The airline industry has an image problem. Plagued by delays, lost bags, impossibly small seats and high ticket prices, flying has become almost synonymous with discomfort, stress, and expense. Indeed, the industry has long been hindered by fundamental problems: sky-high operating costs, spikes in the price of jet fuel, cut-throat competition, and a loss of consumer goodwill. But while the aviator and concorde-filled glory days of air travel are certainly a thing of the past, the industry is undergoing significant changes and an upswing which serves to benefit everyone from passenger to pilot.

Historically, airlines have long-struggled to balance their costs and profits while maintaining passenger satisfaction. In 2012, the industry made an aggregate profit of just $7.6 billion on revenues of $638 billion, a meagre 1.2% net profit margin, according to the International Air Transport Association’s Annual Report. Of the other 98.8%, over two-thirds goes to the airlines’ fixed costs. Of these, labour and jet fuel make up almost half of operating expenses, with the price of jet fuel alone more than doubling in the last decade (See Graphic I).

In addition to the industry’s inescapable dependence on the fuel, the price of jet fuel rises and falls almost in tandem with that of crude oil, making it highly susceptible to shifts in global politics. Strong industry-wide unions resistant to technological automation prevent airlines from laying off staff. Finally, cut-throat competition complemented by the advent of price comparison sites like Kayak and Expedia have created broader awareness and price sensitivity in the marketplace. Even with these heightened costs, airlines have been unable to raise prices or work to distinguish themselves to gain more market share due to mounting and inescapable financial obligations. As a result, all of these costs have often translated directly to the airlines’ bottom lines.

“That airlines made any money at all [in 2012] with GDP growth at 2.1% and oil averaging a record high of $111.8 a barrel was a major achievement,” says Director and CEO of the International Air Transport Association (IATA) Tony Tyler in the industry association’s annual report.

Indeed, despite seemingly insurmountable challenges, the airline industry has shown remarkable robustness in fulfilling its role. During the recession, the airlines saw the first decline in passenger numbers since the decreases caused by September 11th. Even with lowered fuel costs, reduced per capita disposable income and economic activity reduced the demand for air travel (See Graphic II). In the aftermath of the recession however, the airlines have worked hard to dramatically consolidated, trimmed, and altered the industry.

In the U.S. market, the major airlines have consolidated and transformed control of the industry. According to a review of the aviation industry by the Office of the Inspector General, of the ten major American airlines controlling 90% of market share in 2009, just five in 2012 (and now four) remain in the market with a share of 85% of domestic passengers. Through such mergers, the major carriers have been able to strengthen their market position and cut costs, reducing price wars and allowing them to get away with charging new service fees. In 2013, the major U.S. carriers racked up more than $6 billion as part of these new ancillary fees. These fees aside, merger-driven consolidation of the major airlines together with the continued growth of low-cost carriers like SouthWest and JetBlue continues to stimulate essential competition between airlines.

Key to their increased profitability, airlines across the board have succeeded in improving their efficiency. According to a PWC industry trend report, the airlines significantly advanced their capacity discipline, or load factor. Since 2008 there has been an 8% reduction in the number of flights, but just a 1% reduction in number of passengers. More tellingly, though the price of jet fuel now approaches that of its 2008 peak, the airlines have maintained a non-fuel operating cost close to previous levels despite rising costs in fuel. So though the total cost per available seat-mile (CASM) has grown, for example, most of the increase is derived from rising fuel costs (See Graphic III).

In spite of these efficiencies, airline expenses remain high. The rising cost of maintenance, higher salaries (demanded by unions as part of merger negotiations), and environmental taxes contributed to a decline in the average industry operating income per seat-mile of 0.28¢ in 2012. But overall confidence in the airline industry is up. Air freight, an important industry indicator that underwent a significant decline in the last three years, is expected to see growth of 4% in 2014 according to an industry outlook report. Airlines will also see long-terms gains as a new, more fuel-efficient generation of planes is delivered. 

