u/JohnnyTheBoneless

Link to article.

Every oil shock breaks an airline. The current velocity of this energy crisis is pacing to match the 2008 peak one to two months faster. From February to July 2008, American Airlines stock price fell 90%. At today's $4.00 jet fuel, normal operations have transformed into immediate cash drains reminiscent of what was seen in 2008.

A simple fuel-only stress test shows the entire industry’s operating profit base disappearing overnight, pushing United, American, Southwest, Alaska, and JetBlue deep into negative territory.

Management teams are confident that "fare recapture" to save their margins. Our real-time pricing data shows that defense is being sabotaged from within. The well-capitalized leaders (Delta and United) are intentionally undercutting weaker competitors (American and JetBlue) by $30 on shared routes. They are using the fuel shock to go after debt-saddled, negative-equity players.

This is a compelling setup for a tactical, asymmetric short thesis expressed through a convex pair trade. The deep dive I put together laying out that short thesis is in the article linked below. It gets into the corporate psychology behind the latest Q1 fuel guidance, shows how airlines are fundamentally vulnerable when jet fuel doubles in price, covers the historical 2008 playbook, and shows which options targets are likely the most attractive for expressing the trade.

Link to article.

YouTube - EA Founder and Director of Market Intelligence Amrita Sen caught up with Jeff Currie, Co-Chair at Abaxx Exchange, Co-Founder of 1947 Oil & Gas Plc and Non-executive Director at Energy Aspects.

Distillate stocks have fallen to ~102 million barrels as of 8-May from ~119 in early March. New EIA report will be out tomorrow for fresh status as of 15 May.

100 mb is the danger level as per Currie, and essentially we are there already. Things will get worse end of May and early June. Currently, US is drawing inventory at rate of 7-10mb per month. Things get very ugly June onwards because the inventory cannot be drawn to 0, 25 mb of the 102 is unusable. 90-100 mb is the number below which regional shortages will begin.

Some sort of export controls by the US are not out of the question.

This $1.14B raise is essentially the start of a survival playbook in real time. AAL's treasury team is tapping the cheapest, lowest-stigma source of collateral first. EETCs against newer aircraft are the path of least resistance, especially when its for newer aircraft with strong residuals. Each subsequent raise will likely be slightly worse than the last as industry-wide distress starts settling in and depressing aircraft values (albeit possibly by less than historical crises).

EDIT: if people are wondering what the heck I'm talking about, read the airlines section of this article I wrote.

https://hyperforage.substack.com/p/the-anatomy-of-an-oil-price-shock