Spread & Containment
Super Contango: Altera’s 11.9% Yield Preferred Shares to Benefit
Super Contango: Altera’s 11.9% Yield Preferred Shares to Benefit
Altera Infrastructure is an international midstream service provider that owns and operates assets used in storage, production as well as transportation of products by the offshore oil and gas industry. The coronavirus outbreak has led to a sharp decrease in demand for oil, a surge in its supply and a resultant drop in oil prices to record lows. In this report, we analyze the company’s business model, exposure to near term volatility in oil, its ability to meet financial obligations, dividend prospects and finally conclude with whether the company’s preferred stock offers an attractive balance between risks and rewards.
Q1 2020 hedge fund letters, conferences and more
Overview:
Incorporated as Teekay Offshore Partners L.P. with Teekay Corporation as the general partner, the company’s common stock was listed in 2006. Brookfield Business Partners (BBU), part of the Brookfield Asset Management (BAM) group has accumulated 99% of the common shares of the company since 2017 and has recently rebranded it as Altera Infrastructures L.P. The company’s common stock was de-listed this year after its acquisition by Brookfield.
Altera Infrastructure operates storage, production, and transportation assets which are mainly used by the oil and gas industry to support offshore drilling activities. Geographically, the company focuses on the offshore oil regions of the North Sea, Brazil, and the East Coast of Canada. The Company’s assets consist of floating production, storage, and offloading units, shuttle tankers, floating storage and offtake units, long-distance towing, and offshore installation vessels. The consolidated assets of Altera are valued at approximately $5.2 billion. Altera operates its business in 5 major segments:
FPSO Segment: FPSO assets are floating offshore assets that provide production and storage facilities. They are mainly used to support oil fields situated in deep-water areas. An FPSO receives a mixture of crude oil, water, and impurities from risers and then separates the fluids into crude oil, natural gas, and other impurities. As of 2019, Altera had 6 FPSO assets in which it had ownership of 100%, 4 of which have been operating under contracts with major energy companies and 2 are in lay-up. It also has 50% interest in 2 FPSOs which are operating under contract in Brazil. Revenue in this segment is primarily earned through long-term, fixed-rate contracts. These contracts had an average remaining life of 3.2 years as of 2019 year-end.
Shuttle Tankers Segment: Shuttle tankers are customized ships that are used to transport oil products from offshore oil fields to onshore terminals and refineries. Altera’s shuttle tanker fleet consists of 26 vessels that are operated under fixed-term contracts of affreightment, time charters, and bareboat charters. The company also has 7 new shuttle tankers which are expected to be delivered between 2020 and 2022. The Contracts of Affreightment (COA) have an average term period of 3.4 years whereas the time charter and bareboat charter contracts have an average term period of 4.5 years. As of 2019, the total cargo capacity of 34 shuttle tankers was 4.2 million deadweight tonnes.
FSO Segment: FSO is a simplified version of FPSO. It provides on-site storage and offloading facility to oilfields but it does not possess the ability to process it. In this segment, Altera operates 5 FSO units that are under fixed-term contracts and have an average remaining contract term of 2.6 years. The total cargo capacity of these 5 assets is 0.6 million deadweight tonnes.
Towage and Offshore Installation Vessels: In this segment, the company owns and operates 10 assets which are used for towage, station-keeping, installation and decommissioning of large floating assets such as FPSOs and FSOs.
UMS Segment: In this segment, the company operates a single asset named Arendal Spirit. This asset provides offshore accommodation, storage, maintenance, and modification facility to existing offshore installations. It has 500 berths and is currently under lay-up.
As evident in the chart below, FPSO and Shuttle tankers are the largest segments of Altera. FPSO contributes 47% of the adjusted EBITDA of the company while constituting 39% of the revenue. Whereas Shuttle Tankers segment accounts for 44% of the revenue while contributing 39% of the EBITDA.
The company’s contracts with its customers are mainly long term in nature with rates fixed, therefore, its cash flows are largely immunized from the daily fluctuations in the global commodity prices, at least in the near term. Based on existing contracts as of 2019 end, Altera has $4.6 billion of forward revenue secured before including any contract options, which provide relative stability to future earnings and cash flows. The customer portfolio consists of several blue-chip companies including Shell (RDS.A) (RDS.B), Equinor (EQNR), BP (BP), and Total (TOT), to name a few. Royal Dutch Shell is the company’s largest customer accounting for 25% of revenues, followed by Equinor ASA (formerly Statoil) which contributes 13% and is majority owned by the Government of Norway.
