World economic decline

Depth of India’s downturn takes some by surprise

India has just recorded its slowest growth since 2003-2004, when it was gripped by a crippling drought. There is no drought now, but even the imminent monsoon won’t fix its problems

Globe and Mail,

1 May, 2012

Economic growth sagged in the January-March quarter to 5.3 per cent, according to official data released Thursday. For the fiscal year ending in March, gross domestic product expanded by 6.5 per cent, well below the 7.5 per cent projected by the government, which in turn was already a sharp decline from almost double-digit growth before the global slowdown.

Surprise half-point rate cut in India

Troubles are piling up in India. Economic reform legislation, including simplification of land acquisition and a goods-and-services tax, is stalled. So are infrastructure projects for which the country is desperate, including new highways and ports. A recent gas price increase was the only move to help rein in the cost of a government subsidies package for food, fuel and fertilizer that costs an estimated 9 per cent of GDP.

The rupee continues to slide, falling Thursday to its lowest level ever, at 56.5 to the U.S. dollar. Manufacturing, the engine meant to be creating hundreds of thousands of desperately needed jobs, contracted by 0.3 per cent in the January-March quarter. The rate of growth in electricity production, mining and agriculture all shrank, too.

Meanwhile, many of India’s cities were operating at half-speed or less Thursday because of a mass strike called by the political opposition to protest the gas price move. The May 24 gas price hike, of 11.4 per cent, was the steepest in Indian history and has enraged a public already hit hard by the currency collapse and inflation running above 7 per cent. Yet it was the only economic reform the embittered business community has seen from government in months.

“The depth of this downturn has taken us by surprise,” said Aninda Mitra, who until recently handled India’s credit rating for Moody’s. “And we expect it will be prolonged. We don’t quite see where the circuit breakers will come from.”

If all that weren’t enough, Finance Minister Pranab Mukherjee announced in the April budget that there would be a new tax regime for foreign firms doing business in India – and rewrote tax policy so that Vodafone Group PLC, (VOD-Q26.78-0.01-0.04%) despite having won a Supreme Court case on the matter, would have to pay billions of dollars in taxes retrospectively on its $11-billion acquisition of Hutchison Essar in 2007.

Mr. Mukherjee said in a statement that the factors causing the slowdown have hit bottom – a notable change from his line to date that there is no cause for alarm.

The government response to fears about the economy over the past year has been to put most of the blame on international factors, but that explanation finds little quarter any more.

“We’ve turned a dream run into a nightmare,” said Mythili Bhusnurmath, an economist who writes a popular finance blog for the Economic Times. She called it “a transformation [that] is entirely of our own … government’s making.”

Prime Minister Manmohan Singh oversaw India’s economic liberalization as then-finance minister in the early 1990s, but in his second term as Prime Minister, there have been no such decisive moves.

Part of Mr. Singh’s problem appears to be the fractious, populist coalition he oversees; a national uproar over corruption and scams has also crippled productivity in government.

“Vodafone is a worrying sign, not only for its impact on sentiment of other foreign investors – but also in that it reflects a lack of understanding of how serious the macro situation is for India,” said Mr. Mitra, who now watches India from Singapore, where he works with Australian and New Zealand Banking Group Ltd. “If you were in a much stronger macro situation, you could pull this off. But now the question arrives – do key policy makers realize how serious the situation is?”

In any case, the government has few policy options at its disposal at this point: The fiscal deficit in the year to March, 2012 was 5.9 per cent of GDP – so there are few resources to put into economic stimulus. At the same time, the central bank has been reluctant to reduce interest rates, with inflation already over 7 per cent. The trade deficit is at 11 per cent of GDP.

However, not everyone sees the latest data as harbingers of crisis.

“Five-point-three [per cent economic growth] is pretty horrendous, to say the least,” said Shankar Sharma, vice-chairman of First Global Securities Pvt. Ltd. “But I don’t think we should be being too harsh on India because the fact is that every single country in the world has slowed dramatically, and India has done remarkably well relative to its peer group and the developed markets.”