How it all affects the traveller remains to be seen. Though industrywide customer satisfaction is on the rise according to the latest American Customer Satisfaction Index (ACSI) report, passengers continue to complain about the actual flying experience. Reduced delays, worldwide alliances and loyalty programs, as well as more efficiency and stability in the marketplace stands to improve, at least minimally, the traveller’s experience. In changing the way we fly, however, it might be best to look to start looking not at the airlines but the technological manufacturers at Boeing & Airbus et al.

The college debt bubble has gotten everyone a little mad and crazed up. So if the government, the largest lender of college loans were to exit college loans what would happen?

This might cause less people to attend college and make paying for college harder on the ones continuing to attend. This would lead to some compounding effects such as; less people enrolling into 4-year universities;  an increase in enrollment of technical/trade schooling,; lowered tuition prices … which doesn’t sound too bad considering the 1.2 trillion dollars of college loan debt and the $30,000 average debt of college graduates.

Making the decision to go to trade school seems easier now considering that economists describe nurses and teachers as having the most economically sound and guaranteed post-secondary educational investment.

Without government loans I would not be attending a 4-year university. If everyone in my situation were to drop out of school, there would be a severe decline in number of students and future enrollment. With less people attending 4-year universities, schools would not make enough profit to finance their institutional payments (paying teachers, programs, faculty ). This could be a big problem for schools if all of a sudden they were only making half of what they made last year. Even wealthy schools like USC could be hurt considering that if they wanted to keep me and everyone in my boat, they would have to loan each of us  $40,000 a year.

Even if USC had the amount of capital to fund every student’s tuition, it wouldn’t happen without USC programs, teachers and its financial sector taking a hard hit. So maybe USC might give higher grants or just as equally effective, lower their tuition price so to retain as much students as possible. If this were to happen we could  all go back to class with a smile while USC survives the event with a cut in their tuition-based income.

But, what would it mean for students that are entering college next year? Well, there will be less students making the decision to pursue private education over a cheaper tuition. Public schools would get overcrowded and the Department of Education would have to provide greater funds. Which sort of sounds OK. Considering that in 2013 alone the Department of Education made $41 billion dollars from college loans which is enough to pay for 3 million students to attend the public schools that have an average public university tuition price of $13,000. Regardless of that rather pointless hypothetical, there is still no doubt that this would cause private schools like USC to lower their tuition. Then UCLA would have to lower their tuition in order to remain equally as financially attractive as before.

… which might get me thinking about going to school again.

If such an event were to occur, an economist might describe this as a free(er)-market of institutions that are dealing with a shorter number of demand (lower number of enrolled students) and therefore dealing with an abundance of universities that are competing to be the cheaper university. Of course, rankings and brand name universities would allow certain schools to retain some leverage.

Did I just solve the answer to college debt? Nope, probably just my debt. But damn when you are facing $75,000 in debt by graduation you’ll be looking at any solution as the right solution.

… Which brings me to my next thought.

What if the government were to bail out all of our debt just like they did for Wall St.? I should end it here but NO.

The department of education would still have their $41 billion profit from 2013 and Sallie Mae would still have its $900 million. No student would be in debt and could begin to afford buying houses. The public would spend more allowing more circulation of money. This would raise interest rates, but that would make going to college more risky. Maybe colleges might lower tuition to even out the risk. Or…

 

From bartop to supermarket aisle, the familiar bottles of Heineken, Budweiser, and Tsingtao are no longer alone. These recognisable brands, hailed by purists for their age-old recipes and whose advertisements reach everywhere from the Super Bowl and to frat parties, now rub shoulders with a whole slew of new beers. From hipster, moustache-sporting micro brewers to unfamiliar liquor-instilled brews, the beer industry is undergoing an unprecedented change.  Faced with a stagnant global economy and shrinking market share, global brewers like Anheuser-Busch InBev, SABMiller, and HEINEKEN International are stepping up efforts to find viable alternatives to beer and recapture the changing palette of their drinkers.

“Historically, beer has not been an innovative industry,” says at HEINEKEN’s Director of Innovation Xavier Mahot in an interview for Bloomberg. “But this is changing, and the new generation of drinkers that is coming are looking into other categories.”

Millennials make up  a rising figure of more than 26% of drinkers and 35% of beer drinkers, according to Nielsen. Recapturing this consumer segment has become a major priority for brewers across the board. As Mahot points out however, the changing tastes, lifestyles, and demands of millennials demand that the mainstream and historically traditional brewers change their tune.

