Monthly Archives: April 2009

Southwest Airlines: Not Overly Impressed With First Quarter Stats; Neither is S&P

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Thursday Southwest Airlines announced its first quarter earnings. Clearly the big headline grabber here was the fact the airline posted its first loss (no ifs, ands, or buts, much less special charge excuses) in 17 years.

The airline lost $91 million in the first quarter, or $0.12 a share. That amount included a loss of $71 million due to the falling value of its fuel hedges.

Without the fuel hedge losses, the airline posted a loss of $20 million or 3 cents a share.

Analyst consensus had the airline posting a loss of a penny, so the loss was more than analysts had expected.

Worse, CEO Gary Kelly said in the airline’s earnings call that RASM, which declined 2.9 points in the first quarter, could take an even bigger hit in the second quarter.

The airline also announced that it was offering a buyout to virtually all employees, had instituted a hiring freeze and was freezing pay for its top execs.

A couple of observations. One, I know more than one Southwest Airlines Captain who, for the most part, sat around eating bon-bons for much of the first quarter. And yet, the pilots at the airline were just given a tentative agreement that, if anything, sweetened the pot. It doesn’t take a mathematician to figure out that the costs involved in having more pilots than the airline needs right now is costing the airline a pretty penny.

Two, while the airline can offer buyouts to employees — the timing is not exactly the best for this kind of move, as the airline’s employees have seen the value of their Southwest Airlines‘ shares in their 401(k) accounts fall precipitously over the last year.

So while I applaud the airline for attempting to right the downsizing ship by natural attrition and voluntary departures, I’m afraid I have to wonder if these measures are going to be enough.

Three, I still think the airline’s growth plan is too aggressive, it’s capital spending plans too ambitious for 2009.

Third, I’m not the only one.

This morning Standard and Poor’s put the airline’s debt ratings on Credit Watch with negative implications. As we all know, this move is usually a precursors to a ratings cut.

S&P put Southwest’s “BBB+” rated long-term corporate credit rating on negative Credit Watch because of 1) the airline’s first quarter performance, 2) it’s forecast for its second quarter revenue and 3) the fact that the airline has added more than $700 million in debt since just late last year, increasing its interest expense.

This increase in debt is a direct result of the airline having engaged in aircraft sale-leasebacks in an attempt to increase its liquidity.

I would add that this amount is only going to increase in the second quarter. As I reported in a recent PBB, there is yet another traunche of sale-leaseback financing in the works with BOC Aviation that is set to close in the second quarter. BOC has handled the bulk of the airline’s recent sale-leaseback transactions.

Note that anything below “BBB” is no longer considered “investment” grade. It then falls into the “junk category.”

My gut feeling is that we will see Southwest lose its lofty “investment grade” debt rating status before this downturn is finished.

Allegiant Air Pre-Announces Earnings

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Late Tuesday Las Vegas-based Allegiant Air pre-announced that it will report earnings for the first quarter of between $1.34 to $1.38 per share.

This estimate is far above the then-forecast estimate by analysts for the airline — which had estimated the airline would post a profit of $1.20 a share.

The airline will report earnings this coming Monday.

So why the uptick from previous company guidance?

Analyst Dave Fintzen with Barclays, who recently initiated coverage of the airline’s stock (we talked about his recent research note on the airline in the latest edition of PlaneBusiness Banter) said today that because the airline gave no details other than the higher EPS estimate, it’s a bit hard to know where the better performance for the airline was. Although he assumes it was all on the revenue side, with revenue probably outperforming even the previous management guidance.

So what is Dave going to be looking for when the airline reports on Monday? Any feedback on the airline’s booking trends in its new markets, especially Los Angeles, in addition to any updated information on where the airline is going to grow now — as we move into the second quarter and third quarters.

AMR, Parent of American Airlines, Posts $375 Million Loss

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Today AMR, parent of American Airlines reported their first quarter results.

What is it they say — it’s all about managing expectations.

And in the case of American’s first quarter numbers that were released today, that is exactly what management did — as the airline had just recently warned Wall Street that its first quarter numbers might not be as strong as first expected.

As a result of that guidance, analyst forecasts were then lowered.

Previous to the airline’s announcement today, the analysts’ consensus forecast a loss of $1.62 a share.

So today, when the airline reported a loss of $375 million or $1.35 a share — the shares of the airline took a nice bounce, gaining 19% on the day, closing at $5.01.

The reason for the better-than-expected numbers? Operating costs were down a bit more than forecast and RASM declines were not as sharp as previously indicated.

American’s stock was not the only airline stock that picked up some ground today — comments the airline made in its earnings call helped push up other airline stocks as well, as CEO Gerard Arpey indicated that the airline is not seeing any “further deterioration” as those in the revenue world like to put it. But, just as Alaska Airlines indicated in an SEC filing last week, Arpey said that American is also looking at May and June bookings that are off noticeably from this same time last year. He said that May and June bookings are off by about 2 percentage points.

This percentage drop is more or less in line with what Alaska reported last week.

AMR ended the quarter with $3.3 billion in cash and short- term investments, including $462 million that is restricted.

