Best of Lex: your weekly round-up

Dear readers

Many globetrotters will mourn the A380 jumbo jet. When Airbus announced the demise of the world’s biggest passenger plane this week, the dismay was not confined to employees. The idea of an enjoyable long-haul flight might sound like an oxymoron. But to judge by the online comments of FT readers, the double-decker “hotel in the sky” made it a reality. Even, sometimes, for those flying economy class.

The failure of the A380 programme makes an intriguing business case study. Airbus wrongly bet that airport congestion and increased international air travel would boost demand for bigger planes, said Lex. But as governments lifted restrictions on flight routes, airlines were able to bypass big hubs and fly smaller planes more regularly. The hard-to-fill superjumbo therefore had high costs and poor fuel efficiency. While an impressive feat of engineering, airlines found its purchase hard to justify.

Something of the reverse is happening in the auto industry. Environmental pressures and falling costs are boosting the prospects for electric cars. The technology has its fans. “Pretty much everything about it is better,” said one Lex reader describing his waning affection for the internal combustion engine. Electric vehicles accounted for just 2 per cent of global new car sales, but sales increased by two-thirds last year. Those figures had been turbo-charged by government subsidies, said Lex. But costs could be on a par with diesel and petrol by 2022.

Carlos Ghosn, now languishing in a Tokyo jail, was an early proponent of electric cars. He promised the world 10 years ago that Nissan would lead a revolution to eliminate gas guzzlers. Its battery-powered Leaf was a hit, even though it missed ambitious sales targets. Today, overall weak sales and unresolved power struggles were haunting Nissan, said Lex. Until shareholders receive clarity on Nissan’s direction, they had better steer clear.

The travails of the auto industry have also taken a toll on Michelin. But even if drivers are not buying new vehicles, they still have to replace their tyres. On Tuesday a relatively upbeat trading update triggered a 13 per cent rise in its share price. The second half of last year was better than expected. Lex reckoned that Michelin offered some protection on a precarious road.

Sales of internal combustion engines may well have peaked. But fossil fuel dependence has yet to end. Consider natural gas. Europe had a love-hate relationship with Russia on energy, said Lex. Europeans love the low cost of Russian gas but hate their rising dependency on an aggressive neighbour. In Germany, which is trying to remove coal from its energy mix, demand for gas will increase even if there is a big shift to renewables. The EU has approved tougher regulation on Nord Stream 2, the next pipeline project to bring Russian gas under the Baltic Sea direct to Germany. But the rules will do nothing to ameliorate the damage to Ukraine’s finances. Getting tough on Russia is an EU pipe dream.

Scepticism about regulation is also reasonable when looking at the tech giants. Amazon, which has doubled the size of its lobbying team, is potentially exposed to a political backlash. Its abrupt decision to cancel plans to build a new headquarters in New York revealed what many critics say is Amazon’s political tin ear.

There were also concerns over last week’s spat over an alleged threat to publish intimate photos that left Jeff Bezos accusing a Trump ally of blackmail. This week’s acquisition of WiFi start-up Eero might add to the complaints of campaigners. Amazon could use Eero data to track smart-home device use as it expands in hardware. But for now, Lex said, antitrust risk was not reflected in Amazon’s share price. The company trades at 60 times expected earnings — more than Alphabet, Facebook and Apple. Potential growth in advertising and cloud computing outweighs the fear of regulators.

Netflix has so far escaped “techlash”, the growing public animosity to Silicon Valley companies. But investors should take a hard look at its content obligations. The company is spending heavily on original programmes, as it tries to outrun rivals such as Apple and Disney. Some of its agreements have not yet been priced. All told, Netflix is on the hook for some $24bn. Only $8.5bn of Netflix’s content liabilities appears on the balance sheet. Its bet for viewer attention is much bigger than its balance sheet might suggest.

Binge-watching is on the rise. Binge-drinking is largely in decline. That is a headache for brewers. But there are signs that they can turn the trend to their advantage. Non-alcoholic drinks are a promising growth market. This week Heineken, the world’s second-largest brewer, became the latest to trumpet the popularity of its non-alcoholic beer. Rising sales of non and low-alcohol beers offset falling sales elsewhere; they could also boost margins, said Lex. And brewing techniques have improved. The flavour is much better than it used to be.

Not convinced? No matter. Whatever your tastes, have an enjoyable weekend.

Vanessa Houlder
Lex writer

Best of Lex articles

● Airbus/A380: tale end

● Electric vehicles: sparks on their marks

● Nissan/Renault: driving a bit crazy

● Michelin: tread softies

● Nord Stream 2: stream of cost-consciousness

● Jeff Bezos/Amazon: swamp and circumstance

● Amazon: Eeros and villains

● Netflix: licence to bill

● Non-alcoholic beer: a sober assessment