PlaneBuzz

Last week in the United Airlines' earnings call, CEO Glenn Tilton more or less dismissed a question from reporter Dan Reed from USAToday concerning increasing pilot staffing issues and cancelled flights at the airline.

The question was relevant, as we talked about in PlaneBusiness Banter two weeks ago. Why? Because based on conversations we were having with folks close to the situation, and comments from subscribers, it was pretty obvious that a situation was developing at United that resembled, in many aspects, the showdown between pilots and management at Northwest Airlines last summer.

There didn't seem to be any question that pilots at the airline were engaging in a little "work to rule" as the end of the month rolled around. Just as we saw with Northwest last year, if you have pilots who refuse to pick up extra flying, along with higher than normal sick time calls, and you've got flying schedules maxed out because of summer schedules -- all the ingredients are there for an opportunity to force the airline into flight cancellations.

This week, apparently United Airlines does consider the issue relevant, as today the airline filed a lawsuit seeking a preliminary injunction against the pilot union, ALPA,  and a group of individual United pilots, for allegedly abusing sick time.

The injunction request accuses the ALPA of  encouraging a sick-out, which is not allowed under the Railway Labor Act. It also said that pilots were refusing to pick up extra flying, and that others were being intimidated into not taking on additional flying.

"ALPA's communications are essentially a guide describing how to use sick leave inappropriately," United's injunction request said.

United said in its request that the first officers on its Boeing 737s and Airbus A320s had called in sick the most frequently. First officers on Boeing 737s had called in sick more than twice as much over the past seven weeks versus the prior three years, and sick calls by Airbus 320 first officers had risen 61%, the airline said.

United said it canceled 329 flights between July 19 and July 27, costing it about $8 million in lost revenue and $3.9 million in operating profit.

Talks between the union and the airline apparently broke off last week, according to United COO John Tague, who issued a message to employees this afternoon in which he said,

"Despite these significant steps, unlawful job actions escalated, intimidation of pilots continued and the impact on our customers and other employees grew to truly unacceptable levels," he said.

Specifically, according to the Associated Press (we have not seen a copy of the actual request to the Federal Judge as of yet, we're off to find one) the airline accused pilot Anthony Freeman of starting a Web site to organize the sick-out by junior pilots. It said the group was called "the 2172" because they were among the 2,172 pilots furloughed by United in 2001.

The other three pilots named by United — Steven M. Tamkin, Robert J. Domaleski, Jr., and Xavier F. Fernandez — are members of the Industrial Relations Committee of the Master Executive Council at United's ALPA unit.

All of this comes three days after we received a missive in our in-box from the United ALPA MEC. The missive was entitled, "The beatings will continue until morale improves."

According to the "Unity Update #6",

"The Beatings Will Continue Until Morale Improves

How’s your summer going?  Just in time for the long, hot, busy summer season, United Airlines is implementing and refining some new methods to erode your job and quality of life even further.  This company’s contempt for its employees is further proof  that United is flying itself into the ground and doesn't care who it takes down with it -- not you, not me, not its customers.  In the meantime, the executives continue to enrich themselves from the company’s coffers.

Here are some examples of management’s patented morale-boosting initiatives that make United Airlines such a desired place to work.

● For starters, we've all heard of United's plans to use our pilots and their families as expendable commodities in an attempt to correct its inability to contain costs or adequately plan for the future.  Some of the soon-to-be-furloughed pilots, who relied on United’s good faith to come back, are being let go a second time.  Who will ever again have faith in United Airlines?  But first, United will work your heinies off for the summer with maximum hours and minimum days off (flex months), and then fire you.  How's your summer going?

● To assist United in its unwillingness to maintain any workable and flexible trip trading system, management will refocus and lower the trigger points for Absence Monitoring System (AMS) events, questioning a pilot’s compliance with FARs regarding "fit to fly.”  And if they don't believe you, you will be required to visit a doctor and pay for it out of your own pocket since our company will not reimburse you.  Oh, and we understand from reliable sources that the company plans on taking away pass travel while you’re on sick list and, this time around, your family too.  How's your summer going?

● In a blatant attempt to erode, if not eliminate, Captain’s Authority, First Officers are soon to replace Captain’s as FODMs.  As you are aware, FODMs have the ability to order Captains to fly.  Even though many First Officers have the experience and capability, United will be breeding an environment where there will be First Officers ordering Captains to fly, questioning Captains’ decisions and placing Captains in defensive positions.  How’s your summer going?

● With the expected shift in flying, many domiciles will temporarily pick up other domiciles’ flying.  This will result in many W-patterns, flying 6 day trips with 4 oceanic crossings.  When the flying becomes aligned with the domiciles, your reward for having worked your keisters off will be more surpluses.  Reread the first bullet point.  How’s your summer going?

To summarize, United’s managers will force pilots to work extra days with longer hours, they will bully pilots to prove their non-fitness to fly at their own expense, they will attempt to take away pass travel for you and your family, they will attempt to diminish Captain’s authority, they will take away United mainline flying and give it away to Express, and then they will either furlough you or surplus you at the end of the season.  No one will be unaffected by the continually bad decisions United makes every day.  Fatigue, stress, illness, exhaustion, anger, fear, depression, resentment, uncertainty, frustration and disrespect are all being crammed down our throats by a company that gives not a damn about goodwill, morale, its employees or its customers.

So, how’s your summer going?

Leverage does not just show up, unannounced, on one’s doorstep.  Unified pilots create leverage.

UNITY OF PURPOSE BRINGS POWER

THERE IS POWER IN UNITY"

How's my summer going? I'll have my cheeseburger in Paradise now, thank you very much.

Posted by Holly at 7:00 PM | Permalink | Comments (0)

Just never know who is going to come out of the woodwork these days.

This morning former Continental CEO Frank Lorenzo and S&P's Jim Corrodore talked airlines on CNBC.