In response to this, many brewers have begun introducing their own varieties of beer mixed with other flavours, alcohols, or spirits. In the U.S. AB InBev put $35 million behind the launch of its new lime-flavoured Bud Lime product. Its Bud Light Lime-A-Rita variations have shown “strong growth” and are “key drivers” of the company’s beer-only segment, according to the its Q3 2013 earnings report. At the same time, the brewer’s Shock Top brand is the highest performing ‘craft’ beer in the country commanding 16% of the craft beer market share.

Across the pond, HEINEKEN International’s Desperados brand, which blends French beer and Mexican tequila to appeal to young-adult drinkers, grew by 26% in 2011 compared to just 5.4% volume growth in the Heineken brand. In addition, HEINEKEN debuted the Radler brand – a lemon soda and beer mix – to 19 markets around Europe last summer. Though the brand’s financial results remain unclear, HEINEKEN touts it numerous times in its 2013 annual report citing it as the “cornerstone” in its strategy to get 6% of sales a year from new products.

In the U.S. market HEINEKEN plans to launch several new brands including Amstel Radler, Dos-A-Rita, Dos Equis Azul, and two ciders similar to Strongbow. In Asia, HEINEKEN’s Indonesian arm called Bintang is planning to move into the soda market in response to increasing alcohol bans.

Across the board, the global brewers are adapting to meet the demands of a new generation of drinkers. As more and more millennials peer into drinks menus for the first time, the question remains whether the traditional taste of beer will succeed in beating out its stronger and more sophisticated counterparts in the spirit and wine industries.

While their advertisements continually convince me that the world is at peace and everyone loves drinking Coke, the truth is always revealed in the numbers: the company’s stock may have rose 3 percent last week and overall revenue increased, but heavy marketing costs and increased health concerns over the fizzy drinks of yesteryear may signal a downswing in the carbonated drink industry as we know it, calling for Coke to adapt its business.

Globally speaking, Coke’s actual soda sales dropped in their last quarter for the first time in fifteen years. American health advocates cheered, as not only less Coca-Cola was sold in the U.S., but Europe and Mexico. In the latter, historically the biggest market for Coca-Cola, a recently imposed soda-tax probably did most of the damage, and may lead the way for similar taxes in other countries.

“Healthier” alternatives like Diet Coke have not proved sustaining either, as claims against the beverage’s use of potentially dangerous artificial sweeteners have sunk sales.

So where does this revenue bump come from? Coke’s ‘still drinks’, like Powerade, Dasani, and Minute Maid, provide reliable backup, generating over $1 billion for the company every year. In the previous quarter, sales rose 8 percent for the company’s still drink brands. Also, while soda sales have fallen in big markets like Mexico, Eastern markets like China and Japan are starting to carry the foreign carbonated burden, and 80 percent of the company’s volume is still overseas.

Coca-Cola CEO Muhtar Kent plans to focus on the balance between the still and carbonated brands under their flagship, while also massively increasing marketing spending, adding $400 million to already billion dollar costs. Competition like Pepsi Co. are doing the same. That said, increased marketing may not offset the health side of the equation in the long run. The time could come where Coca-Cola’s name brand product will have to take a back seat to the less-carbonated brands. #DasaniIsBeautiful just doesn’t have the same ring, does it?

Wells Fargo’s first-quarter earnings brought into light a driving force of America’s economic recovery. Its 14-percent hike in profit was fueled in part by a surge in auto lending. The financial giant may have found the next recipe of profitable subprime lending.

The San Francisco-based company originated $7.8 billion in auto loans during the first quarter, a 15-percent upswing from the same period last year. Nationwide, auto loan debt per borrower has seen jumps for a consecutive of 11 quarters, according to report complied by TransUnion. Overall outstanding car loans have ballooned by a quarter from $700 billion in 2010 while mortgages and credit-card debt moved downward.

