David Koenig

Virus leaves the US travel industry struggling to recover

U.S. air travel down almost 90 percent from a year ago. A ghostly emptiness at Hawaii’s tourist hotels. Deserted Las Vegas casinos counting the days to reopening. Few sectors of the economy have endured as much devastation from the coronavirus as the travel business. Surveying the wreckage, economists and company leaders say it will take years to regenerate the $1.1 trillion the industry produced last year, potentially leaving many airlines, hotels, rental car companies and restaurants in peril. And as long as travel remains depressed, the economy could struggle to accelerate. About 10 percent of all jobs flow from the travel sector. Industry-wide unemployment now tops 50 percent, government reports suggest, a level that could presage bankruptcies and business closures. Spending by business and leisure travelers had provided an engine of growth that helped power the economy until the virus struck. “While the rest of the country is moving into a recession,” said Tori Emerson Barnes, an executive at the U.S. Travel Association, “the travel industry is already in a depression.” The industry’s collapse is unrivaled in recent memory. The closest parallel, the 9/11 terrorist attacks, closed airports for four days. The industry needed roughly two years to match its previous passenger levels. The cost this time is estimated at nine times the damage from 9/11, Barnes said. The industry was once a reliable gauge of economic health. From business people on high-priced overseas trips to tourists flying to Disney World, the industry benefited from steady spending. Not this time. Travel might be one of the last sectors to recover. “Usually travel would be a good leading indicator of confidence and discretionary spending,” said Gregory Daco, chief U.S. economist for Oxford Economics. “But in the wake of the global coronavirus recession, it’s likely to be a lagging indicator.” With revenue all but dried up, U.S. airlines are burning through cash and planning for layoffs this fall, when a no-layoffs provision in federal aid to the carriers will expire. That aid includes nearly $25 billion in payroll assistance and an additional $25 billion in loans. Even before then, American and United Airlines have said they will slash management and support staff by 30 percent — about 8,500 jobs between them. Delta has launched an early-retirement offer and warns of layoffs if there aren’t enough takers. Those moves don’t include the tens of thousands of union pilots and flights attendants who are likely to be furloughed in October, The U.S. Travel Association is urging the government to provide more help through individual tax credits worth up to $4,000 for domestic travelers. The industry also wants to make business meals and entertainment fully tax-deductible for companies. Stock market investors are embracing a future with less travel. Shares in Zoom, the now-ubiquitous video conference company, have more than doubled since mid-February. Delta, United and American, the nation’s three largest airlines, are worth — combined — $27 billion less than Zoom. Across the hotel industry, mid-priced companies are managing better than luxury ones. Hotels near beaches and in smaller cities are faring better than urban locations. Lodging that draws nearby tourists is doing far better than those that rely on airports. “We are seeing strength in drive-to destination travel,” said Geoffrey Ballotti, CEO of Wyndham Hotels and Resorts. The Wyndham Grand in Clearwater, Fla., was full Friday, Saturday and Sunday nights over the Memorial Day weekend. Most guests had come from within a three-hour drive. Danny Aderholt runs a company that owns eight hotels along highways in Ohio and West Virginia and one in downtown Pittsburgh that remains closed. Guest cancellations, he said, started in March. Then new bookings stopped. Each of his hotels is operating at an average monthly loss of about $35,000. The hotels that previously employed 20 now have about eight. “We let go of quite a few people,” Aderholt said. Nowhere is the devastation as severe as in Nevada. The state leads the nation with a crushingly high 28 percent unemployment rate — above the worst U.S. jobless rate recorded in the depths of the Great Depression. Once-jammed sidewalks of the Las Vegas Strip are sparse. The gambling and entertainment mecca has suffered a 97 percent drop in visitors in April from a year ago, the most recently available data show. Normally packed hotels had less than 2 percent occupancy, according to the Las Vegas Convention and Visitors Authority. Casinos gaming revenue almost entirely disappeared in April. Casinos reopened on June 4. Hawaii has similarly suffered, with 22 percent unemployment. Other states, especially those with major airline hubs like California, New York, Texas, Illinois and Georgia, have also endured deep layoffs in the tourism sector. Airport officials in Orlando estimate that travel to the home of Disney World and Universal Studios won’t return to previous levels until sometime between 2022 and 2025. The number of passengers screened at airport checkpoints remains down nearly 90 percent from a year ago. The average domestic flight is carrying fewer than 50 passengers. Airlines are hoping for a slow pickup by late summer. But they’re wary of making predictions, not when people like David Ward worry about getting on a plane. A retired investor from Ohio, Ward was stranded in Morocco when it shut down travel in March. He’s still fighting to get refunds for cancelled flights. But to him, flying now feels risky. “You never know who is coughing and sneezing on you in a plane,” Ward said. Mark Miller, an executive in Boston, is accustomed to flying about 100,000 miles a year. He hasn’t ruled out a couple of trips late this summer and around the holidays. But he has no other immediate flight plans. He’s instead planning driving trips around New England. Even travel industry types have qualms. Terry McClintock, a Texas consultant who advises airlines, is taking his first COVID-era flight next week to meet with colleagues in Las Vegas, confident that the plane and airport will be cleaner than ever. He is drawing a line, though, at international travel. He isn’t eager to wear a mask for a long flight or face a possible quarantine overseas. “I’m bullish on getting back in gear, but not crazy,” he said. Neither are many other travelers, which is why U.S. airlines are burning through cash. Airline executives say that after the most immediate threat from the pandemic subsides, the carriers will likely shrink, with fewer jobs and fewer destinations. Already, cities like Erie, Pa., and Peoria, Ill., are losing some of their service, a trend that could accelerate after federal regulation of airline routes expires this fall. In the end, the industry won’t fully recover until nearly everybody feels safe about flying. “Honestly, we don’t think that will happen until there is a vaccine,” said United Airlines CEO Scott Kirby.

