PlaneBuzz

The Department of Justice issued its Good Housekeeping Seal of Approval this afternoon for the proposed Delta/Northwest merger. Yawn.

I don't think anyone really thought this okay was in doubt -- although obviously because Delta cancelled their Media Day that was originally scheduled for tomorrow, I guess it came just a tad later than had been expected.

On with DelWest. Or would that be Norta?

Speaking of Norta....or DelWest there was a laundry list circulated earlier this week of some of the execs at Delta who are going to stay with the new entity.

And a bit of HR news from out of the two airlines' current sphere of influence.

Ned Walker, who has headed up the PR and Communications function at Continental for a very long time -- has moved to Norta. Or DelWest. Yes, Yes, Ned, I know. It's going to be Delta. I'm just yankin' you guys' chain over there.

If you have ever questioned the power of relationships -- when it comes to business -- look at this move. If I am not mistaken Ned and Delta CEO Richard Anderson were both at Continental (back there in the dark ages) together.

Posted by Holly at 4:48 PM | Permalink | Comments (0)

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

Posted by Holly at 11:01 PM | Permalink | Comments (0)

My thanks to a PlaneBusiness Banter subscriber who sent along a link to a series of videos on YouTube this morning. The videos are of a recent speech that was given by Anne Korin and covered on C-Span. Korin is the co-director of the Institute of Global Security. There are seven videos that cover the speech and questions and answers after the presentation.

Her speech takes a very logical and rational look at the situation we now find ourselves in -- in terms of that strategic and fungible commodity -- oil.

Excellent presentation, and I would recommend it to all who make a living in the transportation business.

Posted by Holly at 12:52 PM | Permalink | Comments (0)

What a week.

We had a slew of airlines report earnings this week -- including Allegiant -- which posted a stunning revenue performance for the third quarter.

And -- everyone else. Who all reported losses to one degree or another. This group included United Airlines, US Airways, Alaska Air Group, AirTran, and JetBlue.

By now you are all probably cognizant of how the markets opened this morning. There was a huge sell off in the Asian markets overnight - and the futures markets were showing such precipitous declines that the NYSE decided to put in curbs before the market even opened in New York this morning.

However, after another rock and roll day, the Dow Jones Industrials closed down only 215.05 points to 8476.20, after having been down as much as 500 points at the opening bell.

Just another fun Friday on Wall Street.

And frankly, these fun Fridays are not going to go away until the Feds begin to address the housing problem.

What? Aren't they doing that with all that bailout money you and I are now on the hook for? No.

In fact, theoriginal thinking behind the $700 billion plus bailout idea, along with all the moves the Fed has made to increase the willingness of banks to lend money to one another -- was that these moves would buy the markets time. Time to sort out the housing debacle.

The root cause of this mess -- a housing market that grew out of control on inflated home prices, low interest rates, and greedy banking institutions has yet, however, to really be addressed.

Oh, and yes, I'm sure you also heard yesterday that the number of foreclosures was up 70% in September, year-over-year.

So, to put all the current mess in perspective -- the root cause of all of it is still just ....sitting out there.

As for the airlines, it was another bittersweet day.

Bittersweet because the price of oil continues to drop like a rock. Today the price of crude dropped 3.69 to end the day at 64.15. This is the lowest price in 17 months. Meanwhile, N.Y. Harbor Jet Fuel closed the day at $2.08/gallon, down 10 cents on the day.

On the other hand, the vast majority of airline stocks were stung badly today. The reason? The rest of the economic news is so bad.

One of the few airline stocks to post a nice gain today was US Airways. The stocks was up almost 20% on the day at one point, but it drifted back as the day went on. The stock closed up 12% to 7.97. I think analyst comments concerning the airline's increased liquidity -- which the airline disclosed yesterday when it reported earnings -- was the key to this uptick.

Posted by Holly at 4:03 PM | Permalink | Comments (0)

Last week I talked here about how the economic and financial situation was affecting those of you who read us on a regular basis.

Thanks to all of you who have responded so far. I definitely hit a nerve with this one.

Keep those comments coming. I'll follow up with excerpts from them later this week.

Posted by Holly at 5:58 PM | Permalink | Comments (0)

It was another 55-plus pager this week for PlaneBusiness Banter, as we talked at length about the earnings reports that were released last week by Delta, Southwest, American and Continental.

There were more than a few tantalizing tidbits from the four earnings conference calls, but the one that made me laugh was when Delta's CEO Richard Anderson was asked by analyst Dan McKenzie from Credit Suisse about whether or not the airline's revenue performance on the trans-Atlantic sector (which was up) was a result of the fact that EOS and MaxJet were no longer around.