Posted by Holly at 12:25 PM | Permalink | Comments (1)

In this week's 64 page PlaneBusiness Banter, we take a closer look at the earnings results and the earnings calls for six major airlines -- United Airlines, JetBlue, US Airways, Alaska Air Group, Southwest Airlines, and Allegiant.

There is one issue that I think needs to be discussed as widely as possible, and that is the issue of how airlines account for out-of-period hedge gains or losses.

Without getting into too much accounting mumbo jumbo, if an airline engages in hedging activities, in an attempt to mitigate the high cost of fuel -- that is going to, hopefully, create a situation where those hedging instruments essentially make money, thereby lowering the effective price the airline pays for fuel.

The issue is -- how does an airline then account for these gains?

In the case of Southwest, Alaska Air Group, and US Airways, for instance,  the airlines have, I believe, chosen to break out these gains in the proper fashion.

But other airlines, such as United Airlines, do not do this.

So why should you care? Because it can make a huge difference in what an airline's true net income is. Or perceived to be.

In the US Airways' earnings call this quarter, analyst Mike Linenberg with Merrill Lynch asked management at US Airways, why they chose to report the unrealized gains or gains that relate to future periods the way in which they do - as a special item.

Mike, inaccurately, I would add, claimed that 'the rest of the industry' is running the numbers through their P&Ls.' (Note, not everyone is doing this, as I note above.)

As Mike then correctly observed, "It seems like perception is what trumps reality with respect to stock price and call it overall financial strength. Is-- is that something that you would reconsider just so you're on the same page as everybody else?"

US Airways' CEO Doug Parker responded that the airline thinks it is the proper accounting method to use.

We agree.

In the Southwest Airlines' call, CFO Laura Wright also clearly explained why they do what they do in accounting for the gains -- and again, it makes sense.

To give you an idea of how much difference this accounting difference makes -- let's just take the example of US Airways and United Airlines for the second quarter.

Using what we believe to be the correct method of accounting, US Airways reported a loss of $101 million. Had they run the hedging related gains through their P&L, the airline would have reported a profit of $89 million.

On the other side of the coin, United Airlines reported a loss of $151 million  for the quarter. However, if they had reported their hedging activity in what we think is the proper way, the airline would have reported a loss of $380 million or $2.99 a a share, a fact that analyst Dan McKenzie with Credit Suisse emphasized in his research report on the airline's earnings.

It's a big difference.

And one that all airline investors, employees, and interested bystanders need to remember when they look at the numbers being reported this quarter by a particular airline.

Posted by Holly at 11:53 AM | Permalink | Comments (0)

What was the name of that truck?

Why can't my eyes focus anymore? Why can't I type?

All I have to say to PlaneBusiness Banter subscribers this week is that if you normally print this week's issue out, be sure and have a lot of paper. It's going to run 60 plus pages.

Ah. Earnings. I love them so.

Actually I do. This week we had a couple of earnings calls that were pretty interesting to listen to. US Airways is always a good call, and this quarter was no exception. Doug Parker went after JP Morgan's Jamie Baker on the issue of liquidity in their call. Good job by the ex-CFO of America West. We like it when Doug gets feisty.

Dave Barger with JetBlue consistently gives one of the most detailed overviews of an airline at the start of that airline's call.

Then of course, we had the United Airlines' call this week. Aside from the nice liquidity shot in the arm that Chase gave the airline -- we were also excited that we had another example of "Tilton Triangulation" in this quarter's call.

Yes, CEO Glenn Tilton was on the corporate speak warpath again, talking about triangulating foot prints or some such thing.

PlaneBusiness Banter subscribers can read all about it by clicking here.

If you are not a subscriber, why not?

Talk to you guys tomorrow.

Posted by Holly at 11:57 PM | Permalink | Comments (0)

This morning Frontier Airlines announced that it has received a $75 million debtor-in-possession (DIP) financing commitment from Perseus, LCC, a private investment firm based in Washington, D.C.

Perseus has also agreed to act as equity sponsor for Frontier's plan of reorganization, allowing Perseus to purchase 79.9% of the equity in the reorganized company for $100 million.

Frontier filed a motion today with the U.S. Bankruptcy Court for the Southern District of New York. Upon court approval, Perseus will provide funding under the proposed DIP credit facility in two installments to support the company's working capital needs.

"The proposed DIP funding, coupled with Frontier's negotiations with partners to improve liquidity, reduce expenses, and preserve cash, is expected to provide sufficient working capital for the Company's operations. The Company continues to work with its partners and employees to obtain additional liquidity, reduce expenses and enhance revenues," the airline's release said.

Okay, so are we taking bets on how long it will be before Southwest Airlines announces a quadrupling of its service out of Denver?

As for the infusion of capital on the part of Perseus, I have to kind of wonder ....why? You would almost think maybe there was another shoe to drop -- that there was another airline involved at some level.

Maybe there is, but we just don't know it yet.

But given the airline's current position in the Denver market, and the fact that Southwest has clearly determined that they are going to take the Denver market away from Frontier -- I'm not sure why a third party investor would be interested in making a bet like this -- at this time.

Then again, this is the airline industry, and as one analyst said not too long ago, "The airline industry's ability to find new sources of equity never ceases to amaze me."

Amen to that.

Posted by Holly at 11:59 AM | Permalink | Comments (0)

Hello everyone. Yes, I know. This week has not been one of my more active ones here in PlaneBuzz. Things will be more normal next week.

Yours truly has been scouring the countryside the last week or so -- looking for potential new Worldwide Headquarters' locations.

Unfortunately it is also the heaviest week of the quarter for airline earnings reports, so today I am so buried in numbers I can't add two plus two, as I try to catch up and start working on this week's issue of PlaneBusiness Banter. I definitely think we are looking at another one of those 55-plus page issues this week.

But you know, when numbers overwhelm you, there are always photographs to cut through the clutter.

And here's the photograph of the day that will cut through any end-of-week earnings clutter that may be hanging around in your mind.

This is a good shot of the Qantas 747-400 that decompressed at 29,000 feet. Or rather, a good shot of the section of fuselage that flew off the aircraft at 29,000 feet, leaving a gaping hole that extended into the cargo hold of the aircraft.

