Higher Rock Education - Economics Blog

Tuesday, January 31, 2023

Economics in the News – Jan. 23-29, 2023

Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.

o   After canceling 16,700 flights before and after Christmas, Southwest Airlines said that the holiday debacle will cost the company more than $1 billion. Over one-third of Southwest’s scheduled flights from Dec. 21 to Dec. 27 were canceled. The cancellations over Christmas, impacting roughly two million passengers, contributed to a $220 million loss in the fourth quarter of 2022. Poor weather across the country before Christmas forced thousands of cancellations, but Southwest struggled to return to normal operations and had to reset its network. 

Company chief executive officer Bob Jordan announced that Southwest expects a noticeable loss of revenue through at least March, stemming from the holiday meltdown. The airline said that it had taken steps to prevent a similar debacle in the future, including meticulous monitoring for potential problems, increasing staffing and upgrading its technology used to schedule and communicate with crews. [The New York Times]

o   Higher winter temperatures this year have increased worries at ski resorts across Europe this year that the golden age of skiing is coming to an end. The snow season has shortened, making it increasingly financially difficult for ski resorts to operate. Some resorts are attempting to adapt to survive by developing more biking trails. The Alpe du Grand Serre resort in France envisions building an artificial lake to supply water for snowmaking during the winter. 

Skiing in Europe’s Alpine region gained popularity in the 1960s and ‘70s, becoming a $33 billion industry that has sustained the lives of many people in France, Switzerland, Austria and Italy. Many experts in the ski industry forecast that only those big, high-altitude resorts with plenty of terrain over 6,500 feet above sea level will be financially viable by mid-century. Lack of snow and guests have led to 40 percent of Switzerland’s ski lifts closing their doors since the 1990s, as the ski season has shortened by about a month compared to 50 years ago. [The Wall Street Journal]

o   An Indian energy and infrastructure conglomerate headed by billionaire Gautam Adani was rocked by scandal, wiping out $27.9 billion of his net worth. A United States activist investment firm Hindenburg released a report accusing Adani Group of stock and accounting fraud worth $218 billion. The report sent shares of Adani Group’s flagship company and affiliates tumbling, losing more than $50 billion on India’s stock exchange. The accusations point to stock price manipulation and accounting fraud over the course of decades. The report’s findings were based on interviews with dozens of individuals, including former senior executives, thousands of documents and due diligence. Adani Group has denied the allegations. 

Adani is India’s richest man, with a net worth of roughly $118 billion as of April 2022. He accumulated his wealth through the company he founded – Adani Group – and expanded that into an infrastructure empire across India and the world. He has ranked as high as the third-richest man in the world, behind Elon Musk and Jeff Bezos. The company’s success has often been linked to lucrative concessions by the Indian government. [TIME]

o   China is poised to become the world’s No. 2 exporter of passenger vehicles. Overseas shipments of cars made in China have tripled since 2020, with more than 2.5 million cars last year, according to the China Passenger Car Association. That places China behind Japan and Germany, but ahead of the United States and South Korea. Chinese brands are now market leaders in the Middle East and Latin America. Homegrown automakers such as Warren Buffet-backed BYD and Nio are rising inthe industry with hopes to dominate the world of new-energy vehicles. China has targeted to sell eight million passenger vehicles overseas by 2030 – more than twice Japan’s current shipments. In Europe, most of China-made cars sold are from Tesla’s factory in Shanghai and Chinese-owned former European brands such as Volvo and MG. Tesla’s Shanghai factory produced almost 711,000 cars last year, accounting for 52 percent of the company’s global output. 

Despite its increasing market share, the surge in car exports has gone largely unnoticed in the United States, partly due to China’s focus on the European, Asian and Latin American regions and that it occurred during the COVID-19 pandemic. Local carmakers in China have found that the electric platform relatively easy to master compared to the complex internal combustion engine. [Bloomberg]

o   Banks are bracing for more consumers to fall behind on their monthly payments, as lenders are tightening their borrowing standards and have set aside more money to cover potential losses. Borrowers have put more purchases on credit cards and have paid their balances at a slower clip. Meanwhile, delinquency rates on credit cards and loans in the fourth quarter approached their levels before the pandemic. 

Ally Financial reported that the percentage of car loans that were more than 60 days past due rose nearly double to 0.89 percent from 0.48 percent a year earlier. Meanwhile, companies such as Capital One Financial and American Express are increasing their reserves due to increased credit card delinquency. [The Wall Street Journal]  

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