Richard: "They didn't matter ...really."

Glen Hauenstein, EVP of Network and Revenue Management then came on the call and added,

"Daniel, I think again you have to look at what sectors have been disproportionately hit. We are the largest carrier to the Middle East. We're the largest carrier to Africa, and those are all included in our trans-Atlantic numbers. Those economies are still quite robust right now. Where we're not so big is London Heathrow, where we just entered service last year, and I think what you know is that there are several carriers out there that have made their living off of New York to London, and that's been disproportionately hit as you saw from BA's announcement a couple of weeks ago or last week. And we're somewhat insulated from that because that's not where we're big, and I think that's been one of the secret sauce in our recipe of success in the trans-Atlantic."

We all know that, well, Richard can have his moments. And this was certainly one of them, as he then responded with the finesse of a surgeon wielding a finely sharpened blade, "MaxJet and EOS were so small, that it was a rounding error in terms of trans-Atlantic capacity."

Ouch.

So the next time you want to minimize the effect of someone or something -- just say that they are so small, they are "nothing but the rounding error in the big picture of life."

And deliver the line authoritatively -- just as Richard did.

And then duck.

Posted by Holly at 5:40 PM | Permalink | Comments (0)

This week's mega-earnings issue of PlaneBusiness Banter is now posted. Be sure and put more paper in the printer before you push the print button.

Subscribers can access this week's issue here.

Posted by Holly at 1:24 AM | Permalink | Comments (0)

It's been a very rocky road for the financial markets the last month or so.

But as is always the case -- the real story of any story is the human story.

Last week while I was still in Texas, I had an email from a longtime reader who is a First Officer with American Airlines.

The reason for his note? He and his wife had decided that they are going to sell the 1.3 acre lot they purchased years ago -- where they were going to build that bigger, better "Captain's" house -- because, as he put it, that just isn't going to happen now.

His question to me -- would I be interested in buying the lot?

Ah, no. I'm not even sure how much it was. All I know is that it was in Southlake. That was enough to tell me that it was too expensive for me.

Another friend of mine who works at Centerport (American headquarters) has started riding the Trinity Express to work. (The railroad runs between Ft. Worth and Dallas.) Another friend in Phoenix has sold his gas guzzling SUV. He now has a Camry. He's not happy. But his spirits are lifted when he compares his monthly gas bills. As he works at PHX and drives in from Cave Creek, which is in far north Phoenix, that's a long haul -- and he's seeing some notable savings.

Another person I know who works for Northwest and who is looking at a probable move to Atlanta is thrashing around over the decision. He wants to go. But his wife has a great job in Minneapolis. Then there is the problem of the difference in housing costs -- the horrible real estate market in general.

Let's face it -- it's not the best time to be trying to sell a house. Especially in the cold of a Minnesota winter.

Then there are the folks who are simply leaving the industry. In droves. And for most of them, a higher paying job is not that hard to find.

Airlines themselves are trying to offset higher costs by decoupling services and adding fees.

But as individuals, it's kind of hard to do that.

So my question for you this Friday night is this: What are you doing, or what have you done lately, in response to the current financial situation? Has it affected you? Has it not really made that much difference?

Send your rants, your thoughts, and your comments to me. I'll get back to you next week on what you've had to say.

Posted by Holly at 8:52 PM | Permalink | Comments (0)

It's Friday and Wall Street is up to its volatile tricks again today. Should be interesting to see where the numbers end at the close of the day.

Meanwhile, Continental Airlines and Southwest Airlines reported their third quarter earnings Thursday.

The Cliff Notes version of the results?

The numbers for both airlines -- on their face -- were very weird. Just as we saw yesterday with American and Delta. Weird in that with capacity being pulled out and oil prices through the roof for much of the third quarter, we again saw cost per ASM figures solidly in the double-digit category for both airlines.

But revenues were also up -- especially at Southwest.

Continental reported a loss of $236 million or $2.14 a share. Excluding $91 million of previously announced special items, Continental recorded a net loss of $145 million or $1.32 a share.

Southwest's numbers are a bit more complicated to break down -- as a result of the airline's fuel hedges.

Southwest reported net income excluding special items and SFAS 133 unrealized gains and losses of $69 million. Or $0.09 a share. This was two cents better than analyst consensus.

