Covid-19, Airlines and the Economy

Door San Daniel gepubliceerd in Verhalen en Poëzie

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I was having my morning coffee and looked out over the terrace to the square that was the center of our village. Our bar was the only one open.

I had finished my newspaper 'Voz de Almeria' (the voice of Almeria), and found it sad that once so lively village now seemed deserted. There were bars that had been closed for months and probably wouldn't open again. The Covid-19 virus had had an indelible influence on our area.

My mask hung under my chin and if someone came within 1.5 meters of me I was expected to place it in front of my nose under penalty of a hefty fine if I didn't. You let that out of your mind with fines ranging from 300 to 6000 euros for not following the regulations.

The table next to me was disinfected when the customers paid and those same customers cleaned their hands with hydrogel after slipping the change into their wallets.

The boy who had served came to join me, he had little or nothing to do. I had known him for several years and last year he started studying economics in the capital, until… yes… until the Corona virus closed the universities.

"Hola Michel," I greeted him, "how are you going?" "Poorly," he sighed, 'but I just came back to the village to help my mother with the bar.' I nodded understandingly.

 

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"What is your opinion on Bitcoins," he asked, moving his chair slightly so he could see if anyone would enter the bar. I knew he was always fishing for stock market advice, which I never give, not after a friend once lost a lot of money and thought it was because of my advice.

"Why do you ask," I replied? "Seems like a good investment," he said, "and I have some savings, that's why." "Right," I replied, "hence you ask." We often had economic conversations. "Would you do that," he asked? "No," I said firmly, "I wouldn't do that." The young man looked at me intently, "because," he wanted to know?

"I can only tell you what I would do and absolutely not what you should do or should  not do," I answered his question.

'Look Michel, I am an old man who studied economics a very long time ago in a different era with different possibilities. I know from experience that investments with a high return are more often than not risk-bearing. '

I liked him we had often discussed the crash of 1928 and the 'watchdog' mechanism that has been guarding the stock market ever since, to immediately stop trading in the face of curious developments.

"Bitcoins are a digitally invented currency," I continued. 'Bit comes from the binary digit contraction and we know what a coin is. So a binary unit. I would say that it is a Mecca for criminals. You don't have to carry large sums of illegal money around, but you invest in 'Bitcoins,' and at the destination you sell your share and have moved a small fortune out of sight of anyone.

The value is artificially maintained, just like with the euro, just by agreement, those agreements can change and if you are not in the circuit where those decisions are made then that happens outside of your perception and then your investment might suddenly be worth a lot less. '

 

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I took another sip of cafe solo that was so poisonous black that your stomach always seemed to shrink.

"Why would anyone want to lower that value," Michel asked in amazement? I chuckled, 'how wonderful is the innocence of youth,' I mumbled.

'If the price is temporarily lowered,' I continued, 'because a group of stakeholders who are very strong capitalists want to buy Bitcoins then they can buy more Bitcoins with the real money. If you do it organized, the Bitcoin will rise. Call it a so-called exchange rate that is performed by a group of people outside of your perception. Then sums of money are moved, transactions are closed and everything goes back to normal and you as a 1st year student have lost part of your scholarship to a bunch of criminals. If you happen to buy when the price drops, you hitch a ride on the waves of money laundering activities without knowing it. '

'Right,' said Michel, 'would you like another cup of coffee, on the house' 'There is no free lunch, Michel,' I admonished, 'you have some questions I assume, but I would like to have that cup of coffee.'

He walked away and came back with my solo moments later. "Shoot boy," I said, "I have nothing to do anyway, just ask."

 

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'If you happen to already have some money in the stock market and it plummets like here in Spain, what would you do?

'You have money in the stock market,' I laughed, 'that always happens with first-year economics students. As long as they are not hedge funds, high profits but also quick losses if things go wrong. He looked unhappily ahead. Hedge funds, I thought. "If it's hedge funds," I said thoughtfully so that my words would sink in, "I would take it out when there was a profit again."

You should not be concerned with other stocks. It is not only in Spain where things are bad on the stock market, that is now the case everywhere and then compared to the whole nothing has changed.

If Spain would be the only country going poorly then you should be very concerned. Then you immediately get a flight to precious metals via gold or silver accounts. But that is not the case. The oil price will recover and if the entire economy goes bad in every country, then there will be a balance that will continue to rise once the problem that caused it is resolved. '

I took some coffee again and enjoyed the aftertaste. “A country,” I began, “is like a bubble or a circle. If something happens within that circle, then nothing has really happened.

The money stays in that circle, companies may go bust and people become unemployed, but those companies that break leave a vacuum that is filled by others who are going to try to take over those services and employees are again needed to provide those services. The money is pumped around in that very circle, taxes are levied and costs paid.

As long as the money does not leave the circle, everything remains the same. When you need products from abroad, things get a little more complicated. It is possible that other countries have products that you cannot produce but that are in demand.

That should not be a one-way flow. Then capital leaves your country, there is some profit on the sale by the entrepreneur. Then your country will slowly but surely be eroded. You can levy some excise duties, but it is mopping with the tap open, you pay for the labor of people in other countries by buying their products and your own people are unemployed. '
        

 

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'That's why there is world trade and a world trade balance,' I continued cheerfully. 'For example,' I explained, 'in a distant past, as a student, I was afraid of a nuclear war that I was convinced would take place. That encounter, so I believed, would have been between America and Russia. Until I followed a block of World trade and found out that most of the grain is produced in North America, in an area called the Wheatlands.