UPS gets government approval to become a drone airline

DALLAS (AP) — UPS has won government approval to operate a nationwide fleet of drones, which will let the company expand deliveries on hospital campuses and move it one step closer to making deliveries to consumers. Many regulatory obstacles remain, however, before UPS — or other operators who are testing drones — can fill the sky over cities and suburbs with drones carrying goods to people’s doorsteps. United Parcel Service Inc. said Oct. 1 that its drone subsidiary was awarded an airline certificate last week by the Federal Aviation Administration. Even before getting that designation, UPS Flight Forward, as the subsidiary is called, has operated more than 1,000 flights at WakeMed’s hospital campus in Raleigh, North Carolina. The designation removes limits on the size of the company’s potential drone operation. Flight Forward can fly an unlimited number of drones, a key step toward expanding the operation. It can also fly drones at night — the company plans to do that after installing the necessary colored warning lights on each machine. However, UPS still faces severe restrictions before it can run a large commercial operation with drones. For example, drones won’t be allowed to fly beyond the sight of the operator without an FAA exemption for each route. Also, each flight will need a separate operator. Scott Price, the company’s chief strategy officer, said UPS will eventually apply for FAA permission to have a single operator fly multiple drones at the same time. The airline certificate lets UPS fly drones carrying more than 55 pounds, “but we’re not comfortable we have the hardware for that yet,” Price said in an interview. Operations will be limited to campus-like settings because FAA has not yet written regulations to allow commercial drone flights over populated areas. Price said UPS is eyeing “hundreds” of campuses in the U.S., including hospitals, colleges and office complexes. Price said the Wake Forest experiment has been successful, with only “a few” drone flights canceled for mechanical problems or because of bad weather. He said none have crashed. With a special FAA exemption, the company operated a drone flight there on Friday beyond the sight of the operator, which Price said was a first for a revenue-generating delivery. UPS believes the earliest commercially viable uses of drones will be for same-day deliveries, for augmenting truck-borne deliveries in rural areas, and for larger drones that could carry cargo of up to a ton from one rural area to another. Price said the latter idea is still years away. Transportation Secretary Elaine Chao called the decision a step forward in integrating drones into the U.S. airspace and maintaining U.S. leadership in unmanned aviation. UPS is racing against technology companies and startups to develop commercial-scale deliveries by drone to consumers. Amazon.com CEO Jeff Bezos promised in 2014 that drones would be making deliveries to people’s homes by 2019, but regulatory and technological hurdles proved too much for that prediction. Earlier this year, the FAA gave permission for a unit of Google parent Alphabet Inc. to make drone deliveries, but only in a tiny piece of southwestern Virginia. Other delivery companies such as Germany’s DHL Express are testing drones. UPS rival FedEx plans to take part in tests by the Alphabet unit, called Wing Aviation. In the U.S., drone operators have been frustrated by the lack of FAA regulations to allow drones to fly over urban and suburban areas, and to set rules for remote identification of drones. The latter rule would help law enforcement agencies, which were given authority under a law passed last year to track, intercept and destroy drones that they deem a security threat.