Thanks!

Sorry folks. Have been tied up almost all day. Just got back online and thanks for all the emails and comments on the ASA photos! See, just goes to show you what happens when you believe what a pilot tells you.

Ahem.

All I can say is this. Even though it wasn’t apparently a lightning strike, it still would have certainly gotten my attention. Whew.

Atlantic Southeast Airlines Lightning Strike: This Would Get Anyone’s Attention

Thanks to one of our American Airlines‘ pilot friends who sent us these photos this morning of an Atlantic Southeast Airlines/Delta Connection aircraft, after it suffered a lightning strike.

If these photos don’t scare the you-know-what out of you, I’m not sure what would.

As he said to me in his note, “Wonder what the Captain’s seat cushion looked like after this…”


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When Technology Craps Out

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[Editor’s Note: Talk about technology crapping out. It wasn’t until I went to post the note about the Banter being posted that I realized this was NEVER posted on Sunday!

I finally found it — posted on March 23.

Can I just tear the rest of my hair out now?

Then again, I have been so absorbed with techo issues for four days straight that until someone called me last night, I had forgotten the NCAA finals were on television.

I know. It’s sad. Very sad. 😉

But there’s hope. I’m off to get my new logic board!]

How many of you have ever found yourself in a position where some form of technology failed you? A piece of software….a computer…. A gadget of some sort?

If you’ve ever been in that situation you’ll understand when I ask the question,”Why is it that they always decide to quit, break, or stop working just when you need to use it the most?”

It’s Sunday and as usual I should be wrapping up this week’s issue of PlaneBusiness Banter. One problem. My laptop’s display unit died last night. No see. No write. No nothing.

The good part? The friendly folks at the Apple Genius Bar were able to determine the problem this morning. Even better, Apple is picking up the tab to fix it.

The bad part? I was told to come home and clone my hard drive and bring the computer back in … TOMORROW. And the new display unit won’t be in stock until TUESDAY.

So here I sit with external drives daisy chained and two laptops chugging away ( had to use target disk mode to boot up the MacBook Pro because… Well…..there is no display!)

Meanwhile I sit and twiddle my thumbs and contemplate what kind of happy pills Apple must give those guys who work the Genius Bars. I don’t see how they do it. And how I’m going to try and get an issue written.

And….how am I going to get all this done and be back to the Swamp to take my Dad for eye surgery at 6 a.m on Tuesday?

As the guy at the Apple Store said…”There are always Margaritas.”

PlaneBusiness Banter Now Posted

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

My apologies. This week’s issue was delayed because the logic board failed in my laptop Saturday night. Sigh. However, the Apple Store just called, the logic board is in, as promised, and hopefully this means all techo issues will be resolved soon.

Verizon FIOS is the Winner

Wow. Thanks to all of you who have written me about your experiences with cable/satellite/fiber choices in the DFW metro area. The clear choice of my American Airlines’ pilot readers who wrote me is FIOS. The clear choice of everybody else is ….FIOS. So no need for a vote of no confidence here.

There were also a few U-Verse fans thrown in here and there, along with those fanatics (and I admit, I’m on that border as well) who have a combination of satellite and cable. But those folks usually are in areas where the new fiber options are not available. In case you don’t understand why someone would do this — you’d have the cable for the fast internet capabilities, and back-up television viewing for when the hail starts to beat the crap out of the satellite dish.

And yes, I now am very well versed in the difference in technology between U-Verse and FIOS. With U-Verse, ATT brings new fiber to a switching location, and then the information is sent into the house using the old copper. But with Verizon FIOS, they bring all new fiber right to the house.

Technologically speaking, that seems the better way to go — especially as all of us are only going to want more and more bandwidth going forward.

Thanks again!

A Question for My North Texas Readers

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It’s official.

The Worldwide Headquarters of PlaneBusiness is moving to Texas, effective May 18th.

I guess I should say moving back, as Dallas is where PlaneBusiness was born in 1997.

As Delta Air Lines ALPA MEC Chairman Lee Moak and I talked about in Phoenix recently, I will always love New Orleans. And just as much as I love it, I hate it. Anyone who has lived there knows what I mean. A love/hate relationship with the city is normal. (Lee and his wife also live in New Orleans.) And yes, he chastised me severely for leaving. He also shared his Katrina stories.

But enough of my New Orleans angst. It will always be with me. Besides, PlaneDad is still over there. It’s not like I won’t be returning on a regular basis, thanks to those canyon blue birds that fly between here and there with the frequency of a shuttle operation.

So here is my question for those of you who live in the Grapevine area of DFW. What internet/cable/satellite combination are you using and what would you recommend?

I’m using the Time-Warner combination at the WWH branch office in Las Colinas now, but only because it’s my only choice.

Clearly reliable high speed broadband connectivity is top priority, with a good HD selection second.

FIOS? Time-Warner? DISH and a DSL line? Direct and a DSL line? ATT Uverse?

Either drop me a line personally (hhegeman at planebusiness.com) or post your recommendations below.

Thanks!