According to the ATSB:

“At approximately 29,000ft (8,839m), the crew were forced to conduct an emergency descent after a section of the fuselage separated and resulted in a rapid decompression of the cabin. The crew descended the aircraft to 10,000 ft in accordance with established procedures and diverted the aircraft to Manila where a safe landing was carried out. The aircraft taxied to the terminal unassisted, where the passengers and crew disembarked. There were no reported injuries.”

It adds: “Initial information indicates that a section of the fuselage has separated in the area of the forward cargo compartment.”

A spokeswoman for the Manila International Airport Authority says the aircraft is registered as VH-OJK. According to Flight’s ACAS database it has a serial number of 25067 and was delivered new to Qantas by Boeing in 1991. It is powered by Rolls-Royce RB211-524G engines."

Technorati Tags: decompression, Qantas

Posted by Holly at 11:02 AM | Permalink | Comments (0)

Hi guys. Just a quick note to let you know that we are out of pocket today. Will be returning to the Worldwide Headquarters late tomorrow.

In case you didn't look at your favorite airline stock today -- you are in for a pleasant surprise.

It seems that because the majority of airlines are not reporting second quarter earnings results that are as dire as analysts had expected, and because oil prices continue to move downward, investor sentiment in the sector has gone off the charts. Again.

I thought we had a week last week that could not be improved upon, in terms of airline stock gains, but when all the shouting is done, I may very well be proven wrong when Friday rolls around.

But forget the end of the week. Today gains were off the charts all by themselves, as shares of US Airways soared 59% to 4.27. Shares of United Airlines, which also reported earnings today, were up 69% to 8.41, and shares of, which also reported today, were up 16%, closing at 4.50.

Whew.

So what has changed? As analyst Kevin Crissey from UBS wrote in a research note late this afternoon -- sentiment.

"Today was another good day for the airline stocks. Good day of course being a big understatement. Combined with the upward moves last week, the legacy airline stocks are up 90% in the last five trading days and the low fare stocks are up 30%.

* Sentiment has improved
But what really changed today? United sold miles forward (expected), United’s credit card holdback was lowered (positive surprise although we hadn’t expected it to be increased), United, US Airways and jetBlue cut more capacity (not really a surprise although timing/magnitude is arguably better), and fuel prices fell. Ultimately though we think what changed is sentiment. Sentiment regarding the chances that fuel prices will continue to fall, and sentiment regarding the probability and timing of a liquidity crisis.

* Our view on the stocks
We believe the airlines can offset weak demand or high fuel prices but not both. So upside to the shares comes from either fuel prices falling or demand being better than expected. We are skeptical that analysts are underestimating revenue growth and therefore view fuel as the primary driver. Fuel prices may or may not continue to fall but based on the forward curve our analysis indicates that the stocks are roughly fairly valued.

* Updating EPS estimates
We are reducing our EPS loss estimates for UAUA, LCC and JBLU.

Posted by Holly at 8:00 PM | Permalink | Comments (0)

Subscribers to PlaneBusiness Banter can now access this week's issue here.

Posted by Holly at 7:49 PM | Permalink | Comments (0)

Relatively speaking.

The price of New York Harbor jet fuel closed today below $4/gallon. At $3.92 to be exact, down 10 cents.

Meanwhile, the price of oil was down to $129.29 at the close of trading today, down $5.31 on the day.

Another day, another day of demand questions, as more traders look at the potential of the one-two punch of a slowing economy both here and abroad, in addition to rising inflation.

One of those "good news, bad news" situations that Wall Street loves so much. The good news? Energy prices are falling. The bad news? They're falling because more and more estimates of demand worldwide are being tempered because of more problems on the economic front.

But hey, we'll take it.

Posted by Holly at 4:47 PM | Permalink | Comments (0)

Okay, so how many of you saw that ad in yesterday's USAToday that was placed by the union leadership of USAPA? You know, the union that represents the US Airways East pilots at US Airways?

I say that because I have yet to talk to an America West pilot who has paid USAPA dues. While USAPA claims to have 5800 members, I think the number is probably closer to 3000 or less.

Yes, USAPA. The same union that was voted in, after the US Airways East pilots refused to go along with an ALPA arbitrator's award decision in the union seniority process to unite the two separate (at the time) ALPA memberships.

Yesterday, the brain trust of this organization, and I use that term loosely, decided to run a full page ad in USAToday, accusing management at US Airways of "pressuring pilots to reduce fuel levels for your flight in order to save money."

The ad then continued,

"We ask that you remember this: although we consider US Airways to have embarked on a program of intimidation to pressure your Captain to reduce fuel loads, US Airways Captains are committed to maintaining their right to exercise their "Captain's Authority," granted by the Federal Aviation Administration, to ensure a fuel load that will safely fly you to your destination with all the reserves necessary to handle any contingencies related to the flight."

Uh-huh.

Those of us who know and work in this industry know what this is. It's a very sad attempt by grown men who should have better things to do with their time to get media attention by crying "Safety, Safety."

Thankfully, no major media outlets paid much attention to the effort -- because, frankly, they also knew it was a bunch of crap.

However -- then there is Larry King. And CNN.

Last night, US Airways' CEO Doug Parker and ATA President Jim May were scheduled to be on King's show to discuss the issue of rising fuel costs, the industry's cost problems, whatever.

But what the show turned into was a discussion of how unsafe US Airways was -- because of this "problem." Not only that, but Parker, because of commitments in Washington, was unable to be on the show. The show's producers apparently thought it was okay to bash the supposed "unsafe" practices of the airline without having the courtesy of having a representative of the airline on the show at all.

As one reader noted in a letter he sent to CNN today,

Yesterday I tuned into your show with the hopes of seeing the CEO of US Airways speak to the crushing negative effects the run up of oil is having on the airlines, the economy, and my career. What I saw was something all together different.