Southwest doesn’t plan to use Boeing Max jets until August

DALLAS (AP) — Southwest Airlines customers relaxing on April 11 evening got an email that may mean their summer vacation could be more stressful and expensive than they planned. Southwest, the biggest operator of Boeing jets, is removing the grounded 737 Max from its schedule until at least Aug. 5, well past the peak of the summer high season. Company President Tom Nealon wrote in his email that the airline is taking the Max out of its schedule two months longer than previously planned to reduce the need for last-minute changes during the summer travel season. The decision, he wrote, would make the schedule more reliable. Other airlines are likely to follow Southwest’s example, putting pressure on Boeing to finish fixing software on an anti-stall system implicated in two deadly crashes. Last month, Boeing and federal officials said privately that the company would finish its work before the end of March. Instead, it was delayed by an unexpected problem that Boeing hasn’t fully described, and the company is now aiming to complete its work by late April. Boeing CEO Dennis Muilenburg said the company’s pilots have flown 96 test flights totaling 160 hours with the new software and will operate more in the coming weeks to prove that the fix works. The changes must be submitted to the Federal Aviation Administration for approval. Foreign regulators including those in Europe and China will then do their own reviews — significant because foreign airlines account for about 85 percent of Max orders, according to analysts for financial services firm Cowen. It remains uncertain how willing passengers will be to board the Max after crashes in Indonesia and Ethiopia killed all 346 people on board. “The general flying public seems to be asking more questions about the airplane than they have with prior fleet groundings,” said Goldman Sachs analyst Noah Poponak, referring to the 2013 grounding of Boeing 787s because of overheating lithium-ion battery packs. The 787 survived and became a hit with airlines and passengers. FAA officials including acting chief Daniel Elwell met in Washington with representatives from Southwest, American and United and their pilot unions. An FAA spokesman said they went over the early findings from the two crash investigations, upcoming changes in the Max software, and pilot training for those changes. Elwell promised that the agency would be transparent about decisions to clear the plane to fly. American Airlines 737 pilot Dennis Tajer, who was in the meeting, said unions pushed for a stronger pilot-training program including troubleshooting items only indirectly related to the anti-stall software. He said FAA seemed receptive. “This will not be a minimum-training event to just get by,” he said. The longer the Max planes sit on the ground, the more money airlines lose. Southwest already figures that just the first three weeks the Max had been grounded, along with other setbacks, cut the airline’s first-quarter revenue by $150 million. Southwest has been canceling about 90 flights a day because its 34 Max jets have been grounded since mid-March. Spokesman Chris Mainz said the new schedule eliminates about 160 daily flights to assure customers that it will operate the flights they booked. That is 4 percent of Southwest’s 4,000 daily flights during summer. Still, unless the airline finds replacement planes quickly — and that can be a complicated process — Southwest will scrap about 10,000 flights that could have carried nearly 1.8 million people between now and early August. American Airlines doesn’t expect its 24 Max jets to be flying before June 5, and it too is canceling about 90 flights a day. United Airlines, with 14 Max planes, says it is shuffling its fleet and mostly covering flights that were scheduled with the Max in mind. Without those planes, travelers will have fewer flights to choose from, and fewer planes to carry passengers whose flights are canceled for other reasons such as bad weather. There could also be fewer fare sales. “Travelers who have not already booked their summer reservations may end up paying a slightly higher airfare,” said Henry Harteveldt, a travel-industry analyst with Atmosphere Research Group, “but it’s not going to be the summer from hell.” Harteveldt said he expects airlines that don’t have Max jets — a list that includes Delta, JetBlue, Alaska Airlines and Spirit — will court travelers with price-cutting. The cost of the Max crisis to Boeing also rises the longer the plane is grounded and jets coming off the assembly line pile up around Seattle. With aircraft orders booming, Boeing shares have soared for more than two years, although they dropped about 14 percent from March 1 through the April 12 close. Most of Wall Street has expressed confidence that Boeing can fix the Max quickly and regain momentum. Poponak, the Goldman Sachs analyst, said however there is a risk that Boeing orders could suffer for the next few years. He said some airlines seemed to view the Airbus competitor, the A320neo series, as superior, and some aircraft-leasing companies faced a challenge to place the Max with airline customers. Since its launch in 2017, the Max had emerged as Boeing’s best-selling jet. Fewer than 400 have been delivered, but about 4,600 are on order. However, the company took no new orders for the Max in March — not even before the March 10 crash in Ethiopia — and only 10 in the first three months of the year, down from 112 in the same period last year. It could be that airlines interested in the plane had already placed orders. Boeing stopped deliveries and announced last week that it was cutting production of 737s from 52 to 42 a month. Airlines in China and Norway have said they want compensation for their grounded planes. While other airlines have kept silent, analysts expect Boeing will make concessions that could total hundreds of millions of dollars. The Chicago-based company also faces a growing number of lawsuits by families of the crash victims. Boeing hasn’t provided numbers on the financial impact from the Max crisis.