The production is so high for all sorts of reasons that the North Americans would never be able to use the harvest. There is a huge spin-off around that grain production, of course: labor, besides the machinery, the combiners and the tractors, but also the people who make a living from them, the maintenance and the sale people, who again buy houses and mortgages and have oans to buy a car, for example. So from workers, to bank employees to car dealers and maintenance people and people in the factories that make those tractors, they make money from the grain production. But you have to do something with that harvest if you cannot process it yourself.

As it turned out, Russia never met its goals of its 5-year plans and would always be suffering shortages if North America hadn't existed. Russia simply does not have the know-how or the climate to achieve such crops. So there was a trade treaty between Russia and America, and thanks to America, there has been no famine in Russia for 50 years.

 

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Two world powers condemned to tolerate each other out of purely economic interests, I realized that neither would ever destroy the other. '

I took a sip of coffee and looked at my listener. "But Russia indulged in a flow deal," said Michel, "they only bought and did not trade." 'That's right,' I laughed, 'that's inherent to their system, the communist system cannot exist without enslaving its own people and there is no need to make a profit. There is no free market and in my opinion the system is doomed to failure, only those in power will not be short of anything. But if your population is starving then you will get into problems, so it is in the interests of those in power that such a thing does not occur. '

 

                                         
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“Let's take a clearer example,” I suggested, “a little closer to home. Holidays and airlines. '

'I happened to research some facts about flying when a friend of mine told me he was on a plane with 5 others, 2 weeks ago, from London to Spain. He had bought his ticket months ago for 120 euros, a pricefighter ticket, very cheap, back and forth from England to Spain for 120 euros. '

"Yes," said my listener in a questioning tone? 'I like statistics,' I replied, you automatically get that with the work I used to do. '

'You know,' I asked, 'what the lease price of, let's say, a Boeing 737 is? Michel's blank look indicated that it was unknown to him. "I figured it out," I continued, "depending on how many you lease or the model, so whether it is a basic model or more expensive version: between $150,000 or $350,000 per month, per month Michel!"

"Do you know how many passengers they can carry?" Michel shook his head. 'They can accommodate 120,' I reported, '8 Business class and 112 Economy class. What is the cost to fly such a plane per hour?

"I wouldn't know," said Michel. “A regular flight,” I said, “under normal weather conditions costs $ 2,180 an hour, the plane uses 850 gallons an hour, and a gallon is 4.5 liters. That's about 3800 liters per hour. The cockpit crew and the flight attendants cost a total of 465 dollars an hour as a crew. "
There was a moment of silence and I continued, "then it still depends on the landing rights." "Yes," said our freshman? 'That depends on the airport,' I continued, 'mainports charge more than regular smaller airports, take Schiphol in Amsterdam, for example. Landing and taking off with a Boeing 747 400 is
at Schiphol even more than five and a half times as expensive as in Brussels (over 5000
euro against 900 euro
), which is why Ryanair does not land there. '

 

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'Finally, you should know that price fighters lease a fairly large fleet, on contracts that don't let you off easily. For example, take Ryanair who has an operating fleet of 273 aircraft and if you take the cheapest lease price, so $150,000 a month, .. Michel pick up your cell phone and calculate that for me '. My waiter reached for his cell phone. "Good God," he exclaimed. That's 40 million 950 thousand a month. " 'That is not even including landing rights,' I added, 'and personnel costs and fuel, of course.'

'Those costs also affect charter companies,' I said, 'such as Easy jet, or Transavia or you name it. It is not a solution to cancel flights because then you will lose those customers and those few choose the other airline from now on. Charter flights only work when they are full and are almost always in the air somewhere.

"Do you know what the break even point is with flying," I asked? "What do you mean," Michel asked? "From what occupancy rate is a profit made by the airlines?" "No," my neighbor sighed, "I really have no idea."

“I know,” I said, “because I'm preparing an article on Tallsay. With an occupancy rate of more than 50%, a profit is made, otherwise the company loses per kilometer and per hour. '

"What does that mean, my young friend," I said, laughing. "That they are going bankrupt," Michel replied. “That's right,” I agreed, “and what does that mean,” I then asked? It remained silent.
'That there are no more price fighters,' I replied, 'and that the large carriers with reserves will be given a monopoly position and that flight prices will go up sharply.

"Yes," said Michel, "for lack of competition." "So what happens then," I wanted to know? "Tell me," said the young man. 'Look Michel so this is really economics and not a boring textbook,' I chuckled, 'after some time a small price fighter will get up and try to take a bit of the market, before that happens tour operators will try to package deals a bit further, because hotels need guests and airlines need to take passengers to those destinations. That bit of money goes to the airlines, because if the passengers or tourists don't come, the catering industry can close its doors. '

 

                                 
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"So it is cyclical," Michel asked, "if the price fighters go bankrupt, then the rest will get a monopoly position that will create price fighters again." 'A straight 'A' for you my dear boy, I exulted,' there is no beginning or end, there is the now and decisions are made for tomorrow based on yesterday. This also means that the new low-cost fighter can lease the Boeings at a lower price, otherwise they will be on the ground anyway. '

'So you see Michel and given the time, nothing changes,' I continued, 'and what do you think of the other bars that are closed on the square.' 'They will go bankrupt if they are not already,' my neighbor said. "So what should you do," I asked? "Stay open whichever way I can," came the answer. "Yes, and," I said, "what is important, that you keep the same  prices, so that if new owners come to the other bars, you already have the folk that are happy to come to your bar." 'Thanks,' said Michel, 'I understand. "Now I would like one more coffee and have a nice day," I concluded.

 

 
San Daniel 2020
14/09/2020 23:29

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