However, because of the drop in the value of crude oil, the airline had to write down the value of its fuel hedging transactions. (That is the bulk of that "SFAS 133 unrealized gains and losses" accounting mumbo jumbo up there.)

When you factor in those write-downs, the airline lost $120 million for the quarter, or $0.16.

That's right. All those great fuel hedges the airline has stocked up on aren't so great when the price of oil begins to plummet.

As for honest-to-gosh cash in the bank? The airline ended the quarter with $1.5 billion. With an incremental $200 million of a revolving credit line still available.

Four fully detailed reports on the earnings results from American, Continental, Southwest, and Delta Air Lines will be included in this week's PlaneBusiness Banter.

Posted by Holly at 11:38 AM | Permalink | Comments (0)

Both American Airlines and Delta Air Lines kicked off the earnings season this quarter by announcing third quarter earnings today.

The results?

Not especially heartening -- yet, as analyst Jamie Baker with JP Morgan wrote this morning -- third quarter results are going to be somewhat of a major aberration. Or as he said, "3Q jet fuel averaged over $1.00/gallon higher than today’s spot, the industry hadn't undertaken unprecedented capacity cuts, and demand had yet to reflect the most recent global malaise. As such, we broadly consider 3Q industry results to be irrelevant, offering little to no insight as to the industry’s 2009 profit potential."

Delta Air Lines reported a loss of $50 million, opposed to a profit of $220 million last year, while American Airlines reported a loss of $360 million. This compared to a profit of $175 million last year.

Yes, the airline DID lose that much.

Headline numbers are touting the fact the airline posted net income of $45 million, but that number includes a huge one-time gain and other items. That one-time $432 million gain came from the sale of American Beacon Advisors.

Posted by Holly at 12:04 PM | Permalink | Comments (0)

In addition to announcing earnings today, American Airlines announced that it has entered into a purchase agreement with Boeing, under which American intends to acquire an initial 42 Boeing 787-9 aircraft scheduled for delivery beginning in 2012 and ending in 2018, with the right to purchase up to 58 additional 787 aircraft that may be scheduled for delivery beginning in 2015 and ending in 2020.

Posted by Holly at 11:42 AM | Permalink | Comments (0)

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

Posted by Holly at 1:29 PM | Permalink | Comments (0)

United said in an SEC filing late Friday that Jake Brace, United Airlines' CFO, will be paid $2.42 million after he retires at the end of the month.

Brace will receive two times his $653,125 salary and $555,156 target bonus.

In exchange, Brace agrees not to take a position with a competing airline for the next two years "without consent of the company." (No, I'm not saying a word, although the temptation is great.)

It's so nice that Jake will be paid this lovely parting gift. Dontcha think? I'd hate to think he was going to leave the airline empty-handed.

Posted by Holly at 4:53 PM | Permalink | Comments (0)

It's official.

The Dow Jones Industrial Average posted its worst week in history this week.

The average had its worst week on record in both point and percentage terms, as did the Standard & Poor's 500 index.

The Dow Jones Industrial Average, after starting the day down more than 700 points, finished down only 128 points, but it was one wild road in between.

Over the last eight days, the Dow has lost just under 2400 points.

As for airline stocks, it was also a volatile mix today as several airlines stocks posted record-breaking one-day gains. But we had some losers in the bunch as well.

On the huge plus side for the day, shares of Republic Holdings picked up a whopping 29% today. Yes, you read that correctly. Shares here closed at 8.94.

But wait -- we had one airline stock do even better. Shares of Alaska Air Group shot up 31% on the day, closing at 18.80.

Shares of US Airways also had a great day, as shares here were up 27%, closing at 4.60.

AMR, parent of American Airlines saw their shares pick up 20%, closing at 8 bucks even.

AirTran also had a good day, as shares here picked up a nice 18%, closing at 1.96.

Shares of SkyWest didn't have a bad day either, as shares here shot up 17%, closing at 13.75.

On the loser side, we really just had a small handful of notable drops for the day.

Shares of Pinnacle were down 10%, closing at 2.37, while shares of Mesa dropped back 15%, closing at 25 cents.

Embraer and Bombardier didn't have good days either -- not surprising considering the action in the market as a whole. Embraer shares closed down 8%, ending the week at 17.20, while shares of Bombardier closed down 16%, ending the week at 3.50.

And, last, but by no means least -- where did crude and jet fuel end up today?

Crude futures closed at 77.70, down 8.89 on the day, while the average spot price for jet fuel closed at 2.33, down 21 cents on the day.

Taken by itself, this would be great news for the things with wings.