Instead of the scheduled speakers I witnessed a disjointed, subjective, discussion over a “news” story that was generated by an ad placed by the leaders of the new rookie union at US AIRWAYS (USAPA). This ad was nothing more than an ill guided attempt by the fledgling union’s leaders to flex their muscle during contract negotiations.

The core issue here is not about how much fuel a pilot can carry, safety or “Captains Authority” but rather a dispute between the company and a segment of the pilots this new Union represents. (It should be noted that not one of the 1800 former ALPA represented pilots of America West have elected to join this new union.)

As a Captain for America West and post merge the New US Airways, I have never had the company question the amount of extra fuel I choose to carry on any flight segment. Many of those segments routinely carry me and my passengers over the longest over water route in the world and as such I am very cognizant of the need for adequate fuel reserves for any contingency.

I was appalled by this new "Union's” attempt to bring safety into question when it is clear, based on the data collected, that this was a deliberate attempt by the pilots in question to carry and burn more fuel in an effort to influence the company to acquiesce to their contractual wishes.

As a one time Executive Vice President of The Air Line Pilots Association I have seen and participated in my fair share of labor disputes but I have never witnessed nor would I condone using a bogus “safety” issue to apply leverage to a company."

As I said in a recent issue of PlaneBusiness Banter -- as we see a number of airlines link-up, or merge, and as it becomes more and more clear that the union problems involving the pilots at US Airways apparently had a major chilling effect on the airline's potential merger with United Airlines -- these guys at USAPA are only going to have themselves to blame if the airline finds itself without a dance partner going forward.

But this latest stunt, I have to say, takes the prize.

The boys at USAPA are real men of genius.

As a result, they are more than deserving of a PlaneBuzz Buzz Bomb Award.

Posted by Holly at 12:46 PM | Permalink | Comments (0)

Continental Airlines became the third major airline to report second quarter earnings this week, as the airline reported it lost $3 million, or 3 cents a share, compared with a profit of $228 million, or $2.03 a share, a year ago.

Excluding $22 million in one-time gains, the carrier lost $25 million, or 25 cents a share for the quarter.

Revenues came in basically on target, and were up 9% for the quarter. Analysts had been expecting the airline to post a loss of 49 cents a share, so the airline's loss was much much better than had been expected.

Continental said it ended the second quarter with about $3.4 billion in unrestricted cash and short-term investments. It expects that figure to fall to $2.8 billion by the end of the third quarter.

Technorati Tags: airline earnings, airlines, Continental Airlines

Posted by Holly at 11:43 AM | Permalink | Comments (0)

Delta Air Lines reported second quarter profits of $137 million, or $0.35 this morning, excluding special charges and despite a $1 billion year-to-year increase in fuel costs. This was more than triple the $0.10 per share figure projected by analyst consensus provided by Thomson First Call.

Including special charges of $1.2 billion, Delta said its net loss for the second quarter was $1 billion, or $2.64 per diluted share.

Delta also reported total operating revenue of nearly $5.5 billion for the second quarter, a 10% increase from the year-earlier total of $5 billion.

As we are also seeing with shares of American Airlines, investors are happy, happy, happy, with the news, with shares of Delta Air Lines up more than 17% as of this writing, to $5.48.

Technorati Tags: airline earnings, airlines, Delta Air Lines

Posted by Holly at 12:08 PM | Permalink | Comments (0)

American Airlines kicked off the second quarter earnings season for the things with wings today as the airline reported second quarter earnings.

AMR, the parent of American Airlines reported a second quarter net loss of $1.45 billion or $5.77 per share compared to a profit of $317 million or $1.08 per share in the quarter a year ago.

Excluding one-time charges to ground planes and employee cutbacks, the quarterly loss was $284 million.

Last July shares of AMR were trading as high as $28.83. Today, shares were trading up 21% on the earnings news, at $5.35 as this was posted. Yes, as bad as the numbers were, the operating results at the airline were better than expected.

Time for the party hats and horns.

Well, maybe not.

Technorati Tags: airline earnings, airlines, American Airlines

Posted by Holly at 12:07 PM | Permalink | Comments (0)

For those of you familiar with the United Airlines' not-as-fancy headquarters in Elk Grove (that would be opposed to the fancy dress digs downtown) you are probably aware that there are some swans that make their home there.

During the last couple of months, the swans have come up in more than one email to me. Why? Because they really grate on people's nerves.

They also poop a lot, and are mean as hell. Or so I'm told.

But it's more the visual significance. Or as someone on an airline geek list I am on wrote today, "I was telling a friend that if Bob Crandall were here he'd take off his shoes, roll-up his pants, wade out into the pond, and strangle those swans with his bare hands. Then probably have them served for dinner on a plane."

Well, in case you think that the management folks at United have better things to do these days -- you are wrong.

It seems that the company just had a "Name the Swans" contest.

And I quote,

"Subject: Name the Swan Contest

Name the Swan Contest
The winning names... by a landslide ....Leon and Ellen.

Leon is named after the first pilot, Leon Cuddeback, for Walter Varney's airline which later became United.

Ellen is named after the first flight attendant, Ellen Church.
Thank you to Amelia Zemaitaitis -WHQER who submitted the winning entry.

Amelia and three of her co-workers will be treated to a special luncheon in the patio overlooking the pond.

Your Facility Team

'Committed To Service'"

Technorati Tags: airlines, United Airlines

Posted by Holly at 11:49 AM | Permalink | Comments (0)

Hi guys.

I've been away from the Worldwide Headquarters for a couple of days, and look what happens.

Delta and Northwest announced who is going to stay and who is going to go, in terms of the new "merged" management team; Bill Warlick, analyst at Fitch Ratings sent the chill of potential bankruptcy back into the mix as he wrote Monday, "Rising energy prices and weak cash flow may result in "multiple bankruptcies and liquidation" for U.S. airlines in 2009; American and the APA finally announced publicly that as many as 200 pilots may be put on furlough, beginning in September; and finally, the Air Transport Association said Tuesday that U.S. passenger airlines saw first-quarter 2008 costs grow at the fastest pace since the second quarter of 1980. The costs were up 31.3% compared with the first quarter of last year.

