Markets
United Airlines: Visualizing the Numbers Behind the Crisis
The people in Pepsi’s marketing and PR departments must be relieved, because the internet’s viral outrage is finally being channeled in a different direction.
This time the fury is targeted towards United Airlines – a brand that is in full-blown crisis mode after a bloodied passenger was forcibly dragged off a plane, and millions of people witnessed videos of the incident being spread over social media.
Two days into the crisis, here are some charts that will help give context around what happened, as well as the potential effect on the United brand itself.
Damage Done?
First, let’s take a look at what’s happened to United’s stock price since the incident:
While some public relations crises have minimal effects on the long-term financial performance of companies, this market reaction is an interesting gauge to consider.
The stock’s lowest point today was -4.3% below the open, which is equal to a nearly $1 billion loss in market capitalization. At that point, it was speculated that Warren Buffett’s Berkshire Hathaway, which owns 9% of all outstanding shares of United Continental Holdings Inc., could lose up to $87 million.
The market clearly saw the crisis as creating risk around United’s fundamental business, but the stock has mostly recovered since those intraday lows. That said, if there are reports of top line revenue being affected because of boycotts or other issues, then the incident’s impact on the stock price could easily re-surface.
Social Media Blowback
With today’s interconnected world, a public relations crisis can start with one tweet. Here’s the snowball effect in brand mentions of United that occurred on April 10th:
Courtesy of: Brandwatch
Here’s another look. This time, it’s a comparison of mentions over the last 21 days.
Courtesy of: Brandwatch
Yes, it’s only been about two weeks since United’s last PR crisis, called #LeggingsGate. As you can see, however, the most recent disaster is many times worse in terms of mentions.
With millions of references to the United Airlines brand occurring on social media, here is the split between positive and negative sentiment as of April 10th::
Courtesy of: Brandwatch
Denied Boarding Rates
But how big of a problem is making passengers deboard a plane, in the first place?
The next chart shows denied boarding rates, inclusive of voluntary and involuntary activity, from January to September 2016:
Data: U.S. Dept of Transportation
United and Delta are the two worst offenders here, with denied boarding rates that are worse than American, Virgin, Alaska, JetBlue, or Southwest.
Lastly, here’s the same figures, except contrasting voluntary vs. involuntary denied boarding rates from January to September 2016:
Data: U.S. Dept of Transportation
Southwest and ExpressJet lead the way with the most involuntary denied boardings, and United Airlines is in the middle of the pack. However, in terms of voluntary denied boardings, United and Delta have much higher rates than other major airlines such as American or Virgin.
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Markets
Visualizing the Recent Explosion in Lumber Prices
Lumber prices in the U.S. continue to break records as pressure from both the supply and demand sides of the market collide.
Visualizing the Recent Explosion in Lumber Prices
Lumber is an important commodity used in construction, and refers to wood that has been processed into beams or planks.
Fluctuations in its price, which is typically quoted in USD/1,000 board feet (bd ft), can significantly affect the housing industry and in turn, influence the broader U.S. economy.
To understand the impact that lumber prices can have, we’ve visualized the number of homes that can be built with $50,000 worth of lumber, one year apart.
A Story of Supply and Demand
Before discussing the infographic above, it’s important to understand the market’s current environment.
In just one year, the price of lumber has increased 377%—reaching a record high of $1,635 per 1,000 bd ft. For context, lumber has historically fluctuated between $200 to $400.
To understand what’s driving lumber prices to new heights, let’s look at two economic elements: supply and demand.
Shortened Supply
U.S. lumber supplies came under pressure in April 2017, when the Trump administration raised tariffs on Canadian lumber. Since then, lumber imports have fallen and prices have experienced significant volatility.
After a brief stint above $600 in April 2018, lumber quickly tumbled down to sub $250 levels, causing a number of sawmills to shut down. The resulting decreases in production capacity (supply) were estimated to be around 3 billion board feet.
Once COVID-19 emerged, labor shortages cut production even further, making the lumber market incredibly sensitive to demand shocks. The U.S. government has since reduced its tariffs on Canadian lumber, but these measures appear to be an example of too little, too late.
Pent-up Demand
Against expectations, COVID-19 has led to a significant boom in housing markets, greatly increasing the need for lumber.
Lockdowns in early 2020 delayed many home purchases until later in the year, while increased savings rates during the pandemic meant Americans had more cash on hand. The demand for homes was further amplified by record-low mortgage rates across the country.
Existing homeowners needed lumber too, as many Americans suddenly found themselves requiring upgrades and renovations to accommodate their new stay-at-home lifestyles.
How Many Homes Can You Build With $50K of Lumber?
To see how burgeoning lumber prices are impacting the U.S. housing market, we’ve calculated the number of single family homes that could be built with $50,000 worth of lumber. First, we established the following parameters:
- Lumber requirements: 6.3 board feet (bd ft) per square foot (sq ft)
- Median single family house size: 2,301 sq ft
- Total lumber required per single family house: 14,496 bd ft
Based on these parameters, here’s how many single family homes can be built with $50,000 worth of lumber:
| Date* | Lumber Price | Total Lumber Purchased | Total Homes Built |
|---|---|---|---|
| 2021-05-05 | $1,635 per 1,000 bd ft | 30,581 bd ft | 2.11 |
| 2020-05-04 | $343 per 1,000 bd ft | 145,773 bd ft | 10.05 |
| 2015-05-01 | $234 per 1,000 bd ft | 213,675 bd ft | 14.74 |
| 2010-05-01 | $270 per 1,000 bd ft | 185,185 bd ft | 12.77 |
*Exact matching dates were not available for past years.
Source: Insider
As lumber prices continue to set record highs, the National Association of Home Builders (NAHB) has reported that the cost to build a single family home has increased by $36,000. Most of this cost can be passed down to the consumer, but extremely tight supplies mean homebuilders are unable to start more projects.
The Clock is Ticking
Despite their best efforts to increase output, it’s likely that sawmills across the U.S. will continue playing catch-up in 2021.
“There was a great fear among sawmills to prepare for a downturn. When home buying surged, they could not open up capacity quickly enough.”
– Lawrence Yun, National Association of Realtors
Analysts are now warning that lumber prices could reach a flashpoint, where affordability becomes so limited that demand suddenly falls off. This has led the NAHB to ask the Biden administration for a temporary pause on Canadian lumber tariffs, which currently sit at 9%.
U.S. tariffs on Canadian lumber were first introduced in 1982, and represent one of the longest lasting trade wars between the two nations. The U.S. is currently appealing a World Trade Organization (WTO) ruling that states its 2017 tariff hike was a breach of global trading rules.
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