Virgin America will be the latest airline brand to disappear

DALLAS (AP) — After months of teasing, Alaska Airlines has bad news for loyal customers of Virgin America — their airline's name is being dumped. Alaska announced late Wednesday that it will retire the Virgin brand, probably in 2019, adding that name to a list including Continental and US Airways that disappeared in the past decade. Launching a new airline takes lots of money and patience — one reason that Virgin America's debut in 2007 was so eye-catching. The other was its hip vibe including mood lighting and young, attractive flight attendants. So when Alaska announced last year that it was buying Virgin for $2.6 billion, it was like asking Virgin customers to trade in their sports car for a minivan — a solid, reliable ride, but not exciting. Alaska Airlines knew it, too. Last June, CEO Brad Tilden held out hope to Virgin fans that he might keep the Virgin America brand, and run it as a separate airline under the same corporate umbrella. Tilden said he believed in "the power of the Virgin America brand, and we don't want to lose all that loyalty." But running an airline within an airline adds complexity and costs. Alaska flies only Boeing jets; Virgin uses Airbus planes. Sometimes a split personality works in the airline business, sometimes it doesn't — remember Ted, by United Airlines? And so Alaska's announcement came as no surprise to people in the business. Still, many will be saddened, particularly in Virgin's home market of California. Richard Branson, the British billionaire whose backing and minority ownership stake made the airline possible, posted a letter on Virgin's website bemoaning that Alaska couldn't find a place for Virgin. "With a lot of things in life, there is a point where we have to let go and appreciate the fact that we had this ride at all," he wrote. Branson added that it remains to be seen how travelers will be affected by the dwindling number of U.S. airlines. Mergers in recent years grounded US Airways, Continental, Northwest, AirTran, and America West. Airfares rose faster than inflation after those mergers, but then they fell in 2015 and 2016 as fuel became cheaper. Virgin America played a role in those lower fares by engaging Southwest Airlines in a price war at Dallas Love Field. Seattle-based Alaska won a bidding war with JetBlue Airways to buy Virgin. The deal will greatly expand Alaska's strength in California. Alaska recently announced it will greatly expand routes from the San Francisco Bay Area.