On average, fuel accounted for almost 30% of first-quarter operating costs.

Meanwhile, it's been nuts on Wall Street the last two days with Fed Chairman Ben Bernanke telling everyone on Capitol Hill yesterday essentially what we all already knew: that while the Fed has to remain "particularly alert" to any indication that inflation is about to take off (I'd argue that it already has to an extent) that "The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth."

Wall Street was not amused.

But that brings us to the price of oil.

Yesterday the price of oil closed down more than $6 in one day after the Organization of Petroleum Exporting Countries (OPEC) said that it had lowered its world oil-demand growth estimates for 2008 and 2009.

It was a wild day in the trading pits as first oil was up more than $1 to $146.73. But then things started to shake, rattle and roll and the price of crude began its rather sharp fall downward, as it ended the day at $138.74.

Against this volatile backdrop, we will have two airlines report earnings today (Wednesday) -- American Airlines and Delta Air Lines. Tomorrow? Continental Airlines.

Next week we have a full list of reportees making their way to the podium, headed up by Southwest Airlines. 

Posted by Holly at 4:30 AM | Permalink | Comments (0)

It's earnings time, once again. To start of this quarter, we have Delta reporting today and Continental on Thursday.

Subscribers to the PlaneBusiness Banter can review the full earnings calendar, including links to the webcasts for each airline's earnings discussion calls, and earnings summaries for this quarter's results.

Delta will discuss its earnings at 10 AM Eastern today, while Continental's call is tomorrow at 10:30 AM Eastern.

During the next few weeks, expect to hear this phrase frequently: "Results were negatively impacted by the price of jet fuel."

Posted by Jonathan at 12:42 AM | Permalink | Comments (0)

Trolling the headlines and news releases today I came upon one of those promotions-disguised-as-a-news-release that I see every day on the newswire. The headline to this one was interesting - Airline Study Shows Brands Struggle in Downturn. Really? In other news, Christmas will be on December 25th this year.

From the sublime to the ridiculous. First we have those who would equate airline to utility companies, and now this not so subtly disguised promotional piece touting a study that purports the solution to the current airline dilemma is better brand management. Airlines as The Electric Company, or yogurt.

The news release provides a link to a "Market Study" on 6 major airlines, which is really simply an analysis of their advertising strategy. In addition to being poorly written, complete with typos and an interesting use of grammar, the content was fairly lame and simplistic. Northwest and Delta were included as separate "studies" with no mention of their merger, nor how the new merged carrier might carry out a new brand management strategy.

Here's an excerpt from an airline industry blog on the site written by the CEO of the company who wrote the study - "The REAL loser here is you and I (Passengers) and the employees. Earth shattering change is needed and cutting out our pretzels, beverages and the other pittance of amentites (sic) currently offered will never make any of the (sic) successful. It is as if thier (sic) problem can be solved by charging me for my carry-on-bag. That is a sure way to encourage me to prefer them!"

It gets worse, both in terms of content and the recommendations. Absolute drivel. Don't get me wrong, in a normal business during normal times, brand management is critical. However, this ain't it.

Trying to rationalize the absolute disparity between article I wrote about a couple of days ago and this one was an interesting exercise. I've resisted the idea that the airline business is a commodity business, but the present set of circumstances are unprecedented. It's survival now, not marketing. It's like a heavy weight prize fight; sometimes winning is just being the only guy standing when the bell rings.

At any airline, everyday there are thousands, perhaps millions, of transactions that take place. The obvious transactions are between the airline and it's customers, but there are also transactions between airline employees. Each of those transactions have a plus or minus effect on the day's results. I think creating an environment where line employees and senior management are on the same team and feel the ups and downs equally with the line worker is part of the answer.

In addition to the self-promoting "news release" about airline brand management I saw today, I also saw a release from Southwest Airlines. I am not sure if there are any airlines out there today who would give a surprise party to a retiring airline president, except Southwest Airlines.

.

Posted by Godzilla at 7:08 PM | Permalink | Comments (0)

Hello there, Godzilla here. I've been enjoying an early monsoon season here in the Ol' Pueblo, and in the spirit of "green", I went to my favorite store last week (Ace is the place!) and bought a 50 gallon rain barrel. You set the barrel up under a down spout to catch water, and then it has a couple of outlets where you can hook up hoses for watering, or hooking up several barrels in series. The night after I set it up we had over an inch of rain and the barrel filled up! I was so happy it was like I had made it rain or something.

So of course the next step was to buy a couple more barrels and hook them up in series. Unfortunately the wifely unit put a stop to that project. Even when I explained all of the money we'd save on water (though the barrels cost $90 each, so, the payoff comes in 126 years), she shut me down. I've attached a picture here for your unbiased opinion. I think it looks kinda neat, no?

Regardless of your opinion on my rain barrel, I need to talk a little about reregulation, and specifically about an article by RSM EquiCo calling for congressional action on airline reregulation. The piece is very well written and goes through the obligatory bullet points listing the reasons that airlines need to be regulated again.

The article correlates the health of the airline industry to the general health of the economy, and although the airlines tanked before the economy did, the weak airline industry is exacerbating the general economic woes. The article quotes liberally from a speech given by Robert Crandall recently, where he drew a parallel between the airline industry and public utilities.

Further the article promotes "a structure in which a commission is established to review airline prices is essential, given the utility-like characteristics of airlines, and that if anything is to come out of possible industry re-regulation, it should be an updated pricing model."

Of course, oil at $150 a barrel will also spawn an updated pricing model, while removing all of the excess capacity that caused the low prices in the first place.

Bad idea, bad, very bad. Airlines are not similar to utilities. Everybody needs lights and heat, not everybody needs to fly for business or pleasure. Setting up commissions and boards, and getting the government process involved in the airline business (in fact, I think getting government involved in any business) will be an absolute disaster for passengers. You can't regulate common sense, and the glut of capacity and resulting pricing madness in the U.S. airline business has been a boon for passengers.

