Trader Talk

Higher Oil Prices Grounding Airline Merger?

Want to know what the influence $130 a barrel oil has on airline M&A? The original bid for Alitalia by Air France-KLM was based on an oil price of $86 a barrel, according to the Deputy CEO of Air France,in an interview on CNBC Europe.

Those talks were shelved a month ago, but at $120 to $130, the Deputy CEO said that Air France-KLM would have to come up with a more "difficult and demanding" business plan. That's an understatement. Air France-KLM reported a 16 percent decline in profit this morning.


1) Given the current retail environment, retailers this morning are announcing earnings that, while clearly down from last year, are at least not missing lowered estimates, and more importantly they are not dramatically lowering earnings expectations for the year.

Ann Taylorreported earnings slightly above expectations. Sales decreased 11 percent, comp store sales were down 11.5 percent, but that is not unusual in this environment. The guidance for the current quarter is $0.42 to $0.47, consensus is $0.47.

Limited reported earnings slightly above expectations, and actually raised full year guidance, from a prior $1.35-$1.55 to $1.38-$1.58, vs. consensus estimates of $1.42.

Barnes and Noble reported earnings in line with expectations. They did lower their comparable store guidance for the current quarter, but they are maintaining their full year guidance.

Aeropostale and Gap report after the bell.

2) As expected, UBS raised additional capital, in the form of a rights offering that will raise roughly $15.1 b. The offering will entitle investors to 7 new shares for each 20 held. The shares are being sold at 31 percent discount to Wednesday's close. The CEO has said he does not not think more capital raising will be necessary, that there may be further sales of subprime products and that there are a large number of parties interested in purchasing them.

3) Indonesia indicated higher fuel prices were coming. The government subsidies fuel prices, but they indicated today that fuel prices could go up by about 28 percent to prevent a budget deficit from getting out of control.

4) Alcoa downgraded to neutral from by at Merrill, saying shares have risen due to take out speculation and this is a good opportunity to take money off the table. Actually, all material stocks have risen recently.

Questions?  Comments?