Exxon's 1Q profit plunges 63 percent on lower oil prices

DALLAS (AP) — Exxon Mobil produced its weakest quarter in more than 16 years as lower oil prices pushed its profit down by 63 percent. Revenue tumbled 28 percent, and the oil giant lost money in its vaunted exploration and production business despite a 2 percent increase in production. It made more money, however, in chemicals. Exxon continued to slash capital spending to cope with lower prices, which this week cost the company the perfect AAA credit rating that it had held for more than six decades. Exxon said Friday that it earned $1.81 billion in the first quarter, down from $4.94 billion a year ago. It was Exxon's smallest quarterly profit since it earned $1.5 billion in the third quarter of 1999, according to FactSet figures. On a per-share basis, the Irving, Texas-based company said it earned 43 cents per share, which beat Wall Street expectations. Nine analysts surveyed by Zacks Investment Research and 20 analysts surveyed by FactSet had forecast an average of 31 cents per share. Revenue fell to $48.71 billion but topped forecasts. The FactSet analysts expected $44.75 billion. The company lost $76 million in its exploration and production business because of an $832 million loss in the U.S. A year ago, the so-called upstream business earned about $2.9 billion on a much smaller U.S. loss of $52 million. Exxon's refining and fuels-marketing business was profitable, but not as much as a year ago partially due to weaker margins on refining. The chemical business, however, earned $1.4 billion, an improvement of $373 million over the same period last year. Exxon cut capital spending 33 percent, to $5.1 billion, down 33 percent from the first quarter of 2015. This week Standard & Poor's downgraded Exxon's credit one notch, to AA+. Exxon had been one of just three U.S. corporations with the top AAA rating, but S&P said it downgraded Exxon because of lower energy prices and continuing high dividend payouts. The next day, the company raised its dividend for the 34th straight year — but by just 3 percent. Shares of Exxon Mobil Corp. fell 22 cents to $97.81 in midday trading. Its shares are little changed since a year ago. Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on XOM at http://www.zacks.com/ap/XOM  

Slashed spending by drillers could lead to price spike by 2020

HOUSTON (AP) — Oil prices will more than double by 2020 as current low prices lead drillers to cut investment in new production and gradually reduce the glut of crude, the head of a group of oil-importing countries said Feb. 22. Fatih Birol, executive director of the International Energy Agency, said oil would rise gradually to about $80 a barrel. Oil prices shot to more than $100 a barrel in mid-2014 before a long slide sent them crashing below $30 last month. “There was a rise, there will be a fall, and soon there will be a rise again,” Birol said on the opening day of a huge energy-industry conference that featured addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz. Birol’s group issued a fresh outlook on energy markets. It forecast that 4.1 million barrels a day will be added to the global oil supply between 2015 and 2021, down sharply from growth of 11 million barrels a day between 2009 and 2015. A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003. Experts underestimated the ability of shale-oil producers in the United States to withstand falling prices — for a time — which, combined with OPEC refusing to cut production, led to a glut. The same experts now think that U.S. production, along with new supplies from Iran, which has been freed from international sanctions, will blunt what otherwise might be a sharper run-up in prices. Nobody saw the shale-oil boom coming, and it has changed the market, said Neil Atkinson, who edited the IEA report released Feb. 22. “Producers everywhere around the world are having to accept that $100 a barrel is not something that is likely to return soon,” Atkinson said. He and Birol declined to blame low oil prices on OPEC’s decision to keep pumping away to preserve market share in the face of rising competition from the U.S. and elsewhere. Now, IEA says, investment in future oil exploration and production is declining for a second straight year — the first back-to-back downturn in 30 years. U.S. shale oil production will fall in 2016 and 2017 before recovering with higher prices, the group predicted. Meanwhile, Saudi Arabia, Russia, Venezuela and Qatar have discussed freezing production if other oil countries go along with a strategy to boost prices. On Monday at IHS CERAWeek, an annual energy-industry conference in Houston, OPEC Secretary General Abdalla Salem El-Badri called a potential freeze “a first step” that, if it sticks, could be followed by other measures, which he did not specify. Oil prices have tumbled 70 percent since mid-2014, and gasoline prices have followed. The U.S. Energy Information Agency expects an average price of $1.98 per gallon nationwide this year. The last time gasoline averaged less than $2 for a full year was 2004. Low oil prices have had devastating effects on communities that rely on the energy industry. Home sales have fallen sharply in North Dakota and the West Texas cities of Midland and Odessa, and more recently in Houston.