Now, it's time to pay the piper (or the oil man, take your pick). Airlines that have grown because they have good fundamentals and a strong product will weather this current set of unbelievably bad circumstances. Airlines that have skated along with no plan, no strategy, no product, and no business being in this business will fail. We don't need government regulation to limit the airlines that have this business figured out, while simultaneously propping up the ones who don't have a clue.

Posted by Godzilla at 6:56 PM | Permalink | Comments (0)

PlaneBusiness Banter subscribers can access this week's issue here.

Technorati Tags: airlines

Posted by Holly at 1:48 PM | Permalink | Comments (0)

Take one shot of ramped up fears in the Middle East involving Israel and Iran, throw in lower crude inventories here in the U.S. last week, and then on top of that add Fannie Mae and Freddie Mac -- both of whom are watching their equity value disappear right before our eyes this morning on real fears that the two government mortgage backers are basically insolvent ....and what do you get?

One ugly Friday on Wall Street.

Of course, a big run-up in oil means airline stocks are getting hammered. Yes, again.

But in addition to the higher price of crude this morning, United Airlines did not help matters for the sector either, as it announced it is going to take a whopping 2.7 billion in total charges for the second quarter.

Yes, you read that correctly.

"The company has concluded that the entire value of goodwill on its books has to be written off," United Airlines parent UAL said in its SEC filing.

That may be a more telling statement than intended.

As of this posting, crude is now trading at 146.40, up 4.75 since the close Thursday.

Biggest losers on the PlaneBusiness stock list this morning include: United Airlines, now down 13%, trading at 3.64; Mesa Air Group, down 14%, now trading at 33 cents; Continental Airlines down 11% to 7.42; Alaska Air Group down 13% to 11.84; and AirTran, getting beaten up again, with shares here down 9%, closing at 1.68. Yes, you read that number correctly too.

Posted by Holly at 10:09 AM | Permalink | Comments (0)

If you are a member of a U.S. airline frequent flyer group, many of you may have received a message that looks something like this in the last couple of days. This particular message was sent out by United.

____________

An Open letter to All Airline Customers:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.

_______________

The letter was then signed by the Chairman and CEOs of all the U.S. major airlines.

Who's behind this effort?

The Air Transport Association.

A couple of weeks ago I took the ATA to task for whining to Congress about this issue in PlaneBusiness Banter.

But apparently somebody still thinks it is a good idea for the airline industry to play the role of "victim" and cry that "speculators" are running up the price of oil. This means that many who receive this message will now assume that if Congress would just DO SOMETHING about this -- the problem will go away.

Hogwash.

I'm sorry folks, but one, even if Congress were to pass tighter restrictions on energy traders, that is not going to stop the free markets from working as they always have. Secondly, rampant speculation is NOT what is causing oil prices to rise.

Finally, as a report on NPR the other day noted, just who are these "speculators?" Evil Wall Street types who like to "prey" on defenseless industries and the American public?

Not hardly. According to their research, pension funds, yes, maybe yours if you even have one left (and considering you may work in this industry that is a big assumption) have bulked up on energy contracts big time, to the tune of a triple digit increase in the last 5 years.

Why? Maybe it is because they thought it would be profitable.

Duh.

Of all the problems affecting this industry that cry out for leadership -- ATC issues, overcrowding in the skies, slot restrictions, tax issues, and of course, the ongoing saga of the FAA -- the ATA has decided that this one is the one that is so dire that it has enlisted the air of their respective members -- and their members have now taken the straw-man "crisis" to the traveling public.

And then the industry wonders why Congress and those in Washington don't take the industry seriously.

Technorati Tags: airline CEOs, airlines, oil prices, Air Transport Association, United Airlines

Posted by Holly at 1:05 PM | Permalink | Comments (0)

Yesterday Northwest Airlines came out with more details on how they plan to cut back on operations and employees.

The airline said that it is going to eliminate 2500 jobs, which represents 8.1% of the airline's total employee workforce.

But the big news yesterday from Northwest was the fact that it joined the $15/bag fee crowd. The airline also announced fees for frequent flier ticket redemptions that ranged from $25 to $100. These are the steepest redemption fees yet announced by a U.S. airline.

Today, Delta finally announced a move that all of us in the industry had expected -- even though Delta CEO Richard Anderson and Northwest CEO Doug Steenland have repeatedly told employees and analysts that the two airlines did not plan to make massive cuts in the hub operations of either airline.

Well, Richard and Doug can now thank high oil prices for a nice cover.

Today Delta announced that it plans to cut its capacity at the Greater Cincinnati-Northern Kentucky International Airport by 23% this fall.

We're still waiting for those Memphis announcements. Trust me. They're coming.

This news comes after Comair said Tuesday that it was cutting 300 pilot positions, as well as 220 flight attendants, after it grounds 14 aircraft.

Technorati Tags: airlines, comair, Delta Air Lines, Northwest Airlines

Posted by Holly at 11:17 AM | Permalink | Comments (0)

Just a head's up. Something seems to be afoot with Virgin America.

I'm hearing everything from a major "restructuring" of the airline to rumors that the airline is going to abandon long-haul transcons completely. (A little hard to believe since their entire business product is geared to long-haul flying, but anyway....we all know they are losing their butts on that flying...and well... whatever.)

Could CEO Dave Cush and company be out the door? Or will we just see some major shift of the product offering? Not sure, but we've just received too many related notes concerning the airline today and read too much chatter on our usual airline geek hangouts not to think there is not some truth behind them.

Stay tuned, as they say.

In addition, we've been following the latest developments in the ongoing attempt by Virgin America to block the DOT from releasing its operational and financial numbers in PlaneBusiness Banter.

Essentially Virgin had requested that the DOT treat this information as "confidential" so that it would not be released publicly.

Right.

The move was made in an attempt to keep competitors and folks like you and me from accessing the airline's financial and T-1 data.