The other BRIC countries (Brazil, Russia and China) have all posted much lower growth, except for China, where the stimulus was much greater, he said. (Indonesia and the Philippines, two countries which are increasingly setting themselves up to compete with India in some key fields, are posting growth higher than India.)

But Mr. Sharma noted that foreign direct investment levels are at record high levels, despite deterrents such as the Vodafone tax charge. “The one place that looks really strong because of what is happening across the world in commodity markets is really India – in six to 12 months, people will be a lot more bullish on India,” Mr. Sharma predicted.

Maersk shipping to cut 400 jobs

UPI,

26 April, 2012

Danish container shipper Maersk Line said Friday it would eliminate 400 jobs as part of a reorganization strategy.

The shipping giant, which current employs 25,000 workers around the globe, said it lost $566 million in the first quarter after earning a net profit of $416 million in the first three months of 2011.

For article GO HERE

Airlines seek to slash fuel costs

Few industries are hit as hard by high oil prices than the airlines, which can spend close to 40% of their budget on fuel.

CNN Money,

1 June, 2012

With jet fuel prices near record highs, the drive to conserve is stronger than ever.

Delta recently made headlines with its novel bid to buy an oil refinery, taking a more direct role in procuring fuel. But Delta and other airlines are experimenting with a number of other ways to cut costs.

The entire industry is hoping a switch from radar to GPS-based navigation will cut the time it takes both to reach cruising altitude and land a plane.

A Delta spokesman said GPS systems can get a plane on the ground 2 or 3 minutes faster than radar by allowing the plane to descend in one fell swoop instead of a series of steps. Since the planes burn about $100 minute in fuel, that can shave a few hundred dollars off of each landing.

A few hundred dollars may not sound like much, especially since Delta spent $12 billion last year on fuel. But considering Delta (DAL, Fortune 500) lands over 1,000 planes a day in Atlanta alone, the savings can add up fast.

The airline also cut long-haul flights by around 10% last year, and plans another 10% reduction this year.

Long-haul flights burn more fuel per mile than short trips because extra weight is added by the extra fuel needed to make the trip.

Delta's risky oil refinery bet

"Fuel is expensive, so we're being very careful about where we fly," said Delta spokesman Eric Torbenson, adding that Delta is making sure all its routes can cover the cost of fuel.

Delta is also replacing 88 of its 50-seat regional jets with larger, 100-passenger versions, because the larger jets get better mileage per passenger.

At United, replacing aircraft is also part of the strategy.

United is putting 19 of the most advanced 737's into service this year, as well as five of Boeing's (BA, Fortune 500) new ultra-efficient 787 Dreamliners. The new aircraft are 15% to 20% more efficient than the planes they will replace.

Like other airlines, United (UAL, Fortune 500) has put winglets on the tips of many of its aircraft's wings, which reduce drag and can cut fuel use by up to 5%.

It's also swapping out parts, such as the 800-pound steel brakes on some 737's with lighter, carbon-fiber equipment.

"We have a long-term approach in place," said Joel Booth, who flew 777's for United before taking a job as the airline's head of fuel efficiency. "This is very important to our businesses."

Booth said that efficiency efforts last year saved the airline 60 million gallons of fuel - or nearly $200 million at today's prices. In 2011 the airline spent nearly $13 billion on fuel.

The company has over 3,600 ground support vehicles such as baggage tractors and aircraft tugs that run on either alternative fuel or electricity -- a move being made by other airlines too.

Southwest extends its cost savings strategy beyond the airport entirely.

Like most airlines, Southwest (LUV, Fortune 500) engages in extensive hedging for its fuel -- a practice where the airline basically bets fuel prices will be higher in the future and locks in contracts with Wall Street traders and others willing to take the opposite side of that bet.

The airline received considerable attention in 2007-2008 when it was hedged more so than most airlines when oil prices spiked -- a strategy that paid off handsomely.

Over the last decade or so Southwest's trading strategy has saved over $3 billion in fuel costs, said Chris Monroe, the airline's head of risk management.

Currently Southwest, which spent $6 billion on fuel last year, has hedges out to 2015. But the airline is basically unhedged through the first half of this year, meaning it thinks fuel prices will continue falling for at least another month.