IEA: Slashed spending by drillers could lead to price spike

HOUSTON (AP) — Oil prices will more than double by 2020 as current low prices lead drillers to cut investment in new production and gradually reduce the glut of crude, the head of a group of oil-importing countries said Monday. Fatih Birol, executive director of the International Energy Agency, said oil would rise gradually to about $80 a barrel. Oil prices shot to more than $100 a barrel in mid-2014 before a long slide sent them crashing below $30 last month. "There was a rise, there will be a fall, and soon there will be a rise again," Birol said on the opening day of a huge energy-industry conference that will feature addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz. Birol's group issued a fresh outlook on energy markets. It forecast that 4.1 million barrels a day will be added to the global oil supply between 2015 and 2021, down sharply from growth of 11 million barrels a day between 2009 and 2015. A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003. Experts underestimated the ability of shale-oil producers in the United States to withstand falling prices — for a time — which, combined with OPEC refusing to cut production, led to a glut. The same experts now think that U.S. production, along with new supplies from Iran, which has been freed from international sanctions, will blunt what otherwise might be a sharper run-up in prices. Nobody saw the shale-oil boom coming, and it has changed the market, said Neil Atkinson, who edited the IEA report released Monday. "Producers everywhere around the world are having to accept that $100 a barrel is not something that is likely to return soon," Atkinson said. He and Birol declined to blame low oil prices on OPEC's decision to keep pumping away to preserve market share in the face of rising competition from the U.S. and elsewhere. Now, IEA says, investment in future oil exploration and production is declining for a second straight year — the first back-to-back downturn in 30 years. U.S. shale oil production will fall in 2016 and 2017 before recovering with higher prices, the group predicted. Meanwhile, Saudi Arabia, Russia, Venezuela and Qatar have discussed freezing production if other oil countries go along with a strategy to boost prices. On Monday at IHS CERAWeek, an annual energy-industry conference in Houston, OPEC Secretary General Abdalla Salem El-Badri called a potential freeze "a first step" that, if it sticks, could be followed by other measures, which he did not specify. The price of U.S. crude soared more than 6 percent Monday. A barrel of benchmark U.S. oil rose $1.84 to $31.48 a barrel in New York. Brent crude, the international benchmark, climbed $1.68, or 5.1 percent, to $34.69 a barrel in London. The price of wholesale gasoline jumped 4 percent. Oil prices have tumbled 70 percent since mid-2014, and gasoline prices have followed. The U.S. Energy Information Agency expects an average price of $1.98 per gallon nationwide this year. The last time gasoline averaged less than $2 for a full year was 2004. Low oil prices have had devastating effects on communities that rely on the energy industry. Home sales have fallen sharply in North Dakota and the West Texas cities of Midland and Odessa, and more recently in Houston.  

ExxonMobil’s 4Q and annual profit drop to 2002 level

DALLAS (AP) — The big plunge in crude prices is taking a toll on Big Oil. Exxon Mobil Corp. said Feb. 2 that fourth-quarter profit fell 58 percent to $2.78 billion. It was the oil giant’s smallest profit since the third quarter of 2002. Exxon’s core exploration and production business lost money in the U.S. and international earnings plummeted by nearly two-thirds. One of the few bright spots, Exxon’s refining operation, was more profitable than a year ago. That helped Exxon avoid the fate of rival Chevron Corp., which lost money in the fourth quarter. Britain’s BP said Feb. 2 that its profit tumbled more than 90 percent. Exxon shares fell $2.12, or 2.8 percent, to $74.17 in afternoon trading. They began the day down 2 percent so far in 2016. The amount of oil on the market remains at extraordinarily high levels and producers, with prices so low, continue to drill just to earn what they can. Exxon’s production rose nearly 5 percent. In 2015, the company pumped oil and natural gas equal to 4.1 million barrels a day. Lower oil prices are causing producers to cut back on new investments. Exxon slashed fourth-quarter capital and exploration spending by 29 percent compared with a year earlier, and it plans to cut that spending by one-fourth, or about $8 billion, in 2016. Still, Exxon expects to start six new projects this year, from Alaska to Australia. The company believes those projects make sense over the long term. Exxon was paid about $34 a barrel for U.S. crude in the fourth quarter, down from $63 a year earlier, and a couple dollars more for oil overseas. The price it got for natural gas fell by about half. Jeff Woodbury, the company’s vice president of investor relations, said that the oversupply of crude — it’s about 1.5 million barrels a day more than demand — will shrink in the second half as seasonal demand grows. But there are still huge stockpiles of oil, and Woodbury declined to predict when crude prices might increase. CEO Rex Tillerson called it a “challenging environment,” but said the company is generating enough cash to continue investing in the business. Exxon’s profit fell from $6.57 billion a year earlier, when oil prices were already beginning to tumble. The Irving, Texas, company was still able to put up per-share earnings of 67 cents, which was 3 cents better than Wall Street had expected, according to a survey by Zacks Investment Research. Revenue fell to $59.81 billion, beating the $50.85 billion according to a poll by the data firm FactSet. Exxon’s profit would have been thinner but for a lower tax bill. The company’s effective rate in the fourth quarter was just 13 percent compared with 34 percent for the full year. A company spokesman said the decline was largely due to reduced earnings and favorable resolution of past tax issues that were booked in the fourth quarter. For all of 2015, Exxon earned $16.15 billion, or about half what it earned in 2014. Tillerson, who has been CEO and chairman since 2006, will reach Exxon’s retirement age of 65 in March 2017. In December, the company named Darren Woods president and gave him a board seat, which made him the heir apparent in the eyes of investors. On a conference call Feb. 2, an analyst asked Woodbury when Tillerson will step down. Woodbury said that is up to the board. Tillerson’s predecessor, Lee Raymond, stayed until age 67.