Unfortunately, there is that elephant that is blocking the view to the nice new HD flatscreen -- the rest of the financial/economic mess on a worldwide basis and the recognition, finally, that no, this is not just a little "subprime" mortgage problem centered in California, Arizona and Florida.

Posted by Holly at 4:13 PM | Permalink | Comments (0)

"Hi Holly, Its 2:05pm on Friday MDT, 4:05 pm EDT. I am sitting in the President's Club waiting for a delayed LH. The delay allowed me to witness a spectacle. At about 1:59 people started getting up and gravitating towards the TV screen by the bar. It wasn't a scandal, it wasn't an assasination, it was the closing bell in New York. The bell rang at 2pm local and half the room walked over to see the news (flat). You'd think the Superbowl was on though people's faces weren't quite that excited.

Posted by Holly at 3:45 PM | Permalink | Comments (0)

It's Friday and it's already been another rough day in the financial markets.

You guys are smart folks. You knew this was going to be the case.

The Dow Jones Industrials are now down another 275 points or so, after a sharp drop of almost 700 points at the open.

Okay, enough of the bad news.

Yesterday analysts Jamie Baker and Mark Streeter with JP Morgan issued a research note in which they wrote, "We’ve never witnessed such a disconnect between fundamentals & equities. True, AMR & CAL treaded water for a month after DAL & NWA filed, despite Ch11 plans to cut capacity by an amount sufficient to restore industry profitability. But nothing we’ve experienced comes close to explaining a recent $5 share price for United, considering we expect it to earn something similar (untaxed) in 2009."

As I talked about in PBB this week, with the price of oil dropping like a rock, there is no logical reason for the corresponding battering of airline stocks.

And yes today, the price of oil continues to drop like a rock. As of this posting, the price of crude is trading at around $80 bucks and change. Yes, $80.

And no, this is no mystery. If the world is heading into a recession, the price of oil has to come down. It's simple economics. No voodoo speculative manipulation involved in this drop whatsoever.

In Jamie and Mark's note, they also said, "Sure, oil could ruin the forecast – We readily admit that unprecedented demand declines coupled with $140 oil would support multiple bankruptcies. But it is difficult for us to reconcile the implied global economic backdrop of this scenario with sharply higher oil. Always a risk, but a poor base-case assumption, in our view."

They continued, "Simply put, we are having a tough time modeling losses – Fundamentals appear to be going one way, equities the polar opposite. Perhaps seasonality comes to the rescue, perhaps the flight to quality eases and redemptions moderate, or perhaps investors simply need more time to accept the profit implications of an industry rolled back to its 1998 size while enjoying fuel prices below those of last year. In any event, our conviction in 2009 profitability and bullishness for legacy equities has yet to waver and exceeds that of any prior point in our career."

I agree.

Then again, with what is going on with Wall Street right now, maybe the thought of airline stocks being a potentially screaming "buy" opportunity is the least of what is top of mind of most investors right now.

Posted by Holly at 10:07 AM | Permalink | Comments (0)

I had an errant thought yesterday as I watched the Dow fall and not get back up again.

And that thought concerned pensions. And the airlines that still have pension plans for their employees.

Remember that the last time the airline industry had to deal with the "pension issue" was following the market meltdown that followed the "internet bubble" that burst in 2000.

(If you note a bit of sarcasm in that description...good.)

Going into 2001 and 2002, airlines were suddenly looking at pension plans that required more and more in cash infusions -- because the value of the underlying securities in the pension funds had declined so precipitously.

Rewind the clock. Start it over again.

We are now looking at exactly the same situation. With equities in a free-fall -- all pension funds are gasping for air.

Tuesday, Congress' top budget analyst estimated that Americans' retirement plans have lost as much as $2 trillion in the past 15 months. And you can add more to that total, because you can bet his number crunching did not take into consideration the free fall in the market during the last two weeks.

Public and private pension funds and employees' private retirement savings accounts - like 401(k)'s - have lost some 20% overall since mid-2007, said Peter Orszag, the head of the Congressional Budget Office.

So just a little red flag for the radar screen.

Airlines such as American Airlines and Continental Airlines that have worked hard to keep their employee pension plans in place are going to face tough times ahead -- as pension plan funding requirements balloon.

Then again, an airline like United, which was successful in blowing up its employee pension plans as part of their bankruptcy proceedings, won't have to worry.

Something just doesn't seem right about all this, does it?

Posted by Holly at 1:06 PM | Permalink | Comments (0)

Sun Country Airlines, and its parent company Petters Aviation both filed for Chapter 11 bankruptcy protection today.

