Monthly Archives: July 2008

Continental Airlines Swings To Loss for Second Quarter

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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.

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Delta Air Lines Blows Past Analyst Estimates

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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.

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American Airlines: Ah….It Could Have Been Worse?

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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.

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United Airlines Has Its Priorities Straight: The Swans Now Have a Name

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.

Swans

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'”

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Happy Hump Day: Earnings, Wall Street Gyrations and Potential Bankruptcy Chatter

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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. 

It’s that time again, Delta first up for quarterly earnings

skydollar.jpgIt’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.”

Marketing versus Survival

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.Yogurt1.jpg
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.
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Reregulation Regurgitation

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.DSC03885.JPG 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.
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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.

Frightful Friday on Wall Street: New Record Oil and Mortgage Biggies Collapse

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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.