It was new auto sales that have boosted consumer spending during the past four years, says Professor Mian, of Princeton University, and Professor Sufi, of The University of Chicago. Their study shows spending on new autos increased by 40 percent in nominal terms from 2009 to 2013, twice the growth in other spending categories. When they take autos off the list, growth in nominal retail spending last year turns out smaller than that of a year earlier. See chart below for new auto sales and all other retail spending:

The professors, however, dubbed the surge in auto purchase “another debt-fueled spending spree” because the rise is not justified by growth in income. Taking out a car loan could be an action prompted by greater confidence in the U.S. economy, but the fact that other lending sectors remain weak defies this assumption.

Another possibility is banks are tapping just another hefty market to beef up profit. Even though Wells Fargo lowered its minimum credit score requirements on loan from 640 to 600 as an encouragement for first-time and low-income home buyers, its mortgage originations dropped nearly 67 percent from the first quarter a year ago. Meanwhile, the company has been active in originating subprime loans to used car buyers. These loans generate higher returns but are granted to borrowers with low credit scores.

Last year, credit bureau Experian Automotive reported 27 percent of those who took out loans for new vehicles were borrowers with spotty credit, a record proportion since 2007. The figure was only 18 percent in 2009.

Fortunately for now, overall delinquency rate for U.S. auto loans has remained quite stable at about 1.14 percent during the past few years. But the subprime delinquency rate hiked to 6.12 percent in the fourth quarter of 2013, up from 5.73 percent a year earlier, according to TransUnion’s report.

Fewer African Americans are playing in Major League Baseball today than 20 years ago.  In 1995, 20 percent of Major League Opening Day rosters were black. But by 2014, that number had declined to eight percent. It’s no secret that inner cities have faced a tough battle promoting the game of baseball to African Americans with fewer African-American baseball heroes to look up to. Major League Baseball continues to work hard to revive baseball in inner cities, but with declining viewership in all demographics, and a game fundamentally opposite of the fast-paced digitally disrupted media landscape, reaching African-American boys in inner cities might be more important than ever.

Let’s put the decline of African-American baseball players in context: If eight percent of Major League baseball players are black, that means about 70 started on Opening Day rosters in 2014. (856 players: 30 teams of 25 active players plus about 100 players who started on the disabled list). Now, take the handful of African-American players who are All-Stars and you’ll better understand how it’s hard for black boys in inner cities to see signs of success in the Major Leagues. Less interest in baseball from African Americans leads to lower television ratings, more empty seats at the ballpark and less advertising revenue.

But Major League Baseball has setup a taskforce to increase interest. This taskforce has three initiatives: expand Major League Baseball’s existing urban leagues and academies; improve and modernize coaching; and market African-American baseball players more aggressively.

“As a social institution, Major League Baseball has an enormous social responsibility to provide equal opportunities for all people, both on and off the field,” said Major League Baseball Commissioner Bud Selig.

Yet, the problem might be bigger than Major League Baseball and any effort by the league to stem the tide, might be futile. Young athletes from low-income families make a financial decision when choosing which sport to pursue. Since Division I college baseball only offers 11.7 scholarships, which are divided among more than 30 players, it’s an easy and sound economic decision to choose basketball or football, which offers full scholarships.

“Take me, for example,” said New York Yankees’ pitcher C.C. Sabathia. “If I had a choice, I would have to go to college to play football, because my mom couldn’t afford to pay whatever the percent was of my baseball scholarship. So if I hadn’t been a first round pick, I would have gone to college to play football, because I had a full-ride.”

Thus, athletes from low-income families in inner cities aren’t choosing to play baseball for a variety of reasons. Yes, Major League Baseball isn’t doing a good enough job marketing its best African-American baseball players, such as Andrew McCutchen and Matt Kemp. But going to college on a partial scholarship is impossible for many inner city athletes and add to that the growing number of inner city baseball fields that are being bulldozed over and its no wonder the number of African American baseball players has steadily declined over the past 20 years.

But Sabathia brought up another reason beyond the philosophical and practical issues that Major League Baseball will confront when trying to revive the sport in inner cities; an issue that might be beyond their reach.

“Baseball is a sport where you learn how to play catch with your dad,” Sabathia said. “There’s a lot of single-parent homes in the inner city, so it’s hard to get kids to play.”

Sources: NY Times, Business Insider, MLB