1600 Pennsylvania Avenue. What are markets anticipating? Interest rates, Inflation risk, Global unrest, Trade barriers, Government spending, a new Democratic nominee, or a second Trump presidency? Will there be a pro-business climate after the election, less regulation, more drilling, continued tax cuts, and lower interest rates? Recall the 2017 Tax Cuts and Jobs Act cut the corporate tax rate to 21%. It sunsets at the end of 2025. What about tariffs or immigration? With less than three months remaining prior to this fall’s presidential election, uncertainties have increased[1].
Prior to the air travel disruptions caused by CrowdStrike both Delta and United reported second-quarter profits of more than$1.3 billion; a 23% improvement for United, and a 29% decrease for Delta. Delta’s revenue of $15.41 Billion for the quarter was up 5.4% (excluding sales from its refinery). United reported $15.0 billion (up 5.7%). 2nd Quarter revenue per available seat mile: DL $0.22, UA $0.19; cost per available seat mile: DL $0.19[2], UA $0.16. Both American and Southwest reported record 2nd Quarter revenues but earnings for both were down more than 46% from a year earlier. Even with U.S. domestic air travel setting records an oversupply of capacity has forced carriers to discount fares. United’s Scott Kirby expects the industry will reduce seating capacity[3] by mid-August which should lead to higher fares. Southwest announced a plan to end its single-class open-seating model in an attempt to improve seating revenues and margins.
Commercial aircraft deliveries in the first six months of this year were 15% lower than in 2023. New aircraft deliveries for the year are now expected to be 1,260 aircraft after Airbus revised its full-year shipment target from 800 to 770 aircraft (supply-chain issues and Boeing delivery delays continue). Engine values are increasing more rapidly than aircraft values. The Pratt & Whitney geared turbofan situation is expected to continue through 2026 with 2% of the global single-aisle fleet parked on a rolling average basis.
Rail carload traffic is classified into 20 major commodity groups. Intermodal rail traffic, shipping containers and truck trailers are reported separately. For the week ended June 29th North American carload traffic was up 2.1% compared to the same week in the prior year. Due to the ongoing long-term decline in coal shipments, year-to-date carload traffic is down 4.5% (263,003 carloads), but total rail traffic was up 2% (intermodal volume is up 7.8%). Commodity groups posting year-over-year growth include petroleum and petroleum products (up 8.6%), chemicals (up 4.1%), grain (up 2.1%), and motor vehicles and parts (up 1.9%). The American Association of Railroads (“AAR”) maintains the AAR Freight Rail Index (“FRI”) which tracks combined intermodal shipments and carload traffic (excluding coal and grain). The FRI and GDP tend to rise and fall in tandem as the transportation of goods reflects economic activity as goods are transported due to increased production and personal consumption. In June the FRI increased 1.5% from the prior month and 5.4% from the same month in the prior year. As of July 1, 2024, 19.6% of the 1.64 million North American rail car fleet were in storage (below the historical average).
The U.S. GDP rose 2.8% in the second quarter (double the first quarter’s 1.4%). Regardless of the Fall Election, continued economic expansion and the prospect for rate cuts will drive 2nd Half investment. For macro insight and current equipment opportunities, Call RESIDCO.
Glenn Davis 312-635-3161
[1] World Economic Outlook discussion “Significant swings, increased uncertainties”, July 2024.
[2] Delta’s net dropped to due to operating expenses increasing 10% from last year (personnel salaries). United has yet to settle with its Flight Attendants. The CrowdStrike IT outage impacted Delta’s crew scheduling more than United.
[3] Published schedule changes show an approximately 3 point decline in industry capacity growth.
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