Private Investor: Waiting for Iraq to bring stability to the oil-guzzling globe
Saturday 22 May 2004
I suppose that under the circumstances I should be grateful that my shares in
British Airways haven't collapsed to worthlessness.
I suppose that under the circumstances I should be grateful that my shares in British Airways haven't collapsed to worthlessness.
Indeed, given what has happened to the oil price in recent weeks, plus the ever-increasing threat from terror and the global drift to higher interest rates, the shares have weathered the storm remarkably well. So many of BA's peer group have come so close to collapse - currently it is Air Canada and Alitalia who are experiencing severe turbulence - that the real wonder is that any "legacy" flag carrier is able to continue to lead an independent existence.
The arrival of the $40 barrel of oil certainly doesn't do any favours to an industry where fuel amounts to 15 per cent of total costs. BA's relative success, confirmed in its 70 per cent profit increase announced on Monday, seems to be down to a remarkable exercise in cost cutting, with more than 13,000 jobs disappearing - a quarter of the workforce - since 2001. Not that BA was especially uncompetitive before then, its very long-haul flight to efficiency starting with the run-up to privatisation in the 1980s. BA, in other words, has spent the best part of 20 years getting itself in shape and, at the rate competition in the industry is intensifying, BA may well spend the next two decades in a similar state. I can only hope that the carrier doesn't shake itself to pieces in the process.
As I say, I'm relieved that the shares have recovered from their level of 86p a year ago to their recent 332p peak. The 240p or so they are currently trading at is satisfactory and a little ahead of the levels I bought at. Yet this is the third year in a row that we shareholders have had to do without a dividend. I do hope that our patience will find its reward one day.
But has the time come to buy more shares in BA? My instincts tell me that BA will probably be a survivor and that if all it takes for it to keep going in the turmoil is a £5 surcharge on its fares then all may well come right. EasyJet and the other budget carriers seem to have problems of their own and, as I found with my own holding in easyJet, are not immune from the ups and downs of the sector. The real question is where do oil prices go next? And that depends very crucially on where Iraq goes next.
No one can be optimistic about that situation in the short term. Yet sooner or later some sort of stability must return to that corner of the world, even if it is arrived at through the sort of brutality that Mr Bush and Mr Blair's war was supposed to eliminate. And when it does, and when Iraq's vast oil reserves are once again available to the world, we should see a radically different situation. It is not so long ago, after all, that the world was fretting about the collapse in the price of oil, down to $13 in 1998. In any case the real price of oil is nowhere near where it was in the spikes of 1973-74 and 1979-80. Another decline in oil prices is perfectly feasible - if Iraq settles down. Who is brave enough to bet on that outcome? Not me, for the time being.
The real meaning of globalisation might for me be summed up by some events of the last few days. Sitting at home in London I watched and read successive news reports about the Indian elections. At first I took no more than my usual interest in the political affairs of the subcontinent and the fascinating return (albeit briefly) of the Nehru-Gandhi dynasty to power. Then I recalled, when the Indian stock market was suspended after a panic, that a small chunk of my own wealth was influenced by these events so far away. Sure enough, when I checked the share price of the JPMF Indian Investment Trust it was showing a nasty drop, about a fifth down from its recent peak.
The prospects of the Indian economy are examined on page 12, but I mention these events here because it is interesting to see how globalisation can, so to speak, creep up on one. Just for the record, I shall however be keeping up my subscription to the JPMF Indian Trust.
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