"We were forced to take this action as a result of recent events at Petters Group Worldwide," Sun Country CEO Stan Gadek said in a prepared statement.

The move comes after former Petters Chairman Tom Petters was arrested last week on charges of mail fraud, wire fraud, money-laundering and obstruction of justice.

Posted by Holly at 4:06 PM | Permalink | Comments (0)

In case you've been occupied with feeding the cat, doing Sudoku, or eating a late lunch, the world financial markets are one big mess today.

So much for the power of politicians in Washington to snap their fingers and hope that the rest of the world simply agrees to sit back and let Treasury Secretary Hank Paulson do his "magic." A couple of problems with that $700 billion gift from the U.S. taxpayers that Congress okayed last week. One, it's going to take weeks before any of that buy-back of crappy debt even begins. Two, credit markets are frozen NOW. Third, now world markets are starting to unravel.

Which brings us to the big news if you are an airline investor, or someone who simply owns shares of your own airline that you work for.

Not only are world financial markets one big mess today -- but airlines stocks are getting hit very hard.

You'd think that with the price of oil now down below $90 today that investors would be snapping up airline shares right and left.

After all -- think of the potentially lethal profit cocktail we have going on -- sharply lower fuel costs on their way, coupled with sharply reduced capacity. It would seem like the perfect recipe for higher airline stock prices.

Unfortunately that is not how the market is thinking today. Then again, the market is not thinking very clearly about much of anything. This is definitely one of those days when fear rules.

As for the airline sector, the biggest decliners as of this posting include: United, which is down 18% at 6.68, Continental Airlines, down 20% to 12.15, Republic Holdings down 16% to 7.86, AMR, parent of American Airlines, down 18% to 7.65, and US Airways, down 14% to 5.58.

Posted by Holly at 1:03 PM | Permalink | Comments (0)

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

Posted by Holly at 11:05 PM | Permalink | Comments (0)

Posted by Holly at 3:24 PM | Permalink | Comments (0)

Gary Kelly, Chairman and CEO of Southwest Airlines announced minutes ago that the airline will begin service out of Minneapolis- St. Paul in March 2009. The airline says it will initially begin service to Minneapolis from only one airport -- Chicago Midway.

Posted by Holly at 3:00 PM | Permalink | Comments (0)

Don't faint.

Southwest Airlines plans to unroll a new customer email system in early 2009.

As many of you know, the airline has steadfastly remained without an email customer service method of communication.

If you wanted to complain to the airline, give them a compliment, or simply ask a question -- you could not send the airline an email. You had to sit down and write them an old-fashioned letter. Yep. With a stamp.

No more.

Starting early next year the airline will finally have a customer email alternative.

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

It's Media Day at Southwest Airlines.

For a blow by blow account of the festivities, you can check out Terry Maxon's blog. He's posting like a mad man. As usual.

Not surprisingly, the most interesting presentation for me this morning came from Southwest's SVP of Marketing and Revenue Management, Dave Ridley.

Some of you may remember that Dave tried to retire in 2006, but that didn't last long.

I have to thank Dave for acknowledging my efforts in getting the airline to change the name of their fare classes. You may recall that last year I said, right off the bat, that the airline's decision to show customers three fare classes, with the first two dubbed "Business Select," and "Business" was a mistake.

After four months of me harping on the subject, Southwest listened. And they changed the name of the fare class "Business" to "Anytime" fares.

Dave, your acknowledgment of our suggestion was most welcome. Glad I could help.

My latest rant has been whether or not the airline's decision to dig in its heels on the "No Fees" marketing strategy will eventually come back to haunt them.

A couple of notes from comments we've heard so far from the folks at Southwest.

One, if not enough customers get "mad enough" nor are "smart enough" to make the choice for "no fees" rather than paying for all those pesky fees, Southwest would consider changing course.

So it's up to the customers. If enough of them switch, and the airline's revenues reflect that fact -- I think the message is that the airline will continue with its current campaign.

If not -- the airline has been pretty clear that it will consider shifting gears.

Now -- there is the matter of wi-fi. Yes, the airline is going to start experimenting with its Row 44 product before the end of the year. Will it be free? Ah....no. But the airline has not decided how it is going to price the product. But it sounds like it is going to be a sliding scale, based on the length of flight. As Dave said, "After all, if you're talking about Dallas-Austin, you're not going to have more than 20 minutes or so in the air when you can use it."

More later.

Posted by Holly at 11:58 AM | Permalink | Comments (0)