Decline in oil prices due to COVID-19 having a severely negative impact on the broader energy industry
There has been unprecedented pressure on the global oil and gas industry because of the widespread outbreak of COVID-19. As a measure to control its spread, almost all countries have announced mild to stringent lockdowns, which has resulted in a substantial decline in global oil demand. Further, largely unchecked production levels have resulted in severe demand-supply mismatch and consequently a free fall in oil prices. Since the beginning of this year, brent oil prices have declined from the mid $60s per barrel to the low-to-mid 20s per barrel just in a span of a couple of months. The demand is forecasted to remain subdued for much of 2020 because of wide-spread reduction in business activities. As per the recent IEA report, global oil demand is expected to fall by 9.3 million barrel/day. Historic lows in oil prices are forcing oil producers to considerably reduce production levels and fixed costs. Global oil supply is set to plunge by 12 million barrel/day in May as per IEA.
Please note that, recently, all the major oil producing nations have mutually agreed to reduce oil production by 10% in the coming months in order to support prices. Although this historic deal will provide some support to prices, any major improvement is not expected in the short term unless deeper production cuts are announced, or the global economy shows some signs of turnaround despite the outbreak. As per the April IEA report:
“The measures announced by OPEC+ and the G20 countries won’t rebalance the market immediately. But by lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis.”
‘Super Contango’ in the oil market leading to boom, albeit temporary, in the tanker industry
The current highly unusual conditions in the oil market have led to windfall gains in the tanker market. The mismatched demand and supply situation has led to creation of contango which basically means there is so much excess supply at the moment that value of one barrel of oil in hand today is substantially less than value of one barrel at a later date. As a result, there has been a surge in demand for storage facilities as companies try to preserve the value of their product by holding on to it longer and investors look to profit from arbitrage opportunities. As onshore storage facilities are reaching full capacity levels, oil industry stakeholders are looking to offshore assets as storage options. This increased demand has led to a surge in spot rates or per day charges which is benefiting several tanker companies globally.
In fact, during a recent interview with CNBC, Mr. Herbjørn Hansson CEO of Nordic American tankers mentioned that they are charging $70,000 per day per ship for their Suezmax tankers which are substantially higher than average rates of approximately $30,000 in 2019. The operating costs remain at $8,000 thereby generating extraordinarily high cash flows from the assets.
“We are making a lot of money at this time, improving our balance sheet tremendously, and I have never seen such a strong market. And I’ve been around for a little while.”
Altera Infrastructure, especially its shuttle tankers segment is well placed to benefit from these contango markets. In addition to the increased pricing for vessels operating under spot contracts, the company will have an upper hand in re-negotiating its time charter contracts when they come up for renewal. Altera has 2 tankers under spot contracts which constitutes 9% of its overall fleet capacity. Also, contracts for 5 shuttle tankers which constitute 19% of its storage fleet capacity, are expiring in the next 3 months and therefore can be re-contracted at higher rates. Further, the company will receive 3 new shuttle tanker vessels in 2020 which will provide additional growth to revenue and profits assuming the demand and supply imbalance continues to exist over the next few quarters or natural demand in the industry is able to absorb additional capacity. The new fleet additions will increase total fleet capacity by 26% YoY.
Limited impact in the short term in FPSO segment, however, long-term picture murky if oil prices stay sub $25
Any large fluctuations in energy prices may not affect Altera’s FPSO and FSO business in the short run to the same extent as an oil producer, but in the medium to long term, its performance can be adversely affected. Although the majority of Altera’s revenue comes from fixed rate contracts which have over 3 years of average life, sub-$25 oil prices medium to long term will reduce the need to hire company’s assets especially since offshore drilling tends to be costlier than onshore. In the near term however limited impact from oil price dislocation is expected. The company has one FPSO which has been announced for decommissioning this year and other than that, all contracts remains active until 2022. Also, these contracts are primarily with large oil producing companies such as Petrobas (PRB) and Shell. Petrobas is majority owned by the Brazilian Government and Shell is the largest energy company in the world, therefore they are not expected to easily wither away in the ongoing storm in the oil markets due to large capital backing.
Key Contracts:
On the positive side, the decommissioned FPSO has a storage capacity of 270,000 barrels of crude oil and Altera has an excellent opportunity to source a short-term storage contract for the vessel until a suitable oil producer is found for an FPSO contract. The same opportunity lies with respect to 2 FPSOs currently in lay-up, which have a combined storage capacity of almost 700,000 barrels.
We expect that the combined effect of strong surge in storage demand and additional shuttle tankers being delivered this year will provide enough tailwind to Altera to more than offset any modest negative impact which the FPSO segment may face. Even without considering the available short-term storage opportunity in decommissioned and lay-up FPSOs, the company should be able to largely maintain its earnings power.