Exxon's 4Q and annual profit plunge with oil prices

DALLAS (AP) — The big plunge in crude prices is taking a toll on Big Oil. Exxon Mobil Corp. said Tuesday that fourth-quarter profit fell 58 percent to $2.78 billion. It was the oil giant's smallest profit since the third quarter of 2002. Exxon's core exploration and production business lost money in the U.S. and international earnings plummeted by nearly two-thirds. One of the few bright spots, Exxon's refining operation, was more profitable than a year ago. That helped Exxon avoid the fate of rival Chevron Corp., which lost money in the fourth quarter. Britain's BP said Tuesday that its profit tumbled more than 90 percent. Exxon shares fell $2.12, or 2.8 percent, to $74.17 in afternoon trading. They began the day down 2 percent so far in 2016. The amount of oil on the market remains at extraordinarily high levels and producers, with prices so low, continue to drill just to earn what they can. Exxon's production rose nearly 5 percent. In 2015, the company pumped oil and natural gas equal to 4.1 million barrels a day. Lower oil prices are causing producers to cut back on new investments. Exxon slashed fourth-quarter capital and exploration spending by 29 percent compared with a year earlier, and it plans to cut that spending by one-fourth, or about $8 billion, in 2016. Still, Exxon expects to start six new projects this year, from Alaska to Australia. The company believes those projects make sense over the long term. Exxon was paid about $34 a barrel for U.S. crude in the fourth quarter, down from $63 a year earlier, and a couple dollars more for oil overseas. The price it got for natural gas fell by about half. Jeff Woodbury, the company's vice president of investor relations, said that the oversupply of crude — it's about 1.5 million barrels a day more than demand — will shrink in the second half as seasonal demand grows. But there are still huge stockpiles of oil, and Woodbury declined to predict when crude prices might increase. CEO Rex Tillerson called it a "challenging environment," but said the company is generating enough cash to continue investing in the business. Exxon's profit fell from $6.57 billion a year earlier, when oil prices were already beginning to tumble. The Irving, Texas, company was still able to put up per-share earnings of 67 cents, which was 3 cents better than Wall Street had expected, according to a survey by Zacks Investment Research. Revenue fell to $59.81 billion, beating the $50.85 billion according to a poll by the data firm FactSet. Exxon's profit would have been thinner but for a lower tax bill. The company's effective rate in the fourth quarter was just 13 percent compared with 34 percent for the full year. A company spokesman said the decline was largely due to reduced earnings and favorable resolution of past tax issues that were booked in the fourth quarter. For all of 2015, Exxon earned $16.15 billion, or about half what it earned in 2014. Tillerson, who has been CEO and chairman since 2006, will reach Exxon's retirement age of 65 in March 2017. In December, the company named Darren Woods president and gave him a board seat, which made him the heir apparent in the eyes of investors. On a conference call Tuesday, an analyst asked Woodbury when Tillerson will step down. Woodbury said that is up to the board. Tillerson's predecessor, Lee Raymond, stayed until age 67.  

Oil keeps falling, and falling — How low can it go?

