this energy will be harvested and dumped into Hydrogen Fuel Cells for portable power moving automobiles and trucks around the country. Most intra-continental air travel will be replaced by 300MPH Mag Lev Trains powered by the excess electricity produced at Yellowstone Electric. International air travel will come in the form of Electric Rail Gun fired Gliders, ballistic on the way up, gliding on the way down to the destination. The Cruise Ship industry will go All Sail, and Pizza Delivery will come on Electric Powered Skateboards.

Oil is not irreplaceable. LOL.

Rogue Economist

[mos6507]

$this->bbcode_second_pass_quote('RogueEconomist', 'Y')ou folks forgot to mention Space Exploration. Just how many gallons of rocket fuel do you think it takes to put a 2 ton satellite into geostationary orbit, much less drop a lander on Mars? NASA engineers can kiss their jobs goodbye.

[cube]

$this->bbcode_second_pass_quote('RogueEconomist', 'Y')ou folks forgot to mention Space Exploration. Just how many gallons of rocket fuel do you think it takes to put a 2 ton satellite into geostationary orbit, much less drop a lander on Mars? NASA engineers can kiss their jobs goodbye.

[VMarcHart]

Hi, Rogue.

You're right, we'll switch from oil to electricity manufactured by solar, geotherm, wind, etc. Then population continue to grow, affluent life-style will continue to grow, and once we use up all the oil-free electricity-producing resources, then what?

Somebody ought to start a website for peak electricity.

Somebody needs to cap population and life-stye. Very unpopular measures, but it's just a matter of time.

[Ferretlover]

$this->bbcode_second_pass_quote('mos6507', 'R')ocket engines that use kerosene are dead man walking. Rockets that use hydrogen/oxygen can theoretically continue.

[Ferretlover]

$this->bbcode_second_pass_quote('VMarcHart', 'S')omebody ought to start a website for peak electricity.
Somebody needs to cap population and life-stye. Very unpopular measures, but it's just a matter of time.

[VMarcHart]

Hi, FL.
For the website, anybody is a good somebody. For the cap, that's all of us, which will probably not happen, so it will be the legislature.

Sorry I took veered out of the subject, "Which industries will follow the demise of the airlines?"

Last night I thought of the demise of the frivolous and capricious deliveries, ie, pizza and catalog shopping. But Rogue beat me to it suggesting it will go electric. See, this is the real ostentatious life-style. Can't we get off the couch and walk 4 blocks? Do we really need to be catered 24/7?

[bobcousins]

$this->bbcode_second_pass_quote('RogueEconomist', 'Y')ou folks forgot to mention Space Exploration. Just how many gallons of rocket fuel do you think it takes to put a 2 ton satellite into geostationary orbit, much less drop a lander on Mars? NASA engineers can kiss their jobs goodbye.

[bobcousins]

$this->bbcode_second_pass_quote('Ferretlover', '')$this->bbcode_second_pass_quote('mos6507', 'R')ocket engines that use kerosene are dead man walking. Rockets that use hydrogen/oxygen can theoretically continue.

[Ludi]

$this->bbcode_second_pass_quote('Micki', 'A')nything discretionary should contract.
... movies,...

[VMarcHart]

Micki/Ludi, sorry to be contradictory. I don't see showbiz going under because we reached peak oil. The bulk of the production budget goes to the stars and producers. Oil-driven transportation is a small percentage of the budget. I think the showbiz industry is being hurt more by the peaceful and sophisticated home entretainment centers. Going to the movies is not all that great anymore.

On the other hand, has anyone already mentioned automobile racing? Sure the bulk is spent on the drivers and R&D, but how many thousands of gallons are burned weekly with practices, qualifiers, race, etc?

[Micki]

$this->bbcode_second_pass_quote('', 'M')icki/Ludi, sorry to be contradictory. I don't see showbiz going under because we reached peak oil. The bulk of the production budget goes to the stars and producers. Oil-driven transportation is a small percentage of the budget. I think the showbiz industry is being hurt more by the peaceful and sophisticated home entretainment centers. Going to the movies is not all that great anymore.

[cube]

$this->bbcode_second_pass_quote('VMarcHart', 'M')icki/Ludi, sorry to be contradictory. I don't see showbiz going under because we reached peak oil. The bulk of the production budget goes to the stars and producers. Oil-driven transportation is a small percentage of the budget. I think the showbiz industry is being hurt more by the peaceful and sophisticated home entretainment centers. Going to the movies is not all that great anymore.