summer ponderings II: How many heliops are gonna go under

[Tri-Ungulate]

...with oil at >$100/barrel and heading towards $200? Plus, with discretionary spending evaporating as fast as Hummer sales, you gotta wonder how many folks are gonna cut the annual heli trip from their budgets when they're trying to make payments on their Vail vacation home (bought with a interest-only loan, natch), what with the hedge fund tanking.

Seriously, for those in the know, what is the operating margin on most heli outfits, and how much of the budget is dedicated to fuel?

[Trackhead]

It would be interesting to see the demographic of the typical heli client, if there is one.

Does the typical client have disposable income? Probably.

[enzo3366]

Most hedge funds are doing fairly well, still, and are sniping top performers from ibanks.

[Tri-Ungulate]

Yeah, but I know of at least one college buddy who isn't going on his annual CMH holiday 'cause the fund he's managing is crapping the bed. Plus there are plenty of dirtbags and folks of more "moderate" means (on this board even) who scrape together the $$ to fly, who may be giving it a second thought in the era of $4/gallon gas. But the potential drop in demand is only half of the equation - I'm sure operating costs are gonna hammer the heli ops as much as they are hitting the airlines.

[Hugh Conway]

eh, the rich will still be rich.

Curious to see what happens to snowmobile sales and use

[enzo3366]

i think fuel will be the biggest concern. And a portion of their customers have to be those that save up for the once in a lifetime epic trip....which will probably be put off given current conditions.

[FrankZappa]

Nah. Just use low grade regular from a ranch batch (tax free) instead of Jet-A. Everything will be OK. Really.

[MuleSkinner]

Jet B isn't cheap and the margin at a heli op is extremely thin. Hope the rich continue to shell out 7K and up for a week at a lodge.

[Cosmic Suncloud]

yeaa fo rhis dawg it to be with utaah , muco cheaper then interwest/cmh

[retirwntm]

don't know too much about the industry anymore, but its hard to imagine it will be an easy season next winter if oil continues at this pace. if the heli ops raise prices to cover their costs, i'd imagine a decent number on the bubble will be priced out given general tightening of budgets. on the upside for US operators, with the dollar low compared to most other currencies, some increased international demand may help. canadian operators may get especially clipped as USD/CAD rates would price out Americans or move them to US operators and CAD hasn't fallen at the same pace as dollars vs. other currencies.

it always seemed to me there was a pretty considerable contingent of young thrill seekers with excess cash that wanted to drop major coin so they could tell all the hot chicas within earshot about their hardcore mtn. experience. no doubt some of those former masters of the universe might be back at the resorts next season

[eldereldo]

The established operations, IE CMH, Wiegle wil be fine. The newer or day oriented will probably be the ones who suffer. I think this also is going to kill a lot of Cat operators off.

[AlpineChief]

Being that most AK heli ops get sold out a half a year before the season even starts I think they will be more then fine. There's a lot of people out there with a lot of money no matter the economic conditions.

[Tri-Ungulate]

Well here's the rub - they sold out their slots charging rates with the assumption that JetA would be a certain price - if it's 2x what they expected, how's that gonna affect the bottom line? Will they have to add a fuel surcharge? Will clients, even wealthy ones, go for that?

[AlpineChief]

Well here's the rub - they sold out their slots charging rates with the assumption that JetA would be a certain price - if it's 2x what they expected, how's that gonna affect the bottom line?

You think that's bad, PNH has been selling cheap ass lifetime passes for several years now. They just stopped at the end of this season. I think they might have sat down, did some fuel forecasting, and said "oh shit, we're fucked".

[splat]

Where's those hydrogen powered helis when you need them?

[SpinalTap]

Since their operations depend on fuel being at a certain price, I'm guessing that any decently sized operation bought oil futures to lock in a specific price (much like the airlines). Now, if it's an epic season with more fly days than expected, then they'll be stuck having to charge more or eating the cost of more expensive fuel. .

[rainier huck]

Curious to see what happens to snowmobile sales and use

They will increase because they are they are awesome gifts from God. He will insure that we have the gas necessary to enjoy his most perfect machines.

I am just hoping I have the money to get my sled helicoptered in to the Lone Peak wilderness area so I can high mark the hypodermic needle.

[AlpineChief]

Since their operations depend on fuel being at a certain price, I'm guessing that any decently sized operation bought oil futures to lock in a specific price (much like the airlines). Now, if it's an epic season with more fly days than expected, then they'll be stuck having to charge more or eating the cost of more expensive fuel. .

Are you kidding me, even the airlines who's entire basic industry model is based on hedging didn't hedge. The only one who properly hedged like they were suppose to was SouthWest. And even their hedges expired a year or two ago which put them into the same boat as everyone else so I doubt any heli ops were savvy enough to do it.

[MuleSkinner]

Since their operations depend on fuel being at a certain price, I'm guessing that any decently sized operation bought oil futures to lock in a specific price (much like the airlines). Now, if it's an epic season with more fly days than expected, then they'll be stuck having to charge more or eating the cost of more expensive fuel. .

I don't know how many heli ops owners you know but the ones I know and have worked for have no idea or care what a oil future is.

Great idea but these guys are in the mountains all day and running their business - not trading.

[Tri-Ungulate]

I was under the impression (correct me if I'm wrong) that pricing/pre-buying fuel futures was exclusively the province of the big boys - by big, I mean airline-big, or national trucking fleet-big, either of which would dwarf CMH or Wiegele. And as AlpineChief mentions, even the big boys mostly got it wrong.

[AlpineChief]

Many many businesses should hedge but don't. The only real one that does it religously are farmers and that's just because if they didn't they'd be bankrupt at the first sign of trouble (even with all the government bailing out of farmers). Everyone else seems to be scarred off by hedging thinking it's this great complex thing when it's about as simple as it gets. Basically all your business and financial forecasting is complete crap if fuel prices (or many other things such as corn) plays a large part of your businss model.

[Ted Shred]

Leasing the heli or Heli's for 2-3 months and good old Jet-A. the only real $$ to be made is in lodging and booze. Almost all of the rest goes to the gas man and the heli company.

[AlpineChief]

And as AlpineChief mentions, even the big boys mostly got it wrong.

They got it wrong because they totally neglected hedging. If they just would have hedged in any degree at all they would have gotten it right. Even if oil prices wouldn't have risen they would have gotten it right because they would still at least have a absolute gurantee fuel price to work with for many years that they could incorporate into their financial forecasting and business plans.

[Tri-Ungulate]

I guess I was wrong about smaller outfits not being able to get fuel futures. I'd heard, though, that fairly recently Delta lost billions of $$ on a fuel hedge where the price went down (or didn't go up as much as they were expecting). It may have been part of why the filed for chapter 11, and they were therefore gun-shy about trying it again.

[AlpineChief]

I guess I was wrong about smaller outfits not being able to get fuel futures.

Well they can, heck you or I can (and in the past I have traded futures), but it probably wouldn't make much sense for an operation as small as a heli-ski outfit to really worry about it.