DALLAS (AP) — The price of oil keeps falling. And falling. And falling. It has to stop somewhere, right? Even after trending down for a year and a half, U.S. crude has fallen another 17 percent since the start of the year and is now probing depths not seen since 2003. “All you can do is forecast direction, and the direction of price is still down,” says Larry Goldstein of the Energy Policy Research Foundation, who predicted a decline in oil in 2014. On Jan. 12 the price fell another 3 percent to $30.44 a barrel, its lowest level in 12 years. Oil had sold for roughly $100 a barrel for nearly four years before beginning to fall in the summer of 2014. Many now say oil could drop into the $20 range. The price of crude is down because global supplies are high at a time when demand for it is not growing very fast. The price decline, already more dramatic and long-lasting than most expected, deepened in recent days because economic turmoil in China is expected to cut the growth in demand for oil further. Lower crude prices are leading to lower prices for gasoline, diesel, jet fuel and heating oil, giving drivers, shippers, and many businesses a big break on fuel costs. The national average retail price of gasoline is $1.96 a gallon. On Jan. 12 the Energy Department lowered its expectations for crude oil and most fuels for this year and next. The department now expects U.S. crude to average $38.54 a barrel in 2016. But layoffs across the oil industry are mounting, and oil company bankruptcies are expected to soar. BP announced layoffs of 4,000 workers on Tuesday. Fadel Gheit, an analyst at Oppenheimer & Co, says as many as half of the independent drilling companies working in U.S. shale fields could go bankrupt before oil prices stabilize. There’s lots of oil A boom in U.S. oil production thanks to new drilling technology helped push global supplies higher in recent years. Other major oil producers and exporters in the Middle East and elsewhere have declined to reduce their own output in an attempt to push prices back up. Iran, trying to emerge from punishing economic sanctions, is looking to increase exports in the coming months, which could add further to global oil stockpiles. The Energy Department said U.S. crude oil inventories “remain near levels not seen for this time of year in at least the last 80 years.” It says global supplies exceed global demand by about 1 million barrels per day on average. Economists at the Federal Reserve Bank of Dallas believe excess inventories won’t begin falling until 2017. The higher supplies and lower prices haven’t stimulated a sharp rise in demand. Most of the increase in world oil demand over the past several years has come from China, but signs are pointing to much slower economic growth there, which in turn reduces demand for fuels made from crude. Disappointing reports last week about China’s manufacturing sector and a fall in the yuan’s value triggered a global stock sell-off and an even more dramatic decline in the price of oil and other commodities. The first five days of the year marked the worst start of a year for oil in history, according to S&P Dow Jones Indices, and oil has only fallen further since. Winners and losers Motorists are saving every time they fill up. The Energy Information Administration figures that the average U.S. household saved $660 on gasoline in 2015 compared the year before, and gasoline is expected to fall another 16 percent in 2016. On Jan. 12 the EIA forecast that gasoline will average $2.03 a gallon for 2016, the lowest since 2004, from $2.43 last year. Airlines, big users of jet fuel, have posted record profits, and shippers and other businesses are also saving from cheaper energy. But workers in the oil patch have paid the price. About 17,000 oil and gas workers in the U.S. lost their jobs in 2015, but if you include oilfield support jobs the number is about 87,000, according to Michael Plante, an economist at the Dallas Fed who has written about the effect of oil prices on the economy. Even so, economists say low oil prices are still a net benefit for the U.S. economy. “Consumers have more money in their pocketbooks,” says Amy Myers Jaffe, an energy consultant who teaches at the University of California, Davis. And for businesses, “I can hire more people or buy new equipment because I no longer have to spend that money on energy.” When does it end? Oil traders and Wall Street analysts expect further declines in oil prices in the coming weeks. Several have predicted that prices will fall below $30 a barrel and even approach $20 a barrel. But prices are expected to rise sooner or later. Tension between Saudi Arabia and Iran has increased in recent weeks, and Middle East turmoil often causes prices to rise because traders worry about a potential disruption in supplies in the world’s most important oil region. And just as $100 oil encouraged the new production that contributed to this plunge in prices, $30 oil is discouraging the big investment needed for exploration and production for the future. The number of rigs drilling for oil in the U.S. has fallen by more than two-thirds, to 516 last week from an October 2014 peak of 1,609, according to a closely-watched count by the drilling services company Baker Hughes. Eventually, analysts say, the supply will fall below demand and prices will rise. Oppenheimer’s Gheit thinks oil will eventually rise and settle into a range between $50 and $70 a barrel — but not anytime soon. “The longer it remains low, the more violent the reaction to the upside is going to be,” he says.
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