Preferreds are trading at a steep discount
Altera has 3 sets of preferred stock outstanding. All the preferred shares are perpetual, and the coupons are cumulative. Due to the broader market sell-off because of the coronavirus outbreak and uncertainty in the oil industry, dividend yields of all 3 preferreds reached almost 30% last month. Since then, the preferred stocks have shown significant recovery however are still trading at a dividend yield between 13 – 14%, which is still materially higher than its 12-month historical average of 9 - 10.5%. Series E is yielding the highest as of now because of its longer maturity and call period. Also, Series E has a Fixed to Floating conversion feature and after the call date, the fixed preference dividend rate will be converted to a floating rate of LIBOR + 6.4%. Series A is trading at the lowest dividend yield primarily because its call date was nearly 2 years ago, and it is expected to be the first in line to get redeemed whenever company chooses to announce a redemption plan. However, in the most recent earnings call, management suggested they have no plan to redeem any time soon.
“No, we have no plans other than to continue to have the preferred outstanding and listed and continue our reporting obligations in relation to those securities.” – Jan Rune Steinsland, CFO in Q4 2019 earnings call.
Comfortable near-term debt maturities
Altera has outstanding debt of $3.2 billion as of the end of FY 2019. The debt to EBITDA is 4.7 times and the interest coverage ratio (EBITDA to interest) is 3.4 times. Altera has $374 million of debt maturing in 2020 and already has more than $300 million of liquidity at its disposal in the form of cash and undrawn credit facility. Further, keeping in mind the free cash flow generation along with significant tailwind in the shuttle tankers segment, we do not expect the company to face any material headwinds meeting its near-term financial obligations by either paying cash or refinancing its debt.
Plenty cushion available for preferred dividend distribution
The annual preferred dividend liability amounts to just $32 million, and in the past few years, Altera has consistently maintained enough cushion for its obligations in case the business deteriorates. Please note that the company has announced dividends on preferreds just a couple of days ago on 22nd April despite the turmoil in energy markets. As indicated in the table below, we have estimated Altera’s sources and uses of cash assuming a worst-case scenario of 10% EBITDA decline as well as a slightly optimistic scenario of 5% growth in EBITDA. In both scenarios we found the preferred dividends of the company to be safe for 2020.
(1) Capital expenditure includes obligations for new shuttle tankers in 2020. These expenditures will significantly decline to $101 million and $73 million in 2021 and 2022 respectively.
(2) The financing for large part of scheduled capital expenditures related to new shuttle tankers has already been secured.
Risks:
Privatization: Brookfield Business Partners has bought all the common equity shares from the public and consequently the common stock was delisted from the exchanges. The company may not stop at common shares and also look to eliminate preferred stock from the capital structure as well, and it may take the tender offer route at a lower rate instead of calling the preferreds at par given the deep discounts preferreds trade at the moment. Additionally, it may choose to delist preferreds while not redeeming them which will significantly impact liquidity and as a result pricing of these preferreds. However, some comfort was given by management in this regard on the Q4 2019 earnings call:
“No, we have no plans other than to continue to have the preferred outstanding and listed and continue our reporting obligations in relation to those securities.” – Jan Rune Steinsland, CFO in Q4 2019 earnings call.
Further weakness in the oil market: As discussed in this report earlier, a sub-$25 oil price longer term will be detrimental to the company’s business even as the company’s business model is partially insulated in the near to medium term.
Conclusion:
The global oil industry is going through an uncertain environment because of a severe supply-demand mismatch as a result of coronavirus related global lockdowns. That said Altera’s business is largely insulated in the near term as a result of long-term contracts with blue chip customers and a temporary lift from the tanker business. At the same time, the company’s preferred shares are trading at a fairly large discount to their pre-COVID 19 yields. As such, we believe the company’s preferreds offer a strong risk reward and also provide investors an opportunity to gain low risk exposure to energy.
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Article by Blue Harbinger
Spread & Containment
The Coming Of The Police State In America
The Coming Of The Police State In America
Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now…
Authored by Jeffrey Tucker via The Epoch Times,
The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.
Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.
The message has been sent: Only the police can do this job. Whether they do it or not is another matter.
Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.
In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.
The law-abiding will suffer and the criminals will grow more numerous. It will not end well.
When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.
If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.
We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.
My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.
It goes like this:
1) lockdown,
2) loss of moral compass and spreading of loneliness and nihilism,
3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,
5) a rise in uncontrolled immigration/refugees,
6) an epidemic of ill health from substance abuse and otherwise,
7) businesses flee the city
8) cities fall into decay, and that results in
9) more surveillance and police state.
The 10th stage is the sacking of liberty and civilization itself.
It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.
But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.
It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.
Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.
As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.
The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.
Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.
By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.
The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.
Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.
The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.
The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.
But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.
What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.
As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.
The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.
Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.
Spread & Containment
Another beloved brewery files Chapter 11 bankruptcy
The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.
Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.
It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.
Related: Fast-food chain closes more stores after Chapter 11 bankruptcy
The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business.
And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.
During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.
Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.
Covid is not the only reason for brewery bankruptcies
While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,
Beer sales have fallen to their lowest levels since 1999 and some industry analysts
"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.
Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.
Another brewery files Chapter 11 bankruptcy
Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11.
"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained.
Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors.
The popular brewery operates three taprooms and sells its beer to go at those locations.
"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.
The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).
Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.
bankruptcy pandemic social distancing
Spread & Containment
Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry
With big events drawing a growing share of of tourism dollars, F1 offers a potential glimpse of the travel industry’s future.
In late 2023, I embarked on my first Formula One race experience, attending the first-ever Las Vegas Grand Prix. I had never been to an F1 race; my interest was sparked during the pandemic, largely through the Netflix series “Formula 1: Drive to Survive.”
But I wasn’t just attending as a fan. As the inaugural chair of the University of Florida’s department of tourism, hospitality and event management, I saw this as an opportunity. Big events and festivals represent a growing share of the tourism market – as an educator, I want to prepare future leaders to manage them.
And what better place to learn how to do that than in the stands of the Las Vegas Grand Prix?
The future of tourism is in events and experiences
Tourism is fun, but it’s also big business: In the U.S. alone, it’s a US$2.6 trillion industry employing 15 million people. And with travelers increasingly planning their trips around events rather than places, both industry leaders and academics are paying attention.
Event tourism is also key to many cities’ economic development strategies – think Chicago and its annual Lollapalooza music festival, which has been hosted in Grant Park since 2005. In 2023, Lollapalooza generated an estimated $422 million for the local economy and drew record-breaking crowds to the city’s hotels.
That’s why when Formula One announced it would be making a 10-year commitment to host races in Las Vegas, the region’s tourism agency was eager to spread the news. The 2023 grand prix eventually generated $100 million in tax revenue, the head of that agency later announced.
Why Formula One?
Formula One offers a prime example of the economic importance of event tourism. In 2022, Formula One generated about $2.6 billion in total revenues, according to the latest full-year data from its parent company. That’s up 20% from 2021 and 27% from 2019, the last pre-COVID year. A record 5.7 million fans attended Formula One races in 2022, up 36% from 2019.
This surge in interest can be attributed to expanded broadcasting rights, sponsorship deals and a growing global fan base. And, of course, the in-person events make a lot of money – the cheapest tickets to the Las Vegas Grand Prix were $500.
That’s why I think of Formula One as more than just a pastime: It’s emblematic of a major shift in the tourism industry that offers substantial job opportunities. And it takes more than drivers and pit crews to make Formula One run – it takes a diverse range of professionals in fields such as event management, marketing, engineering and beyond.
This rapid industry growth indicates an opportune moment for universities to adapt their hospitality and business curricula and prepare students for careers in this profitable field.
How hospitality and business programs should prepare students
To align with the evolving landscape of mega-events like Formula One races, hospitality schools should, I believe, integrate specialized training in event management, luxury hospitality and international business. Courses focusing on large-scale event planning, VIP client management and cross-cultural communication are essential.
Another area for curriculum enhancement is sustainability and innovation in hospitality. Formula One, like many other companies, has increased its emphasis on environmental responsibility in recent years. While some critics have been skeptical of this push, I think it makes sense. After all, the event tourism industry both contributes to climate change and is threatened by it. So, programs may consider incorporating courses in sustainable event management, eco-friendly hospitality practices and innovations in sustainable event and tourism.
Additionally, business programs may consider emphasizing strategic marketing, brand management and digital media strategies for F1 and for the larger event-tourism space. As both continue to evolve, understanding how to leverage digital platforms, engage global audiences and create compelling brand narratives becomes increasingly important.
Beyond hospitality and business, other disciplines such as material sciences, engineering and data analytics can also integrate F1 into their curricula. Given the younger generation’s growing interest in motor sports, embedding F1 case studies and projects in these programs can enhance student engagement and provide practical applications of theoretical concepts.
Racing into the future: Formula One today and tomorrow
F1 has boosted its outreach to younger audiences in recent years and has also acted to strengthen its presence in the U.S., a market with major potential for the sport. The 2023 Las Vegas race was a strategic move in this direction. These decisions, along with the continued growth of the sport’s fan base and sponsorship deals, underscore F1’s economic significance and future potential.
Looking ahead in 2024, Formula One seems ripe for further expansion. New races, continued advancements in broadcasting technology and evolving sponsorship models are expected to drive revenue growth. And Season 6 of “Drive to Survive” will be released on Feb. 23, 2024. We already know that was effective marketing – after all, it inspired me to check out the Las Vegas Grand Prix.
I’m more sure than ever that big events like this will play a major role in the future of tourism – a message I’ll be imparting to my students. And in my free time, I’m planning to enhance my quality of life in 2024 by synchronizing my vacations with the F1 calendar. After all, nothing says “relaxing getaway” quite like the roar of engines and excitement of the racetrack.
Rachel J.C. Fu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
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