We all know what the procedure is with the DOT. Because the airline filed for the request, then it starts an entire procedural process that takes up time. On June 30, the DOT finally denied the airline its request. But not before other major airlines told the DOT that if they did not hurry up and deny the request, that they all would ask for the same "confidential" treatment.

Tuesday Virgin filed a response to the DOT's ruling.

We're getting closer.

On a quick side note, actually Virgin, Republic and Shuttle America all filed responses -- as Republic and Shuttle America have also been trying to pull the same stunt.

You can access the DOT dockets here. The Virgin docket is DOT-OST-2008-010.

Posted by Holly at 4:54 PM | Permalink | Comments (0)

The official uniform of Wall Street traders is now our worn, but still usable Ratty Old Bear Suit.

As of today, both the Dow and the Nasdaq have now fallen more than 21% since October. The Dow ended today down 236.77 points, or 2.08%, while the Nasdaq was down 59.55 points or 2.6% on the day.

While oil prices ended up only a penny on the day, closing at 136.05, airline stocks still got hammered.

The biggest losers in the sector included: AirTran, which took a huge 17% drop today, closing at 1.82; Continental, where shares dropped 11%, closing at 9.16; Delta Air Lines, which posted a 9.6% drop to 5.28; Northwest Airlines which saw shares drop a hefty 16% to 6.30; and Mesa Air Group, which saw its shares down by 12% to 37 cents on the back of a less than positive June traffic report.

As for the hefty drop in AirTran stock, was this a "delayed" reaction? Or is there something else out there about to drop? The airline announced yesterday that it plans to furlough 180 pilots, 300 flight attendants, cut capacity further, and cut other wages by 10%.

As for the Mesa drop, the traffic report for the airline was telling. Especially the go! results.

For June, the airline reported that load factor fell to 78.62% from 81.02% a year earlier.

Traffic fell 15% to 526.2 million revenue passenger miles in June 2008 from 621.1 million revenue passenger miles in June 2007. Capacity also fell 13% to 669.3 million available seat miles in June from 766.6 million available seat miles in the year-ago period.

As for go!, the airline reported a load factor of 68.6%, which is down about 3.5% from a year earlier. Yes, while total passenger numbers were up - the airline threw so much capacity in the market after Aloha shut down that its loads were actually lower than when Aloha was still flying.

Brilliant. And probably not very profitable at current fuel prices.

Not a good day for the things with wings ...at all. Of all the airline stocks we track, the vast majority posted losses on the day.

Technorati Tags: airlines, AirTran, Aloha Airlines, Continental Airlines, Delta Air Lines, go! airlines, Mesa Air Group, Mesa Airlines, Northwest Airlines

Posted by Holly at 4:16 PM | Permalink | Comments (0)

Coming on the heels of last week's announcement that Delta Air Lines and ExpressJet were terminating their regional flying agreement effective Sept. 1, ExpressJet announced today that it will also end its branded flying operation effective Sept. 2.

The 39 aircraft the airline is currently using in these operations will be returned to the lessor no later than June 2009.

This will leave ExpressJet with 30 aircraft that it will continue to fly as part of its charter operation, ExpressJet Corporate Aviation, and 205 aircraft which it will fly for Continental Airlines.

Shame. Everyone I knew who had flown the new branded flying product had good things to say about it. Given the airline's options at the time -- I'm still not one to jump on management for what they tried to pull off. The basics of this business plan were not the same as the ill-fated Indy Air.

Alas, just not enough profit margin in flying a branded 50-seater operation these days.

Technorati Tags: airlines, ExpressJet

Posted by Holly at 11:51 PM | Permalink | Comments (0)

It's OK to laugh at airport security in Milwaukee's Mitchell International Airport. Or, at least at that little zone just past security. The Milwaukee Journal Sentinel points out a new sign that went up last month in Concourse C touting the zone as the "Recombobulation Area". It's that place you put yourself back together -- shoes, belt, laptop, jackets, and the occasional titanium hip -- after the discombobulation of going through security.

Concourse C is home to flights for United Express, Air Canada, American Eagle, Frontier, US Airways Express, Delta and Delta Connection, and AirTran.

Considering the state of Midwest Airlines, perhaps its a good thing they didn't hang the sign in Concourse D.

Posted by Jonathan at 4:31 PM | Permalink | Comments (0)

Guess what was in my email box this morning?

"Want to Get Away - Eh? Southwest Airlines to Offer International Service via Pact With Canadian Carrier WestJet, Service Scheduled for Late 2009"

Technorati Tags: airlines, Southwest Airlines, WestJet

Posted by Holly at 10:25 AM | Permalink | Comments (0)

Suppose your airline was about to announce the first international codesharing agreement of its life.

Suppose this is a news nugget that you would want to see get maximum media attention.

Then, suppose your CEO just kind of let the news fall out of his mouth as part of a longer interview with a major newspaper.

Well, that's exactly what appears to have happened when, in a long interview published in the  Chicago Tribune Sunday, reporter Julie Johnsson wrote,  "For the first time in its history, Southwest is preparing to venture outside the U.S., to Canada, via a marketing alliance that will be announced this summer, [Southwest CEO Gary] Kelly said."

Now, the fact that Southwest and WestJet might be considering a link-up should come as no surprise to anybody. I even alluded to the possibility in a recent PlaneBusiness Banter. It is a natural fit in many ways.

But that's not the point.

The point is, did Gary really say this to the reporter?

If he did, then, well, there is really only one potential marketing partner for Southwest in Canada, and it's not Air Canada.

So if he said this to this reporter, he essentially let the cat out of the bag. Before either airline had made an official announcement of the fact. While Southwest has talked in generalities about their "international" intentions, this was, as far as I know, the most direct comment in reference to Canada, including a timetable, that I had heard.

We hear there is now some "scrambling" going on in certain quarters, and that we may have an "official announcement" of what Gary basically told everybody Sunday in the Chicago Tribune this week. Which, we hear, is just a tad bit earlier than had been planned.

Technorati Tags: airlines, Southwest Airlines, WestJet

Posted by Holly at 7:35 PM | Permalink | Comments (0)

Subscribers can now access this week's issue of PlaneBusiness Banter here.

