Insights

December Market Recap

Gold began to rally again in December then closed 2019 out as the best year for the metal since 2010. Meanwhile, the airline industry remained under pressure, led by news of more trouble at Boeing. Click below to read our recap of the airline sector and gold market from December 2019.

Strengths
  • The U.S. Transportation Department released a proposal that would require airlines to offer lavatories accessible to disabled passengers on more aircraft. The plan would require airlines to ensure new, single-aisle jets with at least 125 seats to have accessible toilet seats and other features, reports Bloomberg. Current rules do not require single-aircraft to have accessible lavatories, even as those planes are increasingly used for long-haul flights.
  • Australia’s Qantas Airways decided to use the Airbus A350-1000 over Boeing’s 777X for proposed ultra-long haul flights connecting Sydney with New York and London. Qantas plans to begin commercial services between 2022 and 2023, and had used the Boeing 787 Dreamliner for test flights of the 20 hour routes. Bloomberg reports that Airbus will fit an additional fuel tank on the A350 to give the aircraft the range to fly the routes with a full passenger load.
  • Airlines for America (A4A) projected that 47.5 million passengers would fly globally on U.S. airlines over the 18-day winter holiday travel period from December 19 through January 5. The industry trade organization reports that an average of 2.6 million passengers would fly each day during the period, an increase of 3 percent from the same period a year ago.
Weaknesses
  • Boeing announced that it would halt production of its 737 MAX plane in January as the troubled plane is yet to be approved to return to service. The manufacturer had been producing around 40 of the planes per month at its assembly plant in Washington, employing 12,000 workers. Boeing said that it will redirect workers to other projects. Since Boeing is a major contributor to the U.S. economy, chief economist at Wilmington Trust Luke Tilley predicts that stopping production for one quarter would cut 0.3 of a percentage point from quarterly annualized GDP growth. The Wall Street Journal reported that Boeing has a backlog of 4,545 MAX orders as of the end of November.
  • The International Air Transport Association (IATA) lowered its annual 2019 profit estimate for the airline industry to $25.9 billion, which is $2.1 billion less than its prediction in June and almost $10 billion down from estimates a year ago. The organization stated that a main concern for 2020 is that the new 737 Max aircraft with return to service and expand capacity too fast. The IATA does, however, expect 2020 to fare better than 2019, with an estimate of $29.3 million in profits.

Airline profits are down

  • An American Airlines mechanic pleaded guilty to attempted destruction of an aircraft for tampering with a flight-monitoring device on a jet in Miami, reports Bloomberg News. The mechanic said he was upset over stalled contract talks and court records show that his brother might have been involved with the Islamic State group, reports the Associated Press. Pilots got an error message in the cockpit and aborted takeoff after noticing the error in the device.
Opportunities
  • FTSE Russell said that EasyJet PLC will be returning to the FTSE 100 Index just six months after being removed. The budget airline suffered in early 2019 on concerns that Brexit would hurt demand for air travel between the U.K. and Europe. Bloomberg reports that EasyJet then recovered in October when the carrier reported earnings would hit the top end of guidance.
  • After 20 years, Delta Air Lines is selling its struggling private jet charter business to Wheels Up Partners. Delta CEO Ed Bastain said in an interview that the luxury charter business had been marginally profitable and didn’t grow as hoped. However, Delta is confident that Wheels Up will be able to provide greater marketing power and focus. Wheels Up is an on-demand aviation company with 6,000 members, according to Bloomberg.
  • According to people familiar with the matter, the Hinduja Group is likely to bid for the grounded carrier Jet Airways India. Bloomberg reports the group plans to submit an expression of interest by January 15. Jet Airways, which was once India’s largest by market value, saw its stock fall almost 90 percent in 2019 as it fell victim to a price war initiated by budget carriers and defaulted to banks.
Threats
  • The air travel industry continues to come under fire for being a big global polluter. The European Green Deal was unveiled by the European Commission, which aims to fight climate change in many ways, including a fuel tax. According to a July report from the commission, the new taxes could cost airlines 14.4 billion euros per year, more than double their currently yearly taxes in the bloc. Airlines have pushed back against a fuel tax, saying that investment in sustainable fuels and electric planes would be more effective in reducing carbon emissions, reports Bloomberg News.
  • Hong Kong’s air travel industry has been hurt further by continued protests in the city that have deterred visitors. Cathay Pacific Airways reported a fourth straight monthly drop in passenger traffic and may have to cut as many as 1,000 jobs. Bloomberg reports that the Hong Kong Airport Authority said it seized seven planes from Hong Kong Airlines for failing to make certain payments.
  • South Africa’s government is placing South African Airways (SAA) under a local form of bankruptcy protection to try and prevent the total collapse of the airline, reports Bloomberg. The state-owned carrier will receive around $274 million in funding for radical restructuring. SAA last turned a profit in 2011 and has received billions in bailouts since 1994.

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The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. It is seen as a gauge of prosperity for businesses regulated by UK company law.