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Today we’re talking about an issue that at first glance sounds like an energy story, or maybe an airline story, but it is also very much a real estate story. There is a pause in the fighting in Iran. But significant damage to energy markets has already been done.
The disruption in the Strait of Hormuz is now working its way through the travel economy. Airlines are facing sharply higher jet fuel costs. Some carriers have already warned that if fuel supply problems persist, they may cancel flights. United Airlines has already cancelled long haul flights. Many discount carriers in Asia have cancelled flights. Others are raising baggage fees and other ancillary charges to offset those costs. Reuters reported that Delta and Southwest raised checked baggage fees on April 7, and that United and JetBlue had already moved in that direction. Reuters also reported jet fuel rising from roughly $85 to $90 per barrel in February to about $209 per barrel.
Airlines usually operate with about 30% of their cost structure based on fuel. So when fuel prices double, airlines flip from profitability to money losing in a heartbeat.
Now, what does that mean for real estate investors?
It means that any property whose revenue depends on people getting on an airplane needs to be re-underwritten, at least mentally, for a period of turbulence.
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