Posted by Holly at 12:23 AM | Permalink | Comments (0)

All of us at the PlaneBusiness Worldwide Headquarters wish all of you a great Fourth of July holiday weekend, complete with plastic forks, paper plates, baked beans, barbecued ribs, grilled hamburgers, homemade potato salad, cole slaw, corn on the cob, cold beer, and, of course.....

HOT DOGS.

Which reminds me. PlaneBusiness Banter subscribers will get to enjoy our annual PlaneBusiness Ode to a Hot Dog column this week.

Hey, we all need more humor in our life these days. Yes? Yes.

Posted by Holly at 1:43 PM | Permalink | Comments (0)

This month's issue of Airways has AirTran as its cover story.

Uh-oh. (insert the audio from the "Psycho" shower scene here....)

For those of you who are not familiar with the Airways cover story curse, let's just say that it seems an inordinate number of airlines featured as the cover story in the magazine over the last few years have either  shut down before the magazine even hit the stands, or their demise followed not too long after the fact.

Posted by Holly at 10:29 PM | Permalink | Comments (0)

Sorry to be a bit late tonight with today's oil news, but yours truly had a little trip to the dentist's office today. I won't go into the less than pleasant details. Which reminds me. I don't think I've ever gone when there were pleasant details.

But anyway, this put me back at the WWH late, and well, to be honest, I then had to slurp some soup and take some pain killers before the throbbing in my gums would stop.

Okay, can I have some pity here or what?

Speaking of pity, I pity the airline CFOs out there. It's not going to be a happy Fourth of July for them, as the price of both oil and jet fuel hit new record highs again today.

After a bit of bouncing around, oil closed today at $145.29, up $1.72 from yesterday.

On the jet fuel front, New York Harbor Jet A closed at $4.36/gallon. Yes, another record high.

I do have one bit of very good news that relates to Wall Street however.

The markets are closed tomorrow in honor of July 4th.

Woo hoo. Get the sparklers out and start the parade.

Technorati Tags: airlines, aviation fuel, jet fuel, oil prices

Posted by Holly at 8:06 PM | Permalink | Comments (0)

I'm shocked, shocked I tell you.

Reports tonight say American Airlines, British Airways and Spain's Iberia are "close to applying for antitrust immunity to form a joint venture that would be one of the most powerful forces in the transatlantic aviation market."

Their words, not mine.

It's about time. I was beginning to wonder if the much-anticipated long-delayed anti-trust request was going to appear or not. I mean, there are political considerations to this move. As a result, I thought we would have heard this news earlier this spring.

Guess American wanted to make sure it "explored all of its options."

Technorati Tags: airlines, American Airlines, British Airways

Posted by Holly at 9:31 PM | Permalink | Comments (0)

The hits just keep on comin' today.

American Airlines apparently sent out at least one of the official WARN letters today, outlining how it may reduce the number of union employees as of Aug. 31.

The only union that has apparently received their letter, or at least the only one that has gone public about it is the Association of Professional Flight Attendants. The letter sent to them says the airline may furlough as many as 900 of the airline's most junior flight attendants.

The airline says that it will offer those flight attendants who are at least 50 years old and with at least 15 years of seniority an option that would let them retire early with a $15K payment and limited travel and medical benefits.

The airline is also offering employees the option of taking a leave of absence, while maintaining their seniority, or the option to "buddy up" so to speak, with another attendant to "share" a position.

I imagine we'll be hearing more from the mechanics and the pilots at American later in the day or in the morning as to what good news their WARN letters contained.

Technorati Tags: airline unions, American Airlines, flight attendants, furloughs

Posted by Holly at 4:10 PM | Permalink | Comments (0)

Not much to say guys.

Not only did oil move up today on less than robust inventory numbers from the U.S. Department of Energy, but when all the shouting was done and oil closed up almost $3 to $143.57, jet fuel had hit new record levels as well.

Sitting down? Well, you might want to lie down.

New York Jet A closed at $4.32/gallon today.

Probably a good idea if you just stay prone for a while before attempting to get up.

Technorati Tags: aviation fuel, jet fuel, oil prices

Posted by Holly at 3:54 PM | Permalink | Comments (0)

This week in PlaneBusiness Banter, I wrote about how I feared we'd seen the video now unrolling at Midwest Airlines once too often.

The airline recently told employees that they would have to agree to major concessions - because new majority owner TPG would not consider any additional financing to the airline unless the airline could come up with a more healthy looking business plan.

Unfortunately, no matter how much Midwest cuts salaries, we all know the end of this story, and it's not going to be pretty.

Midwest minority owner Northwest Airlines orchestrated this deal from the get-go, in an attempt to keep AirTran out of its backyard. Now all that's left is for Northwest to figure out what it wants to keep from Midwest and let the rest of it ...go away.

But for now, the fantasy of "sacrificing to keep the airline alive" will apparently continue.

As one reader said to us this morning, "It's just sad." Yes it is. For more than one reason.

Here's the letter Midwest CEO Tim Hoeksema sent to employees this morning.
----------------------------------------------------------

To: All Midwest and Skyway Employees
Date: July 2, 2008
From: T.E. Hoeksema
Subject: Additional Details -- Wage Reductions

In keeping with the promise I made to keep you informed, I am writing today to give you additional details on one of the action items in our restructuring plan regarding our employees -- wage reductions.

Record-high fuel prices have put us in this predicament. As a result, we are taking action to restructure our airline: adjusting our fleet and network, and aligning our organization and costs to be able to compete and be profitable in this new energy economy. I believe that all domestic airlines will eventually need to restructure. We are implementing our restructuring in a comprehensive way, working to make significant and sustainable change quickly, whereas other airlines may make changes incrementally.

Unfortunately, there is no way to avoid deep and painful reductions to our current compensation. Our cost structure today, in advance of this restructuring, resembles that of airlines much larger than we are, with national and even global networks